Info!! Trading Notes For The Calendar Week Of March 14, 2016

Friday, March 18th

*  Steve Spencer of SMB emphasizes that cost activity next a catalytic lawsuit provides us amongst of import information.  This is especially truthful when nosotros run across a modify inwards the distribution of transactions next a word lawsuit or other catalyst.  Increased book together with a novel skew of book lifting offers versus hitting bids, for example, tells us that fresh buying flows receive got come upwards into the market.  This calls for an updating of our views of the stock or index.

*  This lesson has been especially relevant inwards the wake of the Fed announcement.  My cumulative stair out of upticks vs. downticks has hitting novel highs for this displace together with breadth, which had been waning, vaulted to novel highs.  Below nosotros tin run across the nautical chart of stocks across all changes making fresh 3-month novel highs vs. lows.  The vigor of buying next the Fed annunciation suggests that this, indeed, was a game changer.  Central banks globally are opting for accommodation and, historically, that has been favorable toward stocks.

*  The China/deflation thesis, which dominated give-and-take during recent marketplace weakness, is far less discussed I find, given stone oil clit together with USD weakness.  For stocks, inwards a negative involvement charge per unit of measurement world, anything rubber amongst yield continues to discovery interest.

Thursday, March 17th

*  Interesting commentary on the fright of missing marketplace moves from Victor Niederhoffer.  Many a bad merchandise is made because of the ego, non because of the objective marketplace opportunity.

*  We saw a ascent to novel highs on the heels of the Fed announcement, amongst enterprise buying interest.  Recent posts receive got commented on weak breadth and, for the marketplace overall, the breadth movie did non amend despite the Fed-related strength.  Across all exchanges, nosotros saw 753 novel monthly highs against 254 lows.  The latter is in 1 lawsuit again an uptick inwards novel lows together with the novel highs are one-half of what nosotros saw 2 weeks ago.  Among SPX shares only, stocks making fresh 100-day novel highs versus lows did expand to a marginal novel peak.  Much of the weakness is amid small-scale cap shares, though fiscal together with wellness aid stocks inside SPX are likewise lagging.  With the mixed breadth picture, I'm non surprised to run across some retracement of yesterday's gains inwards premarket merchandise today.

*  Breadth issues notwithstanding, it's clear that this has been a vigorous bull displace from the Feb lows.  Note below how we've stayed "overbought" on my multiperiod clit stair out (daily tracking of SPX stocks making 5, 20, together with 100-day novel highs versus lows) for a number of days.  This exclusively occurs inwards trending markets.  While the breadth issues oft precede correction, my base of operations illustration is to sentiment such a correction equally a buying opportunity.  

 

*  I'm working on creating a cycle-based stair out of short-term momentum together with value effects inwards the ES market.  The thought is to seat when markets are most probable to proceed versus opposite their most recent directional movement.  Interestingly, the market's ascent yesterday occurred on a depression value of the momentum measure.  More to come upwards on this research.

Wednesday, March 16th

*  Jim Dalton, who has pioneered trading via Market Profile, is offering his in conclusion mentorship computer programme earlier his retirement.  I likewise run across Terry Liberman will live doing a webinar amongst Jim afterwards today.  When I taught an internship computer programme inwards Chicago many years ago, Jim's piece of occupation was the exclusively mandated reading.  I proceed to discovery Market Profile helpful equally a conceptual framework for thinking nearly marketplace behavior.

*  After some early on weakness, nosotros saw buying inwards stocks, but small-scale caps proceed to notably underperform large caps.  As a result, nosotros run across continuing deterioration amid the breadth measures.  New monthly lows ticked upwards to 192, the highest degree since Feb 24th together with monthly highs dipped to 451.  Relatively weak sectors lately include unloose energy shares (XLE) together with healthcare (XLV).  Today's trading volition live dominated past times the afternoon's Fed announcement.  

*  We proceed quite stretched on my intermediate clit measure, which looks at the number of SPX shares making fresh 5, 20, together with 100-day highs versus lows.  (Data from Index Indicators).  If the Fed-related merchandise can't interruption us from the breadth deterioration, I await an intermediate-term correction.  That would non necessarily live an terminate to the bull displace from February's lows, but could advise a new, topping stage to the electrical current marketplace cycle.  During a topping stage nosotros tin run across higher overall prices for the index, but amongst deterioration inwards some sectors contributing to lagging breadth.  

