Playing video games really does pay

Here is a picture of the S&P pit area at the ol’ Merc location. You see traders sitting along the ring with headsets to locals in the pit. The window to the visitor gallery is along the back wall. The yellow jackets are clerks and the colored jackets are traders. The guy in front has controller in his hand like you would find with an X Box. I guess there is something to putting in 10,000 hours of playing Grand Theft Auto. There are a group of locals who play for “Nickles”. They will buy 10 Bigs at 1206.20 and sell 50 minis at 1206.25 picking off $125 at a clip. Do that 50-100 times a day and you can eke out a decent living for two guys. Keep in mind that with a seat you have nominal clearing fees that, once you reach a certain monthly volume like theses guys do, then the trades are free.

The Dog Lives

Gap traders having a bad day, aggressive buyers came in and you can see that the locals attempted to get prices offered below the OR but couldn't, the market is too strong here at least until another EU credit downgrade.... Lots of support at 99.5 and of course 96.75-96

Pre Market

We traded up overnight to 98.50-97.50 resistance area. If we open below we will probably rotate back toward the Settlement of 90.00 and the Value area high of 89.75. What often happens is that Paper buyers come in off the bell and locals get short. If no other buyers step in the locals will offer the market lower and get all the gap fill traders on their side. This is were trading gets tough and the importance on knowing what the market is doing makes the difference in a winning day or a losing day. Gap fill traders say if we open “X” handles above the settlement then we will go back at least ½ way. There is a trader who call this set up a “burning dog” (sick I know) and uses 4 handles as “X” .

The difference is that if Paper buyers come in aggressively after the open the locals will scratch their shorts and get long with them “going with the flow” leaving all those gap fill traders with a bad day and saving that poor little dog.

Tim Mack

Spain vs California

News of Spain’s credit down grade caused a sharp decline in the market that was quickly shrugged off.

The EU is in big trouble. Not just because of Greece and Spain’s credit issues. These issues should be no surprise in recessionary economies just like California’s credit problems are no surprise during every US recession.

The difference is that when California gets in trouble, Virginia (just to pick a state) will always step up to the plate and bail them out. Maybe at the very last second but we wont let them go down. Why? Because we are the UNITED States. Always have been, always will be (much to Texas chagrin).

However when Spain, Greece and all the others that will soon follow get in trouble I don’t think Germany and the Netherlands are as willing to step up to the plate and save the day.

There is a lot to be said about the loyalty and compassion that Americans feel toward one another. I have traveled extensively through Europe and I am certain that they will not even come close to the great lengths that Americans will extend and endure to help our own citizens. We have a unique compassion for our fellow citizens. We mean it when we say it; “United we stand, divided we fall.” (well maybe except for Texas).

We hold truth and honor in extreme high regard. This is why a trader standing in the pit can sell $60 million in securities with a nod of the head and know the order will be a solid as a rock no matter what the price does at the next trade. This is why we can’t win in Iraq and Afghanistan because we can’t understand how other cultures could not respect these values. They seem logical to us, but foolish to others. Let them keep their values and do as they please. We will keep ours and live and die united by them.

(Tim steps off his soap box)

Tim Mack

Wrap up FMOC day

Locals were short off the bell from selling to Paper buyers. They took a little heat but eventually were able to break the OR and sell it down to the VA low. After a bounce off the OR high I thought we might catch a nice sell off but they couldn’t make a new low and the market rallied to 89.50. Locals were long going into the news and prices broke 5 handles in a nanosecond. It was a fairly short recovery which is a bullish sign. The usual upward drift occurred until the Fed news but all that produced were paper sellers. Locals were buyers but had a tough time holding bid and the market started selling off. If it wasn’t for the short covering rally at the end of the day I would expect lower prices going in tomorrow. However we closed far enough above 85.50 that as long as we hold this price on the open we should see higher prices tomorrow. With a Vix close at 21.08 we can look for daily ranges to expand.

Tim Mack

Wrap up

Is the sky falling maybe but probably not. On days like today I like to look at two charts for a bigger picture. The NYA - NYSE composite and SPWY - Equal Weighted S&P. We put in an outside week in the NYA and reacted off a 160 week sma which could be a major reversal sign but the SPWY is still inside and hasn’t even touched its 8 ema. Both would have to start closing under the 8 ema before we start thinking the bear is back. The market still has an appetite for risk as it is still preferring High Yield bonds to Treasuries so we are likely in a pull back here and not a major reversal.

But you couldn’t tell that by the action of Paper in the pit. Paper sold heavily off the bell and as usual the locals scooped them up. They come into the pit flat each day so regardless of what happed yesterday they are likely to take the other side of the trade off the open so that they get a position on.

