Make Sure You Have These Indicators
Another week is upon us, and still we face the same
dilemma: Little conviction in the market, and to add to that, volume
tapering off. However, like a coiled spring, each day brings us closer to better
trading action. Nonetheless, there are always a couple of opportunities each day
if you are patient.
I was reading a couple of pieces this weekend in The
Financial Times which I thought underscored the current malaise in
the market. The columns talked about the declining trading volume and the rise
of program trading. I cannot attest to the accuracy of the data cited in the
article regarding program trading, however, it is something to take note of. The
recent price action intraday can certainly be explained by a rise in program
trading. Programs come in regardless of what the charts are indicating. The
erratic nature of the moves intraday is testament to programs as well as overall
skittishness and lower volume. The article cites:
“But putting too much store on volume figures can
be misleading. Somewhat surprisingly, the busiest day ever on the NYSE was not
during the bull market, but July 24 last year, when 2.81bn shares were traded.
When the NYSE reopened on Sept. 17, 2001, on the Monday after the terrible
Tuesday of Sept. 11, volume reached a patriotic and at the time
record-breaking 2.36bn. But it was overtaken on five occasions in 2002.
“They can also be uninformative, for another
reason — the rise of program trading. This is a growing and profitable part
of the daily business on the NYSE, Nasdaq, and many other securities markets.
The NYSE measures it as portfolio-trading strategies involving the purchase or
sale of a basket of at least 15 stocks with a total value of $1m or more.
According to NYSE figures, program trading
accounted for an average of 39.2 percent of volume for the week of Feb. 3-7.
During 2002, the weekly average fluctuated between about 25 percent and 43
percent. About 60 percent of all program trading in the week of Feb. 3-7 was
on the NYSE, with 11.5 percent in non-US markets.”
Source:Â Financial Times
I recall back when I first started HVT-type
trading back in 1994 that watching the premium and fair value were
paramount. For me, as the years passed, I found it less helpful as chart
patterns and extreme momentum were better barometers. Like most things in
trading, there are changes, subtle and not so subtle, and it may be time once
again to revisit an indicator which never went away, but was put aside by me at
least. Many traders already look at these indicators. If you do not, consult
your quote provider on how to obtain the following:
TIKI:Â Measures upticks/downticks on each
of the Dow 30 stocks. An ideal way to measure buying and selling pressure. Goes
on a scale of -30 to +30.
Premium/Fair Value (FV):Â Indicates levels
where buy/sell programs are likely to be triggered.
Looking ahead to today’s session, the game plan remains the same. Trade
selectively on the opening and look to take advantage of slightly longer-term
(20-30 minute) trades as the day unfolds. The S&Ps and the Nasdaq remain trapped
by some pretty key technical levels. This is certainly keeping a lid on a
decisive move one way or the other, too.Â
I cannot finish today’s article without once again turning back to
The Financial Times for an article that
appeared on Friday. The subject was regarding securities regulators eyeing short
selling.Â
“Regulators around the world are under pressure to
tighten rules on short-selling … amid concern that it is used by
professional traders to manipulate share prices, particularly of small
companies.”
Really? But it is perfectly ethical for “weasel like” analysts always
pounding the table that every dip is a bottom and that Joe Sixpack better start
buying? Well, I think we can officially say that we are deep into a bear market
when the meddling regulators and politicians start looking for scapegoats. Where
were they when every Tom, Dick and Harry was throwing their hard-earned money at
bloated chip and Internet stocks? They did the same thing with the Pattern
Day Trader rule, which is a complete farce. If you really want to prevent
people from losing their hard-earned money, set up checkpoints at the entrance
of every casino in Vegas.
The last thing this market needs at this stage is more meddling. The Fed has
already screwed up our markets by putting band-aids for the last 15 years on
every crisis that sprang up, and the result is the current market. More
regulation and finger pointing will only drive more investors and traders away.
Sorry to go on a tirade, it is just upsetting to see legitimate practices
come under fire with absolutely no logical argument to back it up. Granted, it
comes as no surprise if you are a student of market history. A cursory
understanding of the psychological effects of bear markets almost demands these
accusations. But as we all know, this will not solve the problem. Unless
corporate profits are restored or there is some capitulation in the market, the
frustration factor will only grow. Be prepared for other outlandish finger
pointing in the near future.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 875 | *1039-44* |
| 871 | *1019-25* |
| 865-66 | 1013 |
| **856** | 994 |
| 843-44 | 987 |
| **838** | *974-77* |
| 833 | 971 |
| 821 | *962* |
| 814 | 952 |
| **808-11** | |
| Â |
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As always, feel free to send me your comments and
questions.
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