   
*  Here is a unique intraday indicator that looks at buying clit per unit of measurement area amid all U.S. listed shares.  It tracks upticks amid all shares (data from e-Signal) together with expresses the final result inwards measure difference units.  This shows us when important buying is coming into the market.  It likewise shows us when at that topographic point is a meaningful absence of buying.  (A corresponding stair out tracks important selling together with absence of selling pressure).  It helps longer-term positions when those are going amongst the flows.  The nautical chart below shows yesterday's market.

Tuesday, March 15th

*  I'll live making an improver to these marketplace notes together with including each 24-hour interval links to readings that I discovery specially informative together with useful.  To boot this off, banking concern check out the Paststat blog for daily trading ideas based upon historical patterns, including this 1 based upon seasonality.  From my perspective, such patterns are the starting signal for analysis, non an terminate point.  Once nosotros run across a pattern, the difficult piece of occupation remains of deciding: 1) is the electrical current marketplace authorities typical of the menstruum covered past times the historical test; 2) is at that topographic point a audio argue for the beingness of the pattern, or mightiness the designing live a random occurrence; together with 3) what is the variability or together with thus the designing (could yous endure the exceptional instances)?  Factoring marketplace history into trading decisions is no guarantee of success--it's slow to aspect inwards together with thus many places that some "significant" designing appears--but ignorance of marketplace history is non just a promising alternative.

*  The relative absence of selling clit per unit of measurement area inwards Monday's session was noteworthy together with helped atomic number 82 to higher prices for much of the session earlier a belatedly selling burst.  Selling has continued overnight amongst no novel shot inwards the arm from the Bank of Japan.  Trading was unusually wearisome on Mon together with nosotros could larn to a greater extent than of the same ahead of tomorrow's Fed announcement.  Note how short-term breadth has been potent for a number of days; the stair out below tracks the percent of SPX stocks closing to a higher house their 3, 5, together with 10-day moving averages.  (Data from Index Indicators).

       
 *  The marketplace looks tired to me--for the origin fourth dimension since the liftoff from the Feb lows.  Specifically, we're getting fewer shares registering novel highs during marketplace rallies.  Much of that relative weakness is coming from small-scale cap shares.  Yesterday nosotros saw 921 stocks across all exchanges brand fresh monthly highs against over 2000 in conclusion week.  (Data from the Barchart site).  No private sector inside the SPX looks distinctively weak together with I'm non at all convinced that we're going into deport mode.  Rather, I await a normal correction inside a bull move.  With the absence of selling having problem bringing us higher, I'm leaning toward selling bounces that cannot maintain us to a higher house the overnight highs.  Of course, the upcoming Fed annunciation volition supply a major catalyst for stocks tomorrow.


Monday, March 14th

*  Those who know me good know that I create non subscribe to the thought that successful trading is by together with large a operate of psychology.  Without an objective trading edge, one's frame of bespeak heed volition but dictate the charge per unit of measurement at which nosotros portion amongst our capital.  Still, psychology is necessary, if non sufficient, for success together with yesterday's post service was mayhap my clearest explanation why.

*  We shut close the highs on Friday, continuing the upswing next the post-ECB selloff.  The ascent left us quite stretched short-term, amongst over 90% of SPX stocks trading to a higher house their 3, 5, 10, together with 20-day moving averages.  This inwards itself is non a mutual occurrence.  Going dorsum to 2006, I could exclusively discovery 12 instances of this happening when VIX has been below 20.  Interestingly, three were up, ix downward the side past times side 24-hour interval for a internet loss, but 10 were up, 2 downward after three days.  We're trading a fighting lower premarket equally I write; the depth of a side past times side pullback volition state us a lot nearly possible upside momentum over the side past times side few days.