If they see the market is too heavy to one side they are quick to reverse and go with the flow (well most of them but some are very suborn). Today, the sell paper stopped soon after the open. Most expected a quiet day waiting for the Fed tomorrow and listening to Goldman testimony. The locals struggled to hold the bid but they are master day traders and market manipulators. The OR held after two tests, one of the lower range and one of the upper. It was a creeper but the locals were long and getting paid. As we all know by now the longer the locals can hold bid above the OR the more likely buy Paper will start coming in. It did and the locals kept laying off in the mini and holding their longs.

They were probably looking at the same target I was which was 11.25. However the market started to roll over at 1208, yesterdays settle. They tried to hold bid but couldn’t and the market rolled over them as well. Once the price traded back to the open they scratched whatever was left and started getting short. Apparently the Greeks didn’t send enough Ouzo because their bonds were down graded to junk and the markets sold off heavily. Paper sellers were aggressive with Swiss bank leading the pack. Chicago Corporation was the biggest winner selling 3000 cars through the afternoon.

Lets see what tomorrow brings. Recent Fed days have been uneventful but we have a Vix close at 22.81!!! If the pit is packed tomorrow on the bell I think we can expect an exciting morning session at least. Cant wait!


Tim Mack

Support and Resistance – a Numbers Game

Usually, the S/R numbers I have on my daily worksheet work. In a breaking market, like todays, the market will at least stall at my support levels. It's a good idea to learn to trust your numbers and when they fail, know the market is headed to the next level. When that happens I interpret it as there is more conviction in the direct it is headed to take it to the next area.

My S/R levels come from deviations of the settlement price, Value areas and intraday ranges,weekly highs, lows and deviations.

S/R numbers aren’t meant to be hard figures. Especially when you have a huge stadium filled with unpredictable traders like there is in the S & P. Your S/R numbers should be considered as “Areas to do Business” and its how the market reacts at these levels that should trigger your trade. I use the position of locals and the aggressiveness (or lack thereof) of Paper trading around these numbers to tell me that we are changing direction at a level.

But I have to tell ya, I didn’t have a darn thing at 83.5. Nope not a thing. But Swiss Bank sure did because they came in aggressive and relentless buyers. The locals saw this too as well as other bids coming into the pit. As they sold to Swiss they flipped them in the mini so they wouldn’t get stuck short. They knew the market was done (at that time) going down and they didn’t want any part of being short.

But when the market turns and isn’t at one of my S/R numbers you can bet I am looking for a retest of the area and head to one of my numbers.

Tim Mack

Pre Market April 27, 2010

Looks like my “feeling” was right, as soon as I posted the market sold off into the close. The market left a swing day by making a new high and closing low and well below its OR. Although the market looks like it has more down side, the line in the sand is the 8 ma of the Value area now at 1200.75. If we take this out with conviction then we can see a nice sell off, hopefully. Otherwise we can rotate back up waiting on Fed No News and Goldman testimony. Above us we have resistance at the settle 07.50 the Value area low 11.50 and the Value area high 15.50. Be low us, if we trade below and find acceptance under 00.75, we have support at 94.25 and weekly support at 90.25.

Good Trading

Tim Mack

It a wrap!

We are waiting for the Fed to say nothing. The markets were quiet like it was mid August. The pit was thin most of the day with about 50-60 locals at best.

The Naz started to pick up and the S&P couldn’t make it back into Fridays range so overall a bullish sign but it just "feels" like it wants to trade lower. Its best to sit on your hands then get chopped up trying to take a few ticks out of the market. One thing that is gnawing at me is that the Vix opened above 17.0 and has stayed there most of the day.

When the markets rally strong they become overbought. Many traders hunt for a short position thinking it has to pull back to digest the rally. However, it must be considered that the markets can “work off” that overbought condition by trading sideways. Sideways or consolidated trading in a narrow range rotating from one extreme to another can do just as much to reset the market as a break (pull back). This catches a lot of traders off guard. They don’t look for a rally until they get a pull back trying to “buy the dips” so they are not long. The Shorts plant their feet (and their pride) believing the market needs to correct. But it never does. The rally comes and the shorts are stopped out further perpetuating the rally. And so the story goes......

I’m calling it a day here. My trigger finger is itchy and that always gets me in trouble…..

Tim Mack

Update

Soon after the open which was mixed, Goldman and JPM came in buyers, not aggressive but JPM in particular came in steady buying 20 contacts at a time for about 500 total. The locals were short but the kids in the sandbox were not cooperating, The Naz sold off sharply and cant get above its OR. Hummmm.

The RU MD and YM were not interested in trading below their OR. The ES crossed back and forth from one end of the IB to the other. This is a great market to get chopped up in, I will wait until either the locals start getting their way and the other markets are on board or other time frame players step in with conviction.


Tim Mack

Premarket April 26, 2010

We have an overnight high (Globex) of 16.75. This is also a contact high. We will likely test this during RTH. If we take a peak above it and only find stops and no new initiative buyers by other time frame traders we will likely rotate back down to 09.25, the Value area high or 02.25 the value area low. I have an 8 MA of the daily Value area average at 1198.00. Trading below this area with conviction will set the tone for a new trend to the downside. Looking at the NYA I don’t see that in the cards but I know anything can happen and usually does when we least expect it.

