Tuesday, February 20, 2007

Tuesday, February 20th Morning Market Comments

9:58 AM - Well, the takeaway for the day is to know recent history and how the buying and selling you're seeing *now* compare to that history. It's when we see shifts from recent trading that markets make meaningful intraday tops and bottoms. We saw a nice example of that today. Hope this has been helpful; have a great rest of your day. Wrap up tonite on the Weblog.

9:50 AM - We returned to the thick of the recent trading range and volume picked up nicely on the buying. Those pullbacks in TICK will continue as buying opportunities as long as we sustain the positive TICK distribution and stay above the recent lows at 1454 in ES.

9:46 AM - Sure enough, we got a pullback toward -400 TICK, but now we couldn't make new price lows and buyers came right back in. You can see how the market transitioned from sellers to buyers with the shift in the TICK. Great tell. Back to wrap up shortly.

9:40 AM - Notice how the distribution of the NYSE TICK up to 9:09 AM CT was quite different from how it has been since then. Once we broke to new lows, we found buyers and not an avalanche of sellers (the TICK never hit extreme negative levels). Recognizing those shifts is key to short-term trading. We had shifted down relative to Friday to start the day, and that's what led me to be short. I still leaned short after the shift upward in TICK, but I've had to pull in my horns with respect to selling bounces, because those bounces have been sustained. If we can put in a bottom here, I'd expect buyers to return us to the midpoint of the Friday range as a target.

9:29 AM - Note that we, indeed, have sustained buying in TICK and it is showing up in ER2 strength. Note also that ER2 did not take out Friday's low--an interesting divergence. Watching to see if TICK pullbacks now start coming on higher price lows, which would signal us for buying and a return to the prior price range.

9:21 AM - Nice bounce in the TICK; the question, however, is whether we can sustain that buying. I continue to have doubts, but need to see bounces on weaker TICK strength to confirm.
9:11 AM - Seeing a touch of relative strength in the semis; held above their prior low on the recent selling. Also seeing a little more strength in the TICK and ER2. I'm still leaning toward selling bounces until we see a recent high from a previous TICK bounce taken out.

9:07 AM - Note also how volume has really picked up on the declines. Need to see volume pick up on a bounce to show us that large traders are finding value at these lower prices. Otherwise, you just keep shorting those bounces in TICK.

9:04 AM - Clear breakouts from Friday lows in ES and NQ. TICK distribution very weak if you follow the reasoning from my recent article. It took an average TICK reading of about +400 to sustain the neutral trending mode (trading range) over the past 3 days. When we couldn't sustain readings above that level, it was clear that there was not enough buying in this market. That, with the semi and ER2 weakness, kept me leaning short early on.

9:01 AM - Took some more profits, but again ready to reenter

8:51 AM - I'm using these TICK bounces to short ER2 and ES until we see signs of sustained high TICK that can make relative price highs.

8:46 AM - Took some profits, but very ready to reenter on short side if selling accelerates.

8:40 AM - These are actually weak TICK readings; more on that in a bit. Nice tell from ER2 and semis. Need to see if volume picks up on weakness, or if we'll dry up and return to the thick of the recent trading range.

8:35 AM - Volume modest in ES; no substantial institutional involvement to this point relative to usual. Consistent so far with range bound market; I'm short a bit of ES here and looking to add on TICK bounces that fail to take price higher.

8:33 AM - Keeping an eye on early weakness in ER2 and SMH. Will be short this market if that persists.

8:28 AM - This Market Delta chart goes back to Friday, with 10 price ticks per bar. You can see the narrow value area (left Y axis) and the narrow trading range. We're handicapping the odds of a break out of this range today by tracking NYSE TICK, volume, and volume distribution.

8:20 AM CT - And a good morning following a long weekend. The three averages have all established very clear resistance levels over the past three trading sessions and most recently failed to breach those levels in Globex trading on the holiday morning. As a result, we're pulling back well into the trading range over those several days. It would not at all surprise me to test the lows of those ranges, and I will most likely be selling bounces that fail to take us above the recent pre-opening high of 1460.50 in the ES contract. Some good reading over the weekend, with several best practices posts. Pivots are posted on the Weblog, along with a link to a PDF of collected "classic" articles. The Weblog also notes some deterioration of internals during the market's recent consolidation that also has me looking to the downside. No major economic releases scheduled for today; tomorrow we have CPI. Oil lower so far today; 10 year rates back above 4.7%. Back after the open.