*  One line of piece of occupation concern starting to travel inwards my caput is that Friday's highs were the origin inwards which nosotros saw sizable breadth divergences.  If nosotros aspect at all stocks across all exchanges, nosotros tin run across that 1087 made fresh monthly highs on Fri against 2082 the prior Friday.  Much of this is a operate of relative weakness amid small-scale caps.  We exclusively had 92 novel monthly lows on Friday, together with thus naught is standing out equally weak together with I'm non expecting whatsoever grand reversal.  I am concerned, however, that nosotros could run across a decent pullback from these levels equally portion of the start of a topping process.  Bottom line is that I was happy to receive got profits belatedly Fri together with I'm happy to remain on the sidelines together with run across what the bears tin bring.  Ideally, I'd similar to live a buyer of weakness early on inwards the calendar week for at to the lowest degree a retest of highs thereafter.  But I'm non seeing favorably skewed risk/reward right here, right now.

Info!! Bayesian As Well As Static Reasoning Inward Markets: Trading Alongside An Opened Upwards Mind

In a recent post, I highlighted the make merchandise inwards the ES futures over the past times several months.  My signal was that the marketplace seat has been showing diminishing breadth at successive highs as well as also less weakness at successive lows during that range.  Generally, lengthier ranges Pb to lengthier directional moves, equally they are component division of longer-term marketplace seat cycles.  So the breakout from the electrical flow make should ultimately move a meaning one.  Will the marketplace seat interruption out of its make imminently, or volition the make proceed for only about other calendar month or more?  Will the ultimate breakout move to the upside or downside?  Will nosotros run across a fakeout, mistaken breakout prior to an eventual displace to novel highs or lows? 

My worst trading--and the worst trading I've observed of many traders--has been the resultant of what could move called static reasoning.  Static reasoning takes a diversity of evidence, assembles the show into a conclusion, as well as and hence places trades based on that conclusion.  Risk taking is ofttimes a component division of one's bird of belief inwards that conclusion.

Static reasoning is problematic for 2 reasons:  1) it is discipline to overconfidence bias, equally nosotros receive got a theatre opinion on a persuasion that nosotros own; as well as 2) it is discipline to confirmation bias, equally nosotros tend to procedure new, incoming data inwards the lite of our convictions.  When I've seen traders receive got larger than desired losses, it's by as well as large non been because they've held onto marginal views.  Rather, they receive got sized upward their preferred views, stuck amongst those views inwards the human face upward of opposite marketplace seat information, as well as ultimately lost the seat when drawdowns became uncomfortable.

I receive got institute my best trading to resultant from what could move called Bayesian reasoning:  a idea procedure that reflects a Bayesian, probabilistic way of thinking.  Bayesian reasoning begins amongst a hypothesis, but it is a flexible hypothesis that updates amongst new, incoming information.  One's confidence inwards the hypothesis waxes as well as wanes amongst novel information, as well as one's hypothesis tin chop-chop modify amongst novel information.

With static reasoning, a marketplace seat persuasion is something you lot receive got as well as merchandise with.  With Bayesian reasoning, a marketplace seat persuasion is fluid as well as continually evolving.  

Trading leading upward to as well as including this past times Fri was a practiced example inwards point.  We traded theatre for nigh of the week, amongst relative clit inwards modest cap shares.  Volume had been coming downward inwards recent sessions and, past times Apr 15th, nosotros saw novel highs inwards the wide NYSE Composite Index non accompanied past times an expansion inwards the discover of stocks registering fresh highs.  With each observation of depression book as well as diminished novel highs, my confidence inwards an upside breakout diminished.

Friday saw novel data come upward into the marketplace seat regarding Red People's Republic of China as well as Greece.  There was a rigid selloff inwards pre-market hours.  Volume expanded, equally did volatility.  New marketplace seat participants were joining the fray, as well as they were joining amongst a downside bias.  That led me to sell an early, pre-opening bounce inwards the ES futures.  At that point, the show tilted toward continuation of the make as well as a short-term handoff from bullish to bearish command of the market.  I reasoned at the fourth dimension that investors would non wish to request chances bad headlines over the weekend as well as hence would move probable sellers inwards early on New York trade.

That indeed materialized, but as well as hence something interesting happened inwards mid-to-late afternoon.  We had seen steady selling inwards stocks, equally measured past times the NYSE TICK.  When I ran a report of lopsided selling days such equally the i inwards progress, I noticed a style for the marketplace seat to bounce higher the side past times side twenty-four hours or two.  At the same time, I noticed continued selling pressure level inwards stocks (negative TICK values), but instantly the ES futures were asset inwards a higher house their lows for the day.  Selling was no longer able to larn cost higher.  I nonetheless liked the range-based persuasion but the merchandise no longer looked swell from a risk/reward perspective as well as I took profits.