The locals were gunning for stops around that 08- 09 area on Friday which pushed the market higher so I wouldn’t be at all surprised if see a nice bounce off that area in today’s session.

Tim Mack

Its not the size of the ship but the motion of the ocean

I keep telling my wife that. I hope to convince her one day ….

As per the last Commitment of Traders Report published last Friday for data ending the prior Tuesday, the open interest for the minis was 2,496,089 contracts and 322,306 contracts for the Bigs. Five minis is equivalent to one Big so on a dollar based volume there are almost 1 1/2 as much e minis outstanding, ($150 billion minis vs $96 billion Bigs)

You would think that the screen traders are in control of the market. They carry the biggest open position. They crush the open out cry traded contacts 1:1½. I have heard a lot of screen traders say that open out cry is dead, they just don’t have the muscle like the old days. There are now too many wiz kids out there with algorithm black boxes trading VWAP. Just like at the poker table the punk kids with online gold bracelets can now take on Doyle Brunson and make him hope he’s wearing Depends.

Well nothing can be further from the truth and nothing can be a substitute for experience. This is one reason the “kill” rate is so high in this game. The worst thing that can happen is that you start out young and bold and make a killing in your first few trades. You will become invincible until they come and repo your car.

There is an old saying; “There are old traders and there are bold traders but there are no old bold traders”.

Old traders learn that it’s not the size that you trade but the timing that yields the greatest gain. There are a lot of old trades at Goldman and the reason that they are the most profitable investment bank known.

The other day the market was breaking hard from heavy selling by Swiss Bank. I know many stock traders and e mini screen traders don’t believe that a single house selling the S & P Bigs could possibly move the markets. My best friend is the first to state this. He will argue that “the markets were overbought”, “the broad market was in a 3rd wave” , “the lunar cycle and the 6 weeks cycle were waning putting downward pressure”. Uggg!. He will give every excuse known that it had nothing to do with 1 simple brokerage house selling the futures in Chicago that caused all the markets and most equity stocks, trillions of dollars in value, to break. Well the truth is even harder than that. I have personally witnessed 1 single man, the largest trader in the S&P pit, Joey Borsellino, completely reverse up ticking markets in the Dow, Nazdaq, Russell, Nyse composite, Crude and the US dollar. I am certain he reversed many other markets around the world but I wasn’t watching them at the times (yes-more than once). The story of how he does it is for another time but it has mush more to do with timing and the motion of the ocean than it does with size.

The other day Swiss was selling and the locals were buying because that’s what they do. No other houses were selling, just Swiss. Swiss put a lot of downward pressure on the markets because they were aggressive in filling their sell order. The locals who were already long from sellers off the open couldn’t absorb anymore supply from the Swiss’s selling. They kept lowering their bids but Swiss kept hitting them. The locals know that just 1 house is selling, no other houses are selling. So its just one trader somewhere in the world who woke up this morning and said “SELL ‘EM”. That trader called Swiss and gave instructions something like “Sell 1,000 cars in the first 15 minutes off the bell.”. Once the order was filled and the selling pressure is gone there is a window of opportunity for the long locals to bid the market up. However this day had a better opportunity. The price that it traded down to alerted some old trader at Goldsman (probably a 23 year old wiz kid just to make me look bad) who said this is a great area to buy the market. Prices where below value and a bargain so he gave an order to buy 150 cars. This order came in just about at the low of the day and the market has rallied with out much of a pull back since.

It wasn’t that the size of the Goldman order, 150 cars, that made a difference in the market rallying (other than providing the locals some confidence that buyers were starting to step in combined with the fact that no sellers were in sight), it was the timing of the order. Long locals, no other sellers, a pull back in a bullish market and the right choice at the right time is what made a great trade. Oh yeah, I keep a Time and Sales strip up so I can keep an eye on all those kid screen traders, there wasn’t heavy buyers until after the market was up ticking.


Tim Mack

Pre Market April 23, 2010

The market sold off sharply after the cash close and drifted down a bit overnight to 97.50 then straight up in an overnight rally to 1206.75 last. It found a home (Value) between 06.5 and 03.00 and looks poised to rally North. Thursdays Value area high was 1205.00. This overnight action has seemed to accept this area as market value. The Value Area high for today is (based on yesterday’s action) 1200.75, well below where we are trading now.

Even though we made a lower Value Area high, (1205.00 previously and now 1200.75) which is a bearish indicator we have shown price acceptance, at least overnight, of a higher area. Prices are rotating higher and it doesn’t seem like bears will be in control. We may see a test of the Value Area high and close the gap from 01.75 but after doing so unless Greece forgets to ship more Ouzo, (they sent a tanker load last night) we should see higher prices.

