A day to remember

Palpitating fear in the market after initial balance. Great deal of volume. The Market structure (normal variation) we had yesterday extended with the range extension to the down side in the morning. It is an important detail to note that we had a buying tail in the G & H period. An important level for the future.

Markets rebounded first with the British Financial Services Authority put a temporary ban on betting on the short side. Wide speculations of a cross -border effort with many centralbanks. Then we had news of Paulson talking to lawmakers on a proposal to deal with the bad debt losses:

The U.S. Treasury Department and Federal Reserve declined to comment on Thursday on any discussions Treasury Secretary Henry Paulson may have had with lawmakers about a Resolution Trust Corporation-style fix for a financial market crisis.

"We're not going to comment on rumors," Treasury spokeswoman Jennifer Zuccarelli said.

A congressional aide told Reuters that Paulson has been discussing with lawmakers a proposal to create an entity to deal with bad debt that would be similar to the institution established in 1989 to clean up massive losses in the savings and loan industry. (Reporting by Mark Felsenthal; Editing by Dan Grebler)

A great trading day. Cutting losses quick (or breakeven) and letting runners run
works like a holy grail on days like these. One could rake in a huge profit with less than 50% win rate.

We ended up with a net negative delta of -50K in the genenral chart which indicates that short covering led the rally and some of the long term longs that were liquidated today were not put back on. The big contracts ended up with a positive delta and is in line with the last 3 days action by the big money.

Moment of truth

We are here at the moment of truth whether this probe is going to hold. Many attempts to break the downside has not garnered the interest of big initiative sellers. The bigs delta is now net negative which led to the break down of the structure. So far the 60s are still holding. A failure of this probe will be significant for the strength of rotation upwards. Heres the PNF. If this probe does fail we need a big buy response to confirm the support. The buy response did not follow through during the prior probe of the 80 level. We need a much bigger volume than the prior upmove.

At the bottom of the hour

Its 10:24 PST. Traders are getting back from lunch. We have turned from a net negative -15K to +13K in the big contracts. I am concerned a little bit about the market structure. After the C period extension, we havent traded into IB and we are forming a distribution in the bottom, indicating that the auction has brought more timeframes in play. The AIG bailout did not have much play today, at least not much that is visible. Lots of trading oppurtunities and nice fluid moves. The range extension to the downside has been consolidating with some buying interest in the 60s till now.

A day like this, a change of trading style is needed imo. Using shorter time frames in the extremes and looking for conviction in the direction of the moves.

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.