Markets Crushed... Dow/Nikkei/S&P

[Soultrader 12]

Yesterday the Dow recorded its worst single day drop ever of over 750 pts. This is slightly worse than the first trading day after the 9/11 attacks.

 

Yesterday Nikkei expressed severe weakness breaking at key support level despite the somewhat optimistic news on the $700billion bailout over the weekend.

 

 

At first, it appeared that traders did not think the bailout would save the financial markets. I was extremely pessimistic going into the US session... and due to the rejection of the bill we witnessed a crash.

 

A little on the VWAP

 

I use the 24 hour session VWAP as a dynamic support and resistance tool. This is primarily because institutions use this marker to buy/sell contracts. Yesterday premarket ES, showed resistance at the VWAP and then tanked shortly afterwards.

 

 

Thoughts on the upcoming weeks/months....

 

Investors and traders are expressing severe pessimism in the financial markets. Even after this crisis settles, will fresh money be poured into the financial system? Or are we likely to see a shift in foreign investment into other markets?

 

Quarterly chart on ES... retracement for long term participants?

 

 

Where will the money flow next?

[firewalker 10]

I use the 24 hour session VWAP as a dynamic support and resistance tool. This is primarily because institutions use this marker to buy/sell contracts. Yesterday premarket ES, showed resistance at the VWAP and then tanked shortly afterwards.

 

Very sweet that vwap line... I had my ('static' if you wish) resistance drawn exactly where your vwap line was. Made up for a perfect short.

 

I wonder where to from here... we closed near the low yesterday, and we broke the previous lows from September easily. The Nasdaq lost close to 10%. :shocked: So it doesn't look like a bottom is in yet.

 

I'll add another chart, from the small caps. It shows the market ranging in the last couple of months, yet failing to make new longs. This compared to the DOW & ES signaled strength imo. However, it looks increasingly likely that the lows will be taken out soon as price is on it's way down for the fourth time...

 

 

[Soultrader 12]

Very similar to the Nikkei daily charts in comparison with global indices.

 

A bit of strength today on the Nikkei despite all the negative news out on the Asian markets tanking. You'll see short covering at the opening and pretty much holding for the rest of the day followed by further rally in the evening session.

 

 

DAX is showing even more strength than the Nikkei.

 

 

A little premarket resistance on ES at 1154.

[Soultrader 12]

A bit of weakness present on the Nikkei after yesterdays strength. Rejection above yesterdays value to fall within value area. However pretty rangebound today and hovering in the upper half of yesterdays value area.

 

The Asian markets seems to be hesitant today and will most likely wait on the US markets to start. Therefore, I feel like the US markets will lead for the day and then the Asian markets will react accordingly tomorrow morning.

 

[Soultrader 12]

Another VWAP setup on ES premarket. Combination of VWAP, volume, and candle patterns.

 

[Soultrader 12]

Further resistance at VWAP....

 

[Soultrader 12]

Just a word of caution today. I expected strength to follow through in the Asian markets today but we are seeing a complete downtrend.

 

 

Premarket ES is extremely weak as well tanking well below yesterdays close.

[firewalker 10]

Just a word of caution today. I expected strength to follow through in the Asian markets today but we are seeing a complete downtrend.

 

Premarket ES is extremely weak as well tanking well below yesterdays close.

 

Thanks, interesting to see what happens on the other side of the globe

 

However, I'm not sure about the importance of overnight moves on the US indices. In the past I saw price falling through support or breaking resistance premarket, and my hopes were high for a continuation. However, in many cases a pullback to previous S or R didn't provide a new rejection, but price just crawled it's way back up above previous S and R, seemingly ignoring what happened before.

 

As it happens, Steenbarger wrote something in his blog this week that gave me some thoughts:

 

"...the fact remains that many short-term traders find their opinions colored by what happened overnight. In reality, these function as independent markets: what happens overnight is not predictive of what happens during the trading day."

 

Coming from someone who's pretty fond of analyzing historic market data, I was actually rather surprised to read such comment.

 

See also

http://traderfeed.blogspot.com/2008/09/day-and-night-sessions-this-bear-isnt.html

 

Perhaps anybody else got an opinion on this?

[Soultrader 12]

I follow intermarket relationships closely from a technical perspective. Not whether the markets were net positive/negative but I try to sense strength from a price action perspective.

 

I do not agree with with Brett 100% on this one.. I follow the US and Asian markets closely and many trading opportunities arise from the correlation between these two giants.