One of these days we will see two down days in a row but I don’t see that happening now based on the current data. I don’t particularly care if the markets go up or they go down just as long as they GO! It’s a difficult job to predict the direction of the market. Many have tried and many have failed to do so. Your odds are better gauging which way the market is going and getting on board for the ride. In other words if a market is going up the probability that it will continue is greater than it wont. And when the market is trading above the OR, Value Areas and the previous day Initial Balance (IB, the first 60 minutes of RTH) then the probabilities are even greater that the markets will trade higher.

I am not a fan of the common Support and Resistance numbers. I find that they don’t work that well. Maybe too many traders are looking at them, mostly amateurs. It’s the same for Fib numbers, they just never sat well with me but a good friend of mine and an excellent market technician swears by them. Its all a matter of finding what fits your logic and personality and learn its characteristics. Value areas make good sense to me. As in any auction process a group of market participants, trading S&P’s, corn or movie futures, will generally agree at a price area that is considered fair by both parties, buyers and sellers. This area is called Value. I also use some proprietary values that work like Market Profile Value Areas. They are areas that when the market tags them there is a high probability that the price will auction back to the middle of the range. If price trades above them with conviction then there is a good chance price will tag the next higher (or lower) number.

It is your assessment of how the market behaves around these figures that can give you a clue if you want to scale out of your position, close it and wait for a reversal sign or add to your position.


Tim Mack

Supply vs. Demand

Heavy sell Paper came in right off the bell both in the pit and on the screen. That is not unusual; the locals typically scoop this Paper up and they often have the ability to at least bid the price back up to the opening range. At that point they will determine market conditions and gauge if the momentum they gained from being on the bid can continue or not. If it can, they will bust-a-move through the OR. If they see that more Paper sellers are on the horizon or other markets have responded in the same way, showing signs of weakness, they will cover their longs in the mini and go short.

These guys aren’t dummies, far from it. They are there for one thing and that’s to make money day trading. I think a lot of these locals are successful because they can “read the market” and are quick to change direction. However, sometimes they get stuck and then they get stubborn then they get into trouble. Most of the time they can work themselves out of trouble, like today. Sometimes they don’t, like last Friday.

The problem today was Swiss Bank. My guess is that they had inside information about the down grade of Greece debt or at least one of Swiss Banks clients did. They were relentless sellers from 93.50 straight down to 89.25. The locals made a valiant effort to bid the market up but as soon as they saw Swiss back on the offer they ran.

The pit is no different than any other business. Its all about supply and demand. When Swiss is offering a lot of supply (in the form of sell orders) the locals will absorb up to a certain amount. Then when they are at their limit and cant absorb anymore supply, things get can hairy. What happens here is that the locals lower their bids until they feel the price is so low that its worth buying more at bargain prices. I have seen a few occasions on heavy selling where there is no bid at all. Meaning the locals won’t buy at ANY price and there is no Buy Paper available to take the other side of the trade. It’s rare, but it happens.

Today the locals became overloaded and not willing to buy any more so they dropped their bids quickly yet still Swiss hit them with more sell Paper. This looked like it was going to get ugly-hairy but then the knights in shinning armor stepped in. Goldman stepped in and bought 150 cars (contacts). Goldman can afford the best market analysts and their clients are some of the wealthiest traders and fund managers in the world. When Goldman speaks, people listen…at least I do, and the locals do too. They sold to Goldman but quickly covered the trade and got long. You see Swiss stopped selling and there were no other buyers…just Goldman…. That’s all it takes.

You would think Swiss bank had top technicians and they would know better then to sell in to the low of they day, that makes me think all the time, but the reality is that they could be hedging an options trade or they are taking a longer term position or just like me they guess wrong who knows, who cares, The import thing to see how the market reacts to their trades. How the supply is absorbed by the demand. Given how the market traded though the OR and rallied to close near the highs it would look like more upside tomorrow however we did not make a new Value Area high (today’s was 1205.00 ) and we didn’t close above it so we really just ended no fairer than yesterday. We are starting to bounce around here, building value in a consolidation pattern. If we don’t resume our reckless abandonment of buying stocks at any price, we might actually close down more than 2 days in a row.

Tim Mack

Pre Market April 22, 2010

Jobless claims declined and the market doesn’t care. Guess all the political talk about Wall Street regulations has everyone depressed. I saw a bit of Geithner interview with Stephanopoulos this morning and was a bit impressed that he was in favor of continued creative products of Wall Street (or La Salle St) like Movie Futures.

We are testing the overnight low now and if we hold 92.25- 91.25 we might get a nice rally off the open to the 1200-1202. If we don’t hold it support comes in at 90.25, 88.0 82.75and 79-78.5.

Anything can happen and sometimes does so its best to “Go with the flow and take advantage of the moment” – Leo Melmade” Former Chairman if the CME

Tim Mack

A membership will cost you $615,000

If you want to stand in the pit it will cost you a membership fee of $615,000. You can lease a seat but you have to put up a big security deposit.

