Dogpile

regarding this morning. Can see in the 'final volume distribution' I posted last night (won't re-post here) that after the 'excess low' made yesterday, the market formed a symmetrical distribution (balance) with the PVP/VWAP being 1526.75. The market has now run up ~10 pts to 36.75 in another overnight gap. Thus, we have bad short-term location to be long. But this gap appears like it could be start of a 'up-auction.' I will look for a 'ABC down' to get long. First thought is to see if support comes in around 1533 area (fibonacci support level). We do know that 38-42 is a very high volume zone and 38.25 was a big PVP from 9/20. So I would expect the market to not run straight through that. But since this looks like we may be coming out of a daily bull flag and we will eventually get a 15-min First Cross buy, I will hope we get a nice spot to get long.

<<Do any of you follow Art Collins's free daily commentary and analysis at: http://www.tigersharktrading.com/authors/15/Art-Collins>> yes, I followed those after I first read his book about 9-12 months ago. I then joined a free site where I could chat with Art and did this for probably 8-10 weeks or so (site doesn't exist anymore). I learned that Art doesn't really use those czar-chart readings for his actual trades. I wrote strategy after strategy integrating those various 'biases' that he talks about -- I couldn't seem to get higher than around a 55% win rate and they always had big drawdowns -- albeit profitable (most of his work involves daily charts). This eventually led me to the conclusion that you will basically never get a really good system based only on daily charts. That said, there are some powerful ideas in his book. I have just set up another futures account to trade a strategy I wrote that is derived from one of his book strategies -- with a few of my own things added-in. I figure I will trade smaller contract size in this account, set the orders up in the morning and then focus on my trading account for the rest of the day. I am doing this because the strategy results are just incredible historically. I am willing to accept some drawdowns in this account -- even though the historical strategy results don't really show that. I will assume that 'future is not necessarily like past' and that there will be drawdowns --- this is the reason for smaller contract size. Although I didn't code it, I have a 'mental switch' that will turn the strategy off if the market just grinds higher for months on end. I feel like we just had a good market correction ('volatility storm') and therefore that now is not the worst time to begin a mechanical strategy.

we are all taking a complex and dynamic stream of information and synthesizing it into a trade. to the extent that automated trading strategies can help convert your core trading tenets into entry and exit ideas, I think that can be a nice way to help you 'see' the bigger picture. Thus, I think writing automated strategies is quite complimentary to discretionary trading.

Final Volume Distribution For Tuesday Sep 25, 2007 PVP was 1526.75 with 74,508 contracts traded there After an Excess Low was put in on a gap down, the profile became symmetrical with final VWAP (26.75) = PVP and price just above this --- with significant 1531.00 resistance just above. Volume was weak after a strong start.

Summary Of Successive Balance Areas (generally where contract volume exceeds 40k at a single price).

Opening Range Breakout is a very old, tired strategy... Everybody and their grandmother knows it. Just doesn't seem like something so well-known could still work very well --- but I haven't tested it so I don't know.

Update, market attempted an upside breakout... I bought and held for an hour but it didn't have legs and instead built a big PVP at 1526.75 (60k+ contracts) while volume overall has died. Net net, I made a trivial amount. Difficult structure.

<<So you think odds are that we'll have a Normal Variation Day and that the day's extremes have been pretty much established?>> I don't really have a bias here. a test down could be ABC down and therefore be a buy. a test up could make a lower high and get rejected back down. Nevertheless, just going to try to find a clean entry and go with the momentum.

this reminds me of that other thread you started with stats about high or low being made in first 30-mins vs my post about pre-lunch high/low made (meaning in the 10am-12pm timeframe). so far, we made low for day in first 35-mins, potential high for day made before lunchtime. >40k+ contracts traded at 25.50 -- there are buyers out there... I hope we go down and stretch the range out which might make tomorrow a buy from lower levels on a Taylor buy day... Just think momentum has to be renewed as I don't see continuation selling here just yet.