 

Current premarket ES is probably caused by traders on the other side of the globe reacting to the Asian markets. The next step will be to see what the big boys in the US do. However, more often I have seen the US markets follow through if the European markets express weakness as well.

[sdoma 10]

"...the fact remains that many short-term traders find their opinions colored by what happened overnight. In reality, these function as independent markets: what happens overnight is not predictive of what happens during the trading day."

 

Coming from someone who's pretty fond of analyzing historic market data, I was actually rather surprised to read such comment.

 

I think it's accurate if you understand that he's talking about something very specific. He's not saying that what happens during the night session has no meaning. Steenbarger uses the overnight high and low, for example, and does include the overnight movements in a greater overall context for his analysis.

 

I think what he is saying is that moves which occur during the night session reverse or stall more often than they continue, and I agree with that. Moves during the night session do not predict the day session's move. It's just contextual information.

 

Think of it from a market profile perspective. A large overnight move will cause prices to open out of value, be it yesterday's value, 3 day or 1 week, whatever you like to use. Now you have to evaluate if this move from value is proper and correct. If it is found to be an overreaction by the daytime participants and doesn't attract further participation, you will see that move stall or reverse back into value.

 

Whether it is proper or not is what you must quantify, and that's a difficult thing to do sometimes.

[MidKnight 12]

sdoma makes good comments on what Steenbarger is saying here - it is quite a general observation. It is a line graph of the RTH (c - o) correlated against the overnight session (o - c(1)). It compares nothing about what happens in between those start and end times periods....

 

My best regards,

MK

[Soultrader 12]

I think what I am after here is to point out the importance of global market correlation. Overnight ES action will not help create a trading plan for the regular sessions. I prefer to incorporate the price action of Asia, Europe, and the US... not necessarily predicting but looking for clues of short term price movements. (in this case day by day)

 

For example, if the US markets decline but the Asian markets say strong the following day.. I would expect strength to follow through into the US markets. If the Asian markets decline but the US stays strong that following night (Asia night time), I would expect strength to follow through the next day for the Asia session.

 

Like I mentioned before, I determine the potential short term movements from a technical perspective.. determining price action with market profile or seeing whether the markets trended vs rangebound, etc...

 

I hope this makes sense?

[sdoma 10]

I hope this makes sense?

 

It does. I do a lot of the same things. I just think some people were taking Steenbarger's comments out of the context in which he made them.

 

He didn't put it like this, but I think if you look at those movements and relate them to value of the previous day session, and longer term value, it really starts to get crystal clear why you see reversals and continuations.

 

I will use today's ES chart as an example. I have found that value is often a lot clearer if you take a longer period (3 and 5 day value like Cisco does) or you take a market movement, such as a trend or bracket and crush it. This chart uses 9/27, 9/30 and 10/1. This is not only a three day crush, which is one of my favorites, but it also encompasses all of the price action from the break on 9/27, a range extension down if you will.

 

In this case, it's not a great example as you saw the break on either chart, but I still think you see the auction a little more clearly with the 3 day value chart.

 

So, I think I'm like you in that I use the overnight info but only as it relates to what goes on in the domicile market. Taken by itself it isn't very important. All that's really important is where it causes the market to open in relation to day value.

[Soultrader 12]

Excellent stuff sdoma. Very interesting indeed using a 3 day value area.

 

So, I think I'm like you in that I use the overnight info but only as it relates to what goes on in the domicile market. Taken by itself it isn't very important. All that's really important is where it causes the market to open in relation to day value.

 

Yep, agreed. Brett may take the ES price action alone... but I think it is important to incorporate the price action of global markets as well. I used to look at the US only.... but cant believe how limited my views were.

[sdoma 10]

Excellent stuff sdoma. Very interesting indeed using a 3 day value area.

 

 

 

Yep, agreed. Brett may take the ES price action alone... but I think it is important to incorporate the price action of global markets as well. I used to look at the US only.... but cant believe how limited my views were.

 

I like to look at the Eurostoxx and DAX, as well as taking the important news releases, if any, that occurred overnight. Oftentimes I find that the Asian markets don't move the American markets all that much. Perhaps I'm wrong about that since you like to look at the Nikkei.

[Soultrader 12]

I like to look at the Eurostoxx and DAX, as well as taking the important news releases, if any, that occurred overnight. Oftentimes I find that the Asian markets don't move the American markets all that much. Perhaps I'm wrong about that since you like to look at the Nikkei.