For the privilege, you get to stand with 100 other guys and a few gals and trade the Spoos, (big S & P contacts). When you’re a Newbie you get to wear a special badge that says you can only trade less than 10 contracts and that the other locals cant abuse you. But they do anyway.

Lord help the Newbie that stands in the spot of another member. Spots inside the pit are “owned” by senior members. They stand there everyday, same spot, month after month, year after year. They know exactly where to look when they want to see the Trin or the cash markets on the boards overhead. But more importantly, they know when the phone rings over their left shoulder it’s a certain desk likely coming in with an order. It could be the clerks girl friend calling wondering why she suddenly got a rash but more than likely, especially when we are on the highs or the lows, the old timers know the phone call is a Paper customer calling with an order.

Because of where we are in the days range and what desk the phone rings, locals have a good idea if the order is a buy order or sell order. When we are on the highs and the Merrill phone rings there is a good probability that’s it’s a buy order, a good time to sell. When it’s the Goldman desk and the phone rings on the high its likely a sell order, another good time to sell. This edge is why a seat costs $615,000, it’s probably undervalued.

Paper entered mixed off the bell this morning. Merrill was a seller, JP was a seller. GS and the locals bought. To me things were looking pretty bullish. All markets were trading above their OR and I had a bullish bias from yesterday’s action. Did I say bias….. That’s the worst thing you can have as a day trader, a bias. I was hunting for longs and I should be hunting only for opportunity. This is not a lesson I learned today. This is a lesson I learn every few weeks, and this has been going on for years. Fortunately it doesn’t cost me much anymore but in the early days it cost plenty, mostly emotionally.

The right phone must have rung over some locals shoulder. I didn’t hear it and I am not standing in the pit so he can’t give me a nod along with his buddies. But they suddenly started getting short at 05.50. It wasn’t that a large buyer stepped in that they sold to. They just started getting short, selling the screen. Some buyers, not a lot, started coming in as they should have, we were above the opening range and even our 9:45 program trader kicked in a buy program. I’m scratching my head. I’m thinking they will have a tough time muscling this market through the OR. They sold every scrape of Paper from 05.50 up to 07.50, the high of the day. What did they see? What did they know? I wanted them to stay long so that they can do all the heavy work while I rode their coattails. That’s usually how my day goes and I’m just fine with it.

Soon after, the NQ started breaking. It broke its OR and led the way. (There is an open out cry pit for the Nazdaq which is next to the S&P pit. All these guys are in ear shot and they all hang at the the same bar and gym so there could have been a signal from that group and not a phone call. That would also explain why I didn’t see it coming).

Locals were aggressive on the offer and I started to believe they were going to get their way. They did and they pushed the market down to the low 98.25. The thing about locals pushing higher or in this case lower is that’s it’s a false move. Meaning that it’s a manipulated move. All manipulated moves, once the pressure is off, will return to the markets fair value area. The market did just that but the bounce back stopped at the bottom of the OR. Market forces then took over. Theses forces were bearish and the market traded lower closing below the OR and the Value area low with the Trin settling at 1.75. At least 1000 cars sold on the cash close between Goldman, JP Morgan and Swiss Bank, the 3 most respectable players. This is a bearish setup for tomorrow. The exception is the Russell (which is like a kid with ADD) and the Vix which settled below 17.0 at 16.32.

We have some big reports tomorrow- producer price index and jobless claims at 8:30 and existing homes sales at 10:00 ET uggg, no wonder Goldman sold the close…..


Tim Mack

Pre Market April 21 2010

Well I guess the euphoria over Apple earnings is over, gee that was quick. As long as we trade above yesterdays opening range and Value Area low of 1200.25 I will be hunting for longs. If Paper buyers enter off and near the open, the locals being short will try to muscle the market lower. How good of a job they do will tell the nature of the market, at least for the morning session.

I have support at 98.75- 97.00 beyond that, 94.50- 92.75. The 92.75 is my 8 day moving average of the daily Value Area average. Its my line in the sand that says above it long positions pay the best, below it short positions pay the best. Above we have the Globex high, that could be a good candidate for a 1 tick at 09.50, above that 11.00-12.00 should slow this irrational exuberance.

Tim Mack

End of Day Recap

Size Paper buyers came in on the opening bell. Soon after more Paper buyers came in to the market. The locals sold and were short. As the first 30 minutes of trade continued more buyers came in. Locals, already short and holding the OR high, continued to sell to them. They did a fair job offering the price lower and there was a great opportunity to get short on a bounce off the OR high.

Then the best thing that could happen happened. Merrill Lynch came in a buyer. Merrill is like the ol’ Lind Waldock. Remember them? When these guys come in you can almost guarantee the market will trade in the other direction. In fact they are often buying the high and selling the low.

Locals, size short, were aggressive offering the price lower. Paper seemed quiet. The buyers were done and no sell paper came in. The locals should have had an easy job of it to push this market lower. But they ran into a wall at yesterdays high and it wasn’t from Paper entering the market. It was the electronic side of the market. This side can stop them in their tracks and it did. I lost my Time and Sales and Market Delta due to technical issues so I couldn’t see it happening live. But I have seen it before and it becomes more common place as institutional traders move to the screen more and more.