Am I a bull?  Am I a bear?  Not actually either, as well as the enquiry presumes a bird of static reasoning.  What made Fri a practiced twenty-four hours inwards the marketplace seat was the fluid transitioning from waning bullishness to waxing bearishness to waning bearishness.  We could indeed gap lower inwards the nigh term as well as receive got out Friday's low, but that's non where the odds were at the time.  Let's allow the bulls receive got their plough as well as run across what they tin convey to the market.  Should nosotros larn a feeble rally as well as a lower high, at that topographic point volition move enough of chance to resume a downside merchandise targeting the lower destination of the recent range.  Should nosotros larn a to a greater extent than substantial rally, as well as hence nosotros tin update show for continued topping inwards the make or fifty-fifty upside breakout.

Bayesian reasoning agency trading amongst an opened upward heed as well as staying flexible inwards the human face upward of novel information.  Think of it this way:  we're inwards an ongoing conversation amongst markets.  In whatever conversation, if you lot rest locked inwards what you lot wish to say, you lot croak less sensitive to the other person.  H5N1 practiced conversationalist is a practiced listener, picking upward on subtle cues as well as adjusting one's ain musical note as well as answer accordingly.  In markets equally inwards conversations, unopen minds as well as rigid views Pb to tone-deaf interactions.

Further Reading:  The Importance of Emotional Creativity
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Info!! Ascent Markets Together With Well For You Lot Markets

Friday was an interesting 24-hour interval inward the US stock market.  The major averages encountered approximately early on weakness inward the New York session, only moved higher inward the afternoon as well as unopen at multi-week highs.  Upticks amid all NYSE stocks alone modestly outnumbered downticks, however, as well as advancing stocks were genuinely outnumbered past times declining ones.  As nosotros tin hand the axe take in from the first-class Finviz graphic, marketplace capitalization was a major driver of the day's action.  Mega cap stocks--the real largest companies--were quite rigid on the day, whereas the smallest micro, nano, as well as little cap shares were downwards on the day.

A psychologist views the wellness of a somebody across the totality of that person's life.  Someone mightiness hold out successful inward the run arena, only endure a highly conflicted marriage, social isolation, as well as declining physical health.  That is non what a psychologist would regard every bit a rigid as well as good for you lot life.  Conversely, a somebody firing on all of life's cylinders--work, relationships, personal interests, physical health--is probable to sustain the overall well-being needed for a continued successful life.

So it is inward the market.  H5N1 rising marketplace that is lifting all boats is a good for you lot market, as well as oftentimes nosotros take in farther upside momentum from such markets.  That was truthful at the commencement of this week, when a wide gain of shares participated inward the marketplace strength.  Fri was a marketplace firing on i cylinder.  That is non how good for you lot engines behave.

To hold out sure, i 24-hour interval does non brand a market.  Rather, nosotros await at patterns of sector as well as capitalization functioning to jurist the underlying forcefulness as well as weakness of markets.  Mid-cap as well as little cap shares are thence far non confirming recent marketplace strength, every bit nosotros tin hand the axe take in from their charts (MDY; IJR).  Nor are nosotros seeing commensurate forcefulness amid such sectors every bit raw materials (XLB), retail (XRT), consumer staples (XLP), as well as unloose energy (XLE).  Headlines may focus on Dow 20,000, only my optic is every bit good on the breadth of marketplace strength.  

Further Reading:  Trading Psychology as well as My Upcoming Feb Seminar
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Info!! Trading Notes: Calendar Week Of September 14Th

Friday, September 18th

*  In a feel for stocks, non a lot changed with the Fed meeting, every bit a hike is nevertheless inwards play for after this year, but fiscal weather are non justifying a hike at this time.  We traded inwards a higher house the recent hit in addition to since require maintain fallen dorsum into the range, every bit we're straightaway intermediate-term overbought.  Selling buying forcefulness inwards NYSE TICK that cannot generate fresh cost highs is my full general approach going forward; models modestly bearish.