my thinking so far is that we effectively formed a fat profile of price acceptance around 31.00 yesterday. There was a break lower overnight but this has been rejected as price returned near 31.00. Thus, we are pinned up under resistance but have already tested lower. Thus we probably need to see a new 'balance' develop. This appears to be occuring now with my standard deviation bands contracting and nearly 40k contracts building at 25.50... Price is being 'accepted' below yesterdays closing VWAP level but I don't know how important this is now because that trade played out overnight as we went down -10 off that 31.00 balancing -- my crude gauge for a good move after a balancing. Thus, I would like to see some renewed momentum one way or the other and then play the first flag off of that for a low-risk, high-reward trade. Directionally, I am kind of neutral. Wish I had better conviction but just gonna try to go with some renewed momentum and hope for some trending action away from 25.50...

I am just watching the craziness, no trades yet... almost took a NQ short. Just noting this 'PVP flip' --- just happened. Jerry discusses this phenomenon but I don't really 'get it' yet.. Just noting it for now. note: a PVP flip is when the highest volume price changes. We had 28k contracts trade at 21.50 this morning. now we have 32k+ traded at 26.75. VWAP on the day is ~1524.75 so far. If price trades down, the average price will be lower than the highest volume price and implies a 'negative skew'...

Good gap down this morning. We did just break from that 38.00 to 40.00 high volume zone and are in a 'down auction' -- so the trend is down. We look for signs of continuation. The profile shape from yesterday shows active buyers at 1531.00. Note this is also where buyers held the market the day before expiration and trapped bears who were getting short down there. Now we appear to be trapping bulls who were buyers at the same price a few days later. S&Ps are currently ~1522 -- so location is poor to be short in the near-term relative to the 31.00 level of 'value' from buyers yesterday. I will be watching closely to see how the market responds to the opening gap. We pointed out how unusual all that volume was at 1546.00. The day marks an important 'excess high' -- a 'Turtle Soup' in LBR terms (market makes 20-day high which is a 'bull trap' as late-to-the-party longs are flushed out).

<<I like comparing your interpretation of market action with mine.>> I find our styles to be very, very complimentary Ant... It's pretty cool to both think independently and can then collaborate and think about something that may have been overlooked or not emphasized enough. Let's try to post a few updates per day and hopefully can help each other to make a few extra points a day or week.

I was out during the afternoon session and couldn't trade. Here are a few things I see with 20/20 hindsight (review of yesterday). I note that Ant charted in advance this 1538-42 high volume range and that is precisely the zone we broke from to begin the afternoon trend down.

Noon eastern time look. VWAP < Friday closing VWAP = Building lower value Attempted downside move this morning hit responsive buyers. Move up found resistance in that 40-43 area we discussed. This is difficult structure. There are no sellers but we are pinned under resistance. The market just continues to grind sideways in narrow range. NQ has shown nice range expansion off of opening price -- generally not good to fight this on intraday basis. XLF is lower and keeping lid on S&Ps and offsetting the tech strength to some degree. It looks to me like the market is so far digesting the large spike up with sideways consolidation (sector rotation) rather than a downside flush. I am still expecting (hoping) for a downside flush this afternoon or tomorrow before a potential good move up. That said, until I see some opportunities to join some sellers -- I will just wait patiently. Eventually, we will have digested the move and can look long again -- could come with lower prices or with sideways consolidation -- or a bit of both.

2 thumbnail attachments to get things going... both charts show the 5-day high-low midpoint: ES.D and XLF. we had a similar 'fed-spike' last March. we crept up slowly on low volume and then spiked up hard on fed-related action (march 21st). We then flushed out those 'late-to-the-party' longs in a cleansing downward move that set us up for a nice advance. I have no clue if this one will play out similarly but the structure is somewhat similar having watched the daily auctions develop first-hand. let's have some good discussion this week. I look forward to something from Ant that helps me think this structure through.... I find Ants stuff to be really helpful in looking at the same data a different way.