 

No you are right. More often the US markets lead. But good opportunities on the ES arise when the Asian markets lead. The correlation from a technical perspective is a bit difficult to explain as I do not base this off h-l-o-c stats, but from a price action standpoint. Perhaps I will start recording some data on my studies regarding this.

[sdoma 10]

No you are right. More often the US markets lead. But good opportunities on the ES arise when the Asian markets lead. The correlation from a technical perspective is a bit difficult to explain as I do not base this off h-l-o-c stats, but from a price action standpoint. Perhaps I will start recording some data on my studies regarding this.

 

That's really interesting. I am going to start looking at it, and I'd love to know your thoughts.

[firewalker 10]

So, I think I'm like you in that I use the overnight info but only as it relates to what goes on in the domicile market. Taken by itself it isn't very important. All that's really important is where it causes the market to open in relation to day value.

 

Nice chart sdoma thanks. I really like the way you write "it's hard to stay in unless you have perspective". I was actually short on the NQ in a very similar situation with my perspective on support around 1500. Price took a hell of a long time to get there, but it did. Great to see MP input complete the picture.

[Guest myinvestorsplace]

Exactly right because of the market crash Now a days most of them are feeling fear to invest their money in market.Can anyone share their thoughts on future markets so that it will be useful to everyone.

[Vinayak 10]

It's been a while over here. I thought I'd use this thread to update on what has been happening with the US and Japanese indexes. As for the S&P, I am pretty bullish on it.

 

S&P 500 Bullish Trend should Persist

 

The index has gained 6.2% in 2013 alone after around 75% of the firms in the S&P 500 have beaten analyst expectations. There is even more good news for those long SPXU and SPY as the index is trading at 15 times earnings; this is below the 60-year average value of 16.4. There have been some big rallies in the S&P already this year and so the downside correction could persist. The good thing is that this weekly decline which is the first this year should not last long. There has been too much positive macro data coming out of the U.S. - PPI values were positive along with Non Farm Payroll figures (increased by 157,000).

Major Global indices volatile

The Italian elections are over and there is still some uncertainty in the Euro zone. Heading into the current week there were some major gains in Europe and Asia; in particular Japan. This week has seen some big declines with the FTSE 100 losing 85 points, the DAX shedding 176 points and even the Nikkei tanking 264 points.

Read the rest of the analysis here: Analysis Of The S&P 500: Where Is It Headed? - Seeking Alpha

 

The Nikkei to be bullish in the near term due to the weakening Yen

 

The devaluation of the Yen as a result of the Japanese government deciding to print more of it is causing the stock market to soar. It's pretty simple economics really. When there is more Yen, these Yen stocks will trade far higher thereby sending the index higher. At the same time, developed countries with higher valued currencies like the US dollar or the Euro will find Japanese exports cheaper. This brings higher profits for Japanese companies as they are now selling more.

 

Nonetheless, the Yen is very attractive and it is imperative to do quite a bit of analysis on the USD/JPY before arriving at an investment decision.

Edited March 2, 2013 by Vinayak

[jpennybags 11]

Good for you. Don't know what will happen next, but "you tell it with such enthusiasm".

[jpennybags 11]

Good for you. Don't know what will happen next, but "you tell it with such enthusiasm".

 

Sorry... totally inappropriate. I should have just walked on by.

[Vinayak 10]

Sorry... totally inappropriate. I should have just walked on by.

 

No problem at all. I welcome all comments. I love to hear what people think about my posts.

[Vinayak 10]

How has Abenomics been doing so far?

 

Japan's global brand names have been benefitting greatly from the devaluation of the Yen. There is Toyota that will have its earnings release on Wednesday that is going to be extremely good. Demand is on the rise in North America for the car maker despite the recent airbag defects.

 

Sony is expected to report its first annual profit in 5 years, but this is a little misleading. The major reason for this will be the billion-dollar sale of its headquarters in NYC.

 

As much as exports have picked up due to Abenomics, they could be much better. One has to take into account the slow demand from the stabilizing EU which has hurt exports. In terms of its competition with neighboring China, there has been much made of the fact that economists feel that Chinese exporters have exaggerated data and this is why the February numbers were better than expected.

 

Still, Japan has been losing its grip over the last two decades. Southeast Asia is the fast growing region with much to offer investors.

 

Japan is hedging a lot of its bets on the successful outcome of Abenomics.