*  This posting is belatedly inwards exercise because of my participation inwards a podcast for the Better System Trader site.  Do depository fiscal establishment correspond out their podcast page; it's an fantabulous laid upwards of resources.  Will link my podcast when it's upwards early on this coming week.

Thursday, September 17th

*  We saw modest buying pressure level early on inwards the session on Wednesday, followed yesteryear a notable absence of selling interest, with NYSE TICK largely staying inwards a higher house the -500 level.  This was significant, given that nosotros were trading at a short-term overbought grade nigh a hit high.  Unlike inwards previous situations, those weather did non convey out sellers, in addition to the termination was an upside breakout on rigid breadth.  It was a dandy example of how indicators in addition to models tin alarm traders to directional tendencies, but it is genuinely the record activeness that makes for practiced intraday trades.

*  I straightaway present over 70% of SPX stocks inwards a higher house their 20-day moving averages in addition to good over 80% inwards a higher house their 3, 5, in addition to 10-day averages.  While my models propose the likelihood of pullback over a 3-5 twenty-four hours horizon, activeness clearly volition survive dominated yesteryear perceptions of the Fed determination in addition to charge per unit of measurement guidance after today.

*  Given the dubiety of the consequence of the Fed coming together in addition to the odd attending placed on this meeting, I hold off considerable volatility surrounding the proclamation in addition to press conference.

Wednesday, September 16th

*  We did indeed agree recent lows on early on selling pressure level on Tuesday, leading to a company rally toward the hit highs.  We're overbought across a give away of the measures that I follow; the nautical chart below tracks the per centum of SPX stocks trading inwards a higher house their 3, 5, 10, in addition to 20-day moving averages (raw information from Index Indicators).  In general, when a minority of stocks are trading inwards a higher house their 100-day averages, my models indicate to subnormal returns when short-term breadth is rigid in addition to superior returns when short-term breadth is weak.  My leaning is to sell bounces that cannot accept out the overnight in addition to previous day's highs.

*  I'm hearing quite a dispersion of views regarding what the Fed mightiness do tomorrow, which leads me to believe a reasonable proportion of traders volition perceive themselves to survive offsides.  That could contribute to meaning volatility.  I was surprised yesteryear the relatively depression index in addition to equity put/call ratios yesterday; both were the lowest inwards the yesteryear 2 weeks.  That has tended to Pb to subnormal returns over a side yesteryear side 3-5 twenty-four hours horizon.

Tuesday, September 15th

*  We saw cyberspace selling flows on the twenty-four hours Monday, but it was a tranquillity vacation merchandise in addition to nosotros held inwards a higher house the recent back upwards around ES 1928-1930.  New monthly highs expanded to 306; lows dropped to 298, across all exchanges.  So piece at that topographic point was cyberspace selling pressure, breadth did non deteriorate.  That unremarkably has me looking for a bounce, peculiarly if nosotros tin agree the overnight lows inwards early on merchandise today.  One of my models is modestly bearish; 1 modestly bullish--not odd to acquire weak in addition to indecisive signals inwards a hit market, every bit the models pick upwards overbought in addition to oversold extremes.  I suspect nosotros could reckon a continuation of the hit merchandise going into Thursday's FOMC meeting.

*  Below is a nautical chart of an 80-period charge per unit of measurement of modify mensurate for ES, where each stream represents 50,000 contracts traded.  I've constitute overbought/oversold measures that normalize for book traded to survive quite helpful inwards putting overnight activeness into context in addition to adjusting to faster in addition to slower marketplace position conditions.  We're bouncing off an oversold condition; I'm watching the lineament of this bounce carefully.

*  The CBOE $SKEW mensurate is at its highest grade inwards a while.  That way that out of the coin seat options are existence bid upwards ahead of the Fed.  Interestingly, as I noted a piece back, skew is non necessarily a reverse indicator.  Near-term returns next high skew readings require maintain been subnormal.

Monday, September 14th

*  What I reckon with successful traders is a network of successful relationships.  There is merely besides much to follow inwards markets to merchandise inwards a completely siloed fashion.  That is why fifty-fifty independent traders in addition to solo portfolio managers cultivate rigid information networks in addition to back upwards systems.  There is a cardinal to edifice rigid relationships that I lately wrote about; ultimately it's a critical exercise of one's long-term border inwards markets.  The strongest individuals acquire that way yesteryear cultivating rigid teams.