Nevertheless, when the locals are short and they can’t do a good job pushing the market lower, you better flatten up and pick a place to get long. You also know we are in a strong bullish market.

We corrected the Goldman news selloff, the Volcano is no longer causing flight delays and Greece sent a case of their best Ouzo to Germany’s Chancellor so all is well there until the hangover hits.

We created higher value today and closed above all OR’s, well it took the NQ and RU the aftermarket to do it. The Vix closed well below 17.00 at 15.23 UGGGG! So it would appear that we are back on track to new contract highs. Its back to "close my eyes, lift any offer and take a nap."

That all being said watch us crash tomorrow, lol

Tim Mack

pride / noun , verb ,prid•ed, prid•ing.

1. a high or inordinate opinion of one's own dignity, importance, merit, or superiority, whether as cherished in the mind or as displayed in bearing, conduct, etc.

2. the state or feeling of being proud.

3. a becoming or dignified sense of what is due to oneself or one's position or character; self-respect; self-esteem.

4. pleasure or satisfaction taken in something done by or belonging to oneself or believed to reflect credit upon oneself: civic pride.

This is the detriment of many traders. Fortunately my wife stripped me of every bit of it which allows me to trade carefree. I don’t care if I guess wrong and the market trades against me. I get out, I try to figure out if the market has changed its “flow” and if it has, then get on board. If I cant tell, I sit on my hands until the market tells me which way it wants to go (one of the reasons I started this blog is to have something constructive to do during this time) Usually it will hit a S/R point and I will see Paper or locals entering or puking positions and the market will tell me what to do.

Many traders, once they make a decision, they will stick with that decision regardless if all the signs tell them they are wrong. This is a fault of pride. Many decisions are made during the trading day by many traders. I like to visualize it as Giant Stadium filled with traders everyday, all these different “characters” acting independently in a self-serving manner but as a natural social element, working somewhat together as a crowd (or herd).

Many of these decisions are made at specific times during the day. You can set your watch by some of them. As 1 example there is a program trader who has his clock set at 9:45 ET exactly. If the market is under certain conditions at that time he comes in as a buyer or a seller. There is a buzzer that goes off every 15 minutes on the floor. This is set to tell the traders that they must have their trading cards submitted by this time. I would hear the buzzer and see the system traders program hit the markets. You can see it pretty well on a tick chart but you have to watch closely.

Other than the open and cash close, important times are the first 30 minute and 60 minute time frames. Outside traders sitting in Geneva, Greenwich CT or Giant Stadium make decisions in this time frame.

There is a book that was written by a slime ball, you know the kind who makes your hand greasy when you shake his and you find yourself keeping one hand on your wallet when you are around him. He has a method of opening range trades using a 20 minute period for the S&P. It doesn’t work (so he opened a clearing firm to steal from other traders- now that’s a slime ball!). But even when something doesn’t work in your opinion it can lead you to developing a method of your own that does work. Those methods will always work better because YOU developed them and the work you put into them creates confidence.

For me, I found the 1 minute opening range works well because traders are making a lot of decisions at this time. They are using this point in time and market to measure their pride. Either it’s the locals who took the other side of the opening bell trades or the paper that made those trades. It may be that this works because I am looking at 1 minute charts, there could be another period that works better but that’s up to you to explore. I can easily draw lines on my charts on all the other index futures markets (not cash, thats a different method for another day) marking their OR. I can easily gauge if the markets are working together or not. You can see it using moving averages too but they are taking data from premarket and are lagging indicators.

Nevertheless, the 1 minute open seems to be a line in the sand for the markets. Traders who made a decision there will defend this area in order to maintain their pride. Different products trade differently around the Opening Range. The ES (S&P mini) is a bit sloppy. Too many traders and too much volume in this instrument can push it back and forth over the OR so you need to allow some “wiggle” room. Other thinner markets often respect it to the tick. Using the OR in context with what is occurring in the pit along with what the market is doing auctioning between Value can give you a higher probability that your trade will work.

This game is all about probabilities………… find your edge to give you a greater probability then place your bet…..


Tim Mack

Pre Market April 20, 2010

The bullishness we saw on the close yesterday carried through overnight. This kind of move can really piss off the bears. They have been waiting for a big corrective sell-off or even a continuation of the bear market (think Bob Prechter et al). I think they may get it but first the weak shorts have to be punished. They have to be taught that there is no such downward action that they will be a part of. As soon as that lesson is taught then down we go. Its like I mentioned yesterday, the market typically goes exactly the way you predicted AFTER you have been stopped out.

I don’t know if last nights 7.5 handle rally was enough to flush them out but we are sure to see an interesting open with lots of volume. You will also note that the break North of that 1190 area would lead to a target of 1197.50- 1204 as mentioned earlier. Again I don’t know if the overnight session has satisfied the rotation back to that area. We may need to see a RTH test of that area first.

