Tuesday, September 16, 2008

Mood of the market

Floor traders often talk about the mood in the pit. It is gauge of what the intended direction of the market is. An invaluable barometer in trying to understand what might unfold. In probability terms it is a bias in the dice. If you have been watching the last two sessions, you are aware of the overwhelming negative news that has come out of the financials . What has been surprising to me is that an analysis of the big contracts is yielding a bias on accumulation. It does not mean that this is the floor of the downleg. However it is clear that these levels are of interest to some long timeframe investors. There are buyers who are willing to be responsive players at these levels. That I think has been a small bias in the dice.

What did not happen yesterday? Yesterdays market structure was an even distribution. No broad based selloff. The big contracts were delta positive through the day. The imminent selling came as a tail in the M& N periods. The bias of the dice caused the structure to be balanced yesterday.

Today the dominant flow from the 60s found intense buying interest at these levels. However later in the day, these buyers did not initiate trades above certain level (mild initiative buying and mostly short covering only)

Yesterday and today are fairly similar in sense of mood. Gloomy but bottom feeding for another day in the future. Currently the 70s and 80s are valuable commodities. If you do not have volume analysis, you can get similar sense of buying with VWAP.

While the general market had been negative, look at the big contracts. A very different picture indeed emerges. A valuable clue in placing trades, making you alert of a possible surprise around the bend.

At some point soon in the future. I intend to post the market bias comments earlier in the morning. Hopefully that will help other traders.

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