*  My models are modestly bearish over a 3-5 twenty-four hours horizon, but I hold off the week's trading to survive dominated yesteryear Thursday's Fed meeting.  The signals I'll survive taking volition survive largely intraday in addition to tactical upwards to that point.  The setups that require maintain worked best lately require maintain been periods of buying/selling that dry out upwards earlier making a fresh novel high or low--it's a blueprint mutual to hit markets.  I exercise NYSE TICK every bit a proxy for buying in addition to selling interest; also the percentages of stocks trading inwards a higher house their short-term moving averages.

*  Not everything is trading weak, every bit a savvy trader pointed out to me over the weekend.  Fully 32% of SPX stocks are trading inwards a higher house their 20-day moving averages, non in addition to then bad after the variety of driblet nosotros had inwards August.  Homebuilders (XHB) require maintain been notably strong, every bit require maintain been some of the tech leaders similar AMZN. I noticed a give away of bearish articles inwards fiscal media the final yoke of days.  Very hard to honor people inwards an chance mindset.  While I do retrieve nosotros could reckon follow through weakness, I do retrieve lineament companies with security dividends volition transcend on to facial expression practiced inwards a the world that remains largely inside QE regimes.

*  Despite a bounce inwards stocks on Friday, nosotros had exclusively marginally to a greater extent than monthly highs on the twenty-four hours (237 vs. 213 across all exchanges) in addition to to a greater extent than monthly lows (368 vs. 305).  I am watching breadth closely for clues every bit to management of the eventual breakout from the recent trading range.  

Info!! Novel Trading Views For A Novel Trading Week

*  After a considerable stream of tepid novel highs vs. lows amid NYSE shares (data from the first-class Index Indicators site), we've late seen an expansion of the discover of stocks registering fresh three-month lows.  I volition move tracking this closely to run across if what is already oversold breadth exhibits farther deterioration inwards the wake of problems inwards Europe in addition to China.

*  Why practice smart people practice dumb things inwards markets?  This postal service takes a fresh await at a perplexing occupation for traders--and how it tin move overcome.

*  Interesting serial on mindfulness inwards trading from Bruce Bower at SMB.

*  Perspectives on volatility in addition to more from See It Market.

*  New Trader U suggests several valuable screening tools for traders.

*  Questioning the 200 twenty-four hr stream MA in addition to more views from Abnormal Returns.

*  Influenza A virus subtype H5N1 stock/bond trading strategy and to a greater extent than from Quantocracy.

Have a keen commencement to the week!

Brett
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Info!! Appreciative Query Too To A Greater Extent Than Views To Boot Off The Marketplace Week

*  Above nosotros run across the release of stocks listed on the NYSE that are giving purchase signals minus sell signals for the ADX indicator (raw information from Stock Charts).  The release of purchase signals correlate amongst the release of sell signals yesteryear -.52.  That's meaning to endure sure, equally we'd expect, only is far from a perfect negative correlation.  Indeed, when nosotros facial expression at purchase signals vs. sell signals independently, it's the release of purchase signals that ends upwards having the greatest relevance for short-term cost movement.  Specifically, when the release of purchase signals is inwards its lowest quartile, the side yesteryear side ii days inwards SPY average a salubrious arrive at of +.46%.  All other occasions average a side yesteryear side two-day loss of -.07%.  It's been when we've had the to the lowest degree forcefulness that swing returns select been virtually favorable.  Summing purchase together with sell signals across technical systems for all stocks has been a useful agency of tracking forcefulness together with weakness inwards the wide stock market.

*  What is appreciative inquiry together with why is it crucial to your evolution equally a trader?

*  The complicated world of social safety payouts.  Consistently fantabulous perspectives from The Mathematical Investor.

*  Influenza A virus subtype H5N1 elementary portfolio that has ridden recent trends quite good together with other fantabulous perspectives from Abnormal Returns.

*  Applying a moving average trading organization to your returns rather than to cost itself appears to convey about surgical physical care for benefits.

*  Very useful overview of economical information together with more from Influenza A virus subtype H5N1 Dash of Insight. 

*  Favorite reads from Steve Burns together with New Trader U.

Have an fantabulous week!

Brett