No Man’s Land

• January 25, 2002
• Dave Floyd

The
perspective one gains by looking at the market while not actively
participating in it is sometimes interesting. While I was not able to trade
yesterday, I did a fair amount of observing from my terminal at home. The one
thing that stood out was the relative lack of aggressive buying interest on the
heels of Greenspan’s comments. It appears that the market may now find itself in
a odd situation: a relatively benign pick up in manufacturing combined with a
not so clear picture for final demand. The fact that the market barely closed
above the bullish "gap" opening tells a lot. 

Needless to say, after speaking with
some of the traders back in my office, I gather it was not a terribly exciting
day from a "scalping" point of view. Some nice setups were had off of
the 5-minute bars however. The one theme which has been common for the last few
weeks has been the different approach that most of us are taking while trading
intraday. Since it has become commonplace for volatility to come in pockets,
many have resorted to old fashioned "tape reading." During the height
of volatility, tape reading got pushed to the side, as charts became the
accepted medium in determining setups. However, during periods of diminished
volatility, it pays to revert to this approach. There is some confusion, or
perhaps, lack of familiarity, with what exactly tape reading is, nonetheless, it
will allow you to navigate the markets when traditional technical setups are not
evident.

Tape reading, at least the way I
define it, is nothing more that the practice/art of watching order flow, each
print, noticing the size of each print, how much trades on the bid, how much on
the offer.  There are no rules, it really boils down to whether or not you
are an astute observer, and how familiar you are with order-handling rules. I
was fortunate enough early on in my career to learn this concept from a fellow
trader, in fact this same guy, to this day, uses very few charts, yet is an
excellent trader. I am sure he, like myself is managing to get through these
markets just fine with this approach. (Note: I will have a more extensive
commentary on tape reading coming up in my on-line
trading course, stay tuned.)

What you as a trader need to focus on
more than ever is getting as familiar and intimate with these stocks as
possible, in terms of how they are traded. Remember, especially with listed
securities, that the whole process is orchestrated by one person, the
specialist, and like all successful human beings, they do things over and over
again. It is your job to uncloak what is going on on the floor, things a chart
will never tell you.

Turning back to the technicals though,
I feel that the real testing point for the market lies, not only in the 60-minute
chart, but also with 1139.5, the 50-day moving average of the S&P futures.
You will notice on the chart below, that the hourly S&P’s have broken two
trend lines within two days, and are now at Point A,
what I would call "no man’s land." While you can make the argument
that the moving average is starting to indicate a slight up-trend, I am not so
sure all the pieces are together yet in order to draw that conclusion. We will
just have to wait to see how it all plays out.

                                                                                                                                               

Key
Technical Numbers

As always, feel free to send me your comments and questions.
See you in TradersWire.

Dave