Profile Shape from Friday shows 78k+ contracts trading 40.50 -- this is a 'fat' reading and shows price acceptance at that level. The range was narrow -- nr7 = narrowest range of last 7 bars. The market gapped up after a down day but showed no signs of upward continuation (it was expiration so difficult to read much out of it). The week after September options expiration has very strong downside bias and S&Ps have built significant congestion in the 1540-46 range with a selling tail above 46.00. Reviewing the key sectors, XLE is extremely overbought and due for a rest at some point likely first part of this week. I am looking for a downward auction to begin soon and will be actively monitoring it for signs of continuation or the lack of selling pressure. A correction would be healthy at this point and could potentially set up a nice long-side trade later. It appears to me like most of the residual momentum from the Fed buying spike has run its course. We could of course just grind higher -- which would not be so great for us traders as it would imply less opportunities and less range to trade. We are trading high the 5-day range so I am favoring the short-side for now. That said, the key financial sector (XLF) is trading low in 3-day range and could be do for a move up on Monday. Either way, I will not fight upward range expansion off of opening price. Let's kick some butt this week as the low-volume pre-FOMC deadness is hopefully over and we can hope to see better range this week rather than the 'no-volume-then-vertical-spike' action of the last 10 days.

speaking of 'ABC down' link if thumbnail doesn't work: http://bp1.blogger.com/_5h-SWVGx6Ms/RvPnPSyj7OI/AAAAAAAAAbU/_sxangNcoW4/s1600-h/Sep+21+abc+down+into+fib+support+zone.png

forget the VWAP part of it -- really irrelevant -- that was just the first thing I noticed.... I don't get the price differences... they line up every day but today on my data feed (Tradestation).every time there is a higher high or a lower low, they both do it together, except for today. they are consistent relative to their intraday VWAPs.

well volume is one thing but ESZ07.D gapped up to about equal with yesterdays high and SPY is nowhere near yesterdays high...

Trying to figure out something I noticed. How can ES.D be building higher VWAP and SPY be building lower VWAP on the same day?? Note, the lowest ES.D VWAP today is higher than at any VWAP point yesterday. The highest SPY VWAP today is LOWER than the lowest VWAP point yesterday? confused how this could be? QQQQ vs @NQ.D VWAP is consistent IWM vs @ER2.d VWAP is consistent SPY is off, wtf?

<<So basically they just robbed Bear Stearns >> The Goldman Sachs prop traders also basically robbed the Goldman Sachs Alpha Fund. Alpha Fund was -30% and Goldman Sachs trading desk kicked serious arse. Feasting on your own -- a Wall Street tradition. I really have to think there is more to the story of the Alpha Fund than meets the eye. It really doesn't make sense to have 2 very, very smart guys running many different strategies and they all go bad at the same time. The fund was designed to have uncorrelated strategies and they somehow ALL got correlated. These guys either totally dropped the ball in execution of their top-down strategy -- in which case they should be fired -- or something very major happened here that is non-public, material information. This one just doesn't add up.

initial 'structure thought' in attachment:

well, I didn't have the guts to go long the low volume 'price spike' --- after the close, the market whipsawed down and would have stopped me out anyway... but 'location-wise' -- it was a good long -- maybe go long smaller size and hold for next-day value with only a 'disaster stop' -- or no stop -- was the play. Can see in attachment an analysis for the future as it is all easy in retrospect but can see how if you break the day into two parts (the coil and then the break lower) the market did build a 'b' after the coil break lower. 50,000 contracts is a fat profile and can often mark the PVP for a day. 50,000 printed at 1531.00 so clearly there was some responsive buying going on at that level (patient buyers on weakness -- likely higher timeframe players). a 'b' is an awesome profile to find a way to be long --- 'P' is less tradeable in my experience. posting this just as a note for the future.

jerry, was curious your thoughts on yesterdays volume distribution? it looked like a near perfect symmetrical distribution for much of the day then ended up building a fat lower tail. In situation like this, where you would expect to go long low in a symmetrical distribution (as it looked with an hour or two to go) -- but the distribution did not END UP symmetrical. curious your take? thx