How To Improve Your Feel For The Market
What Tuesday’s Action Tells You
The 8:30 a.m. ET economic report wasn’t “gamed”
yesterday, as the SPX
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the time, except the
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PowerRating) which was just slightly green. The media was
hyping the report up, but there was no response from institutional order flow.
The 10:00 a.m. report hyped up by the media as “better than expected,” etc.,
“recovery on track,” resulted in a quick knee jerk up to 993.75 on the E-mini,
then down to close at 987.25 off a 986.25 low on that 10:00 a.m. bar. The E-mini
traded down to an intraday low of 982.50 on the 10:20 a.m. bar. This was the
zone to look for a reversal entry pattern because the 1.0 volatility band for
the SPX yesterday was 984.82, the 50-day EMA 983.12 and the SPX low was 983.57,
as the E-mini made the 982.50 intraday low.
After taking long entry above the high of the two
narrow-range bars following the intraday spike low, the major indices went dead
for the next three hours. The NYSE floor was absolutely quiet, brokers standing
around their posts, and very small institutional order flow. Net net, there was
no institutional response to the economic reports the media was hyping up. In
fact, the SPX traded in just a 1.4 point range between 986.53 and 984.94 from
10:45 a.m. to the 1:35 p.m. bar. Now don’t you think if the Generals thought
those reports were a new positive that there would have been some aggressive
order flow rather than a 1.4 point SPX range for three hours following the
reports? Do you think that they just decided to love stocks at 2:20 p.m. and
started buying? Hardly. The SPX traded 2 points above its narrow-range Slim Jim
starting at the 1:35 p.m. bar through the 2:20 p.m. bar, which is when the
program lights lit up, and the SPX went on a 10 point run into the 996.73 close.
This, of course, was defined by the media as the
positive response to the economic reports and the advance in the long bond which
started on the 10:00 a.m. bar for the TLT (the long bond proxy). I guess the
empty suits think that the so-called “strong economic reports” lead to lower
rates. Don’t think so, folks, as evidenced by our highly successful position
trade of shorting the TLTs against index proxy long positions taken at or near
the lows. Net net, the bonds are oversold. Period.
Once the programs accelerated price to the
upside, it forced some buyers to chase, especially any shorts, because those
July high magnets for the Dow and Nasdaq are sitting ducks if taken out,
creating a second-entry move above those July highs which will force buyers into
the game.
For Active Traders
If you played the Slim Jim breakout yesterday
forced by the programs, you did well. If you initiated longs in, for example,
the E-mini futures or the
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timed out with the three-hour 1.4 point SPX Slim Jim range. When you play for a
reversal from an inflection point and it doesn’t happen relatively soon after,
then you should just close the trade and wait for a re-entry when there is a
definite market dynamics reason to support your next decision. For example, the
intraday dynamics sheet some of you seminar veterans are now keeping, gave you a
clear picture of those dynamics preceding the afternoon 10 point spike initiated
by programs.
Through the 10:00 a.m. hour, the SPX was running
at -2 points, Dow -16 points, QQQ -0.9%, SMH -1.4%. All sectors were red, as
were the TLTs. From 10:15 a.m. through 12:45 p.m., the SPX was trading from -7
to -10 points, the Dow -61 to -80, QQQs -1.5% to -1.9%, SMHs -2.0% to -2.6%.
TRIN was between 1.11 and 1.56, while the advances minus declines were
-1300 to -1100. Total NYSE volume at 10:30 a.m. was 174 million, which is a run
rate of 1.1 billion shares, and the final actual turned out to be 1.17 billion
shares. The volume ratio ended at 64 and breadth +237 after the reversal in the
afternoon.
If you follow the intraday dynamics closely, your
trading will improve greatly, as will your market feel and understanding of what
really transpired during the day. I have included a chart of
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was an excellent opening reversal yesterday. This is one of my First-Hour
Reversal strategies explained in both the module and seminar material.
As you can see on the chart, MERQ opened at 42.65
below the previous day’s closing range, which was also a Slim Jim. It traded up
to 43.04 on the 9:40 a.m. bar, taking out the previous day’s 43 high. It then
reversed down below the closing range and below the 42.65 opening and low, which
was also below all of the EMAs, as you can see on the chart. It was non-stop to
41.36, then went sideways in a Slim Jim between 41.56 and 41.37. The breakout on
the 1:30 p.m. bar (not shown on the chart) carried MERQ back up to a 42.39
close. MERQ, as you know, is one of the focus stocks, so it is on the daily
scroll list, and that’s how you pick up the pattern as it sets up.
Today’s Action
It’s a holiday week, which will continue to mean
reduced liquidity, in that the indices/individual stocks can be muscled without
much effort. Upstairs trading desks, markets makers and NYSE specialists won’t
be getting in the way for the rest of the week and don’t want much inventory
carried over the long weekend. The immediate obvious magnet is the 9353 July
high on the Dow, which closed at 9340.45 and the 1776 Nasdaq July high, as it
closed at 1770.65 yesterday. Both of these would be second entries above a
previous rally high, so don’t be aggressive today on the short side if they are
taken out. Watch your dynamics so you know how strong the move is if they are
taken out and you might go with it with tight stops.
Have a good trading day,
Kevin Haggerty