We will open enough above yesterdays settlement of 1195.5 and yesterdays Value area high of 1193.25 to expect a trade toward those areas. If we cant get below the OR a few minutes off the open then we are probably still in a bullish mode and the gap fill players might have a lousy day.

I have resistance at 1205.75 and 1209.75 and support at 1195.5- 1193.25. These levels become invalid after the IB (first hour of RTH trading) is complete. As mentioned, I do expect a healthy open with high Paper volume. Cant wait…


Tim Mack

PS no reports today - some Fed speak but no one listens anymore.

Post Market April 19, 2010

There were heavy Paper sellers off the bell. The locals got long and soon after buy paper started entering the pit. So it was a bit mixed and I wasn’t sure what to make of it as I had a bit of a bearish bias. But the bottom line was the first pull back found support above the 1 minute Opening Range 86.25-85.25. All other future index markets were above their respective opening range. Soon after JP Morgan sold 500 cars and the locals scooped them up. This just loaded up the locals long even more. Along with the screen gap fill traders this was a no brainer move higher to at least the 90.00 area and as it turned out, the IB (initial balance) high ended up at 1193.25. The problem with this move was the Naz was showing weakness. The Nazdaq (NQ) is often a leader, the ES a follower. This sheds big doubt that the rally will continue. When all the kids aren’t playing nice in the sandbox it sends up a big warning signal so that instead of scaling into a position and planting your feet above the OR,…. start scaling out.

Paper quieted down as we approached 93.00 where there was some large buy stops. This allowed the locals to cover their longs and reverse their position. From 93.00 it was all locals pushing lower and running into sell Paper. As soon as locals bought from Paper on the way down they flipped them in the mini. That’s a good sign that we will continue lower and we did.

I used to be those traders who had their stops resting on top just to watch the market trade my way as soon as my stop was taken out. It was so frustrating because fundamentally I was right but I was rarely on board after being stopped out. Now I understand what’s happening and I don’t get stopped out like I used to. Sure I take lots of trades at a loss because I’m wrong. That’s part of trading. But I don’t usually get stopped out and still be right. Its amazing that there are some huge traders swinging big lines and they haven’t figured this out. I am sure it has a lot to do with their risk manager being an accountant and not a trader.

The Kids I refer to are the index futures: S&P 500, S&P Midcap, Dow Jones Ind., Russell and the Nazdaq, all lined up on the bottom of my main screen. I think of them as kids playing in a sandbox. If they are all trading on the same side of the OR (playing nice) you can feel confident of the move and its my signal to scale into a position. The problem is when one of these brats stop playing so nice. I weight each a little differently and just like kids they all have different personalities. As I said above the NQ is a leader and is a great heads up. The YM (Dow) is often a follower but if he starts whining and wont play then you know that the move the NQ is on is unlikely to last. That was the situation today. All the kids except the YM traded below their OR and we appeared to be in for another nice sell off. But YM wasn’t playing.

Frankly I wasn’t sure what to expect because sometimes the YM will start to catch up but today he planted his feet (and I unplanted mine). The market started to rally. It met resistance at the OR hitting it a few times but as the YM refused to play, the locals started to get long and bid the market up. Once the other kids broke above their OR I figured we would test the high. I was a bit surprised how bullish it stayed closing on the high - the locals were bid the whole way. The Vix was breaking, settling at 17.34, the Ticks were making higher lows and the Trin was flat the whole day and never saw a minute above .60 until the close so I guess it shouldn’t have been much of a surprise we were so bullish. All the kids settled above their OR and the ES settled above its weekly close so things are looking bullish here the only saving grace is that the Vix is above 17. If that starts closing lower it will be back to my afternoon naps.

Tim Mack

Pre Market April 19, 2010

We 1 ticked the low in the overnight session and didn’t find any Globex sellers under there. We are in limbo until the Regular Trading Hours (RTH) start at 9:30 ET. We will probably test this area today but it all depends on the opening bell. Traders had the weekend to mull over the Goldman issue and everyone expects at least a pull back from this relentless climb up over the last month or so.

There may be an initial flush of Sell Paper on the open with other Paper sitting on the sidelines to see how the market trades, but if the locals absorb all the sell paper they will be "size" long and if they can hold the market above the OR (the first minute of the RTH session, this differs from the opening range set by the Merc where initial orders are required to trade) they will get a lot of help by those gap fill traders and we should see the 1990 area. However in my world that gap is considered already filled in the overnight. Way too many traders are playing while I’m getting my beauty rest.

I have a number I like to keep a close eye on - it’s the 8 day moving average (simple) of the average daily Value Areas. To me this is the average Value over the last 8 days. Admittedly, it works better when we have consistent ranges and Friday was as inconsistent as it gets but its worth having on my trade sheet as a bias toward the market. Right now the number is 1,189.75. This lines up with the settlement of the last trading day the weekly close and Fridays Point of Control (POC) so that’s an area I will be keeping a close eye on. If we trade above with conviction and acceptance we could be taking at trip to 1197.5 - 1204 area. If we reject it we should see new lows. Can’t wait to see how it plays out.

