Anything But Textbook

• November 20, 2001
• Dave Floyd

Selectivity
was the operative word yesterday. If you stuck with it as it applies
to your trading plan, you probably fared well, if you got a bit sloppy or gave
into whims, your performance probably suffered. Intraday volatility was again a
bit muted, but an early morning and late-afternoon rally were all you needed to
make a day of it. The mid-morning session which took us to the lows for the day
was next-to-impossible to scalp, given it was mid-day.

I did only eight “scalp”
trades yesterday, a very low number. However, given the market conditions
lately, it was all that was needed to come out ahead when all was said and done.
Given that the action was bullish in the early going, I stuck with the strong
sectors, banks and retailers. In this market, you need all possible edges
pointing your way. No buying the laggards thinking that they will have to play
“catch up.” There was also an obvious bias towards the
“large” stocks, as the speculation in the SOX components took a
breather for a day.

One of my trades in Bank
of America
(
BAC |
Quote |
Chart |
News |
PowerRating) is depicted below in the one-minute chart. While
the trade looks relatively “textbook,” I can tell you that the price
action involved while in the trade was anything but. A common occurrence
nowadays is erratic bid/ask levels. Suddenly, there may be a .30 or .40 cent
spread in the stock in the opposite direction of the futures, but nothing ever
prints there. More than likely it is a tactic by the specialist or floor broker
to see if they can shake out some weak hands. Secondly, lots of stock is being
traded at each price level. While the offer or bid may show only a couple of
thousand shares, routinely 5,000-10,000 shares will trade at that level before
going higher or lower. All in all, a gut-wrenching and patience-testing process.

I will let all the games be played. I
have seen most them by this stage in my career. As long as the market (the
futures) are moving in the direction I had anticipated, I will hang in on the
trade. One thing you cannot do in this market though, is hang in there for the
“big” move, there just are not any. If the trade only offers you .10
or .15 cents, take it. You cannot be a pig in this market. Trading like a
sparrow is the only way to survive until the market gets back to a more volatile
state.

Looking ahead, I suspect that the
market will be active through today, but die off after tomorrow morning’s
session. Trading on Friday (the day after Thanksgiving) is typically an exercise
in futility, at least from a historical standpoint. Liquidity is non-existent,
so that leaves you against the specialist or market maker, and we know who wins
that battle. Spend some quality time with friends and family and come back
refreshed on Monday. That being said, I will only be providing KTNs
for tomorrow and will not have a column again until Monday.

Key
Technical Numbers

One last thought, do not fight the
trend, this market is too challenging to try and call reversals with any real
accuracy. As always, feel free to send me your comments and questions. See you
in TradersWire.

Dave