Tim Mack

Pre-Pre Market

If I had to make a guess right now it would be that we make a test of Fridays lows. Depending what we find there we set the tone for the next meaningful move. We bounced off that 50% retracement and closed well enough below the OR and the prior weeks settlement to suggest more weakness. Its Sunday morning and Globex hasn’t opened yet so I’m working on Fridays settlement information only.

The market will decide if we just “1 Tick” the low, find nothing there and head back to the 1203-1204 area. Or we find aggressive sellers which will auction the price lower by taking out the bids. The 1 tick is a common trick of the trade of locals. I will cover it in great detail in a later post.

Nevertheless, it doesn’t matter what my opinion is or what any technician’s opinion might be. What will happen is either the collective opinion of traders who have the ability to move markets will be likeminded or they won’t. That will influence the open and often the day.

Here is an example:
If Merrill Lynch is a big seller on the opening bell and there are no other sellers, the locals will be long from selling to Merrill. As long as no other Sell Paper enters the market, the locals will bid the market up selling 1 lots along the way up. When a trade occurs the participants signal a clerk at a podium overlooking pit. The clerk enters the price and this is then transmitted to screens around the world.

The outside world (Paper) sees the higher and higher prints. They think “gee wiz the markets are rallying north - gotta get long, gotta get long!!!”. This is just what the locals are looking for. Remember they are long and are looking to cover their longs by selling them to paper at higher prices for a profit.

With prices auctioning higher, the buyer enters the market. The locals know that Paper are like terminates, if you see one, you know more are nearby. Its funny, they will get very aggressive after that first buyer comes in because they have some assurance that the outside world wants to buy and they are more than willing to sell to them at the highest possible price they can manage.

They also know that the first Paper entering orders could be a seller. They don’t know if their efforts bidding the price higher will attract buyers. No one knows, I repeat NO ONE knows, All you can do is take a shot and watch very closely for signs if you are right or wrong. If you are wrong it’s no big deal because NO ONE can predict what Paper traders are thinking or about to do. This is a game of “probabilities”. So if you are long like the locals in this example, and you are above the OR and you don’t meet Paper Sellers, the “probability” is that the market will continue to auction higher and higher.

The longer the market stays above the OR the more the outside world will “probably” believe the market will continue to trade higher and buyers will continue to enter the market. Locals will continue on their mission pushing the market higher until they have a reason to sell. Sometimes after finding those buyers they flatten up. The market will quiet down and trade in a tight range. If you don’t have Paper entering the markets and the locals don’t have a reason to be aggressive on one side or the other, the market will rotate in a range where buyers and sellers agree on price or both sides find “value”.

Locals are standing in the pit to do only one thing - make money. So its time like this that they will often gun for the high or low, whatever is near by, to see if they can generate activity. Usually there are stops near these levels and they are masters at picking them off. As they saying goes… “No stop in the S&P ever goes untouched” that story is for a later post.

Also I will provide a view on how the electronic market (which I trade) and how the “Dentists from Iowa” influence the market. Theses too will be another post so stay tuned for more tails from the pit.

Tim Mack

End of day recap

Today was a fun day, if this keeps up its going to cut into my afternoon naps- not really. We need to see the Vix close and stay above 17.00 for a sign of returned volatility

Paper came in a big buyer off the opening bell and locals got short. They had a tough time offering the price lower to get it to break. The market rallied against them and came back through the opening range. Unfortunately for the locals they thought after their failed attempt that the market would auction higher and started to reverse their position. Most of them lost every cent they made over the last month. Ahh trading is grand even if you have 20 years experience of being the best day traders in the world.

Funny thing that Goldman Sachs came in at 1206.00 offer 100 cars which kept the lid on the move higher…..then the news came out….. the next thing we knew is the market was trading 10 handles lower. I need to see a higher high above the opening range before getting long which kept me off a long but I was a few ticks from doing so.

The market traded down nicely pausing at old OR’s along the way until we came close to my intra day target of 1182.0 where we bounced to a 50% retracement of 1193.50 . Locals watch this area closely and once the market shows weakness at this level they just jump on board short and try to push the market lower. This is a great test to the strength or weakness of the market. If they get their way we have a weak market and a sell off to the close. If they end up fighting the market then the market shows strength and we will likely see a full retracement of the move lower back to the 1204-1206 area.

That doesn’t mean we are done to the down side although we had some very high Arms reading intra day which is a good sign to hunt for buying opportunities in a up trending market if you are a position trader, but hey that a story for another day.

Also noteworthy is that there was usually large buying of S&P 1000 June puts which traded over 20,000 times. Humm. Someone who can swing a pretty big line is making a big bet to the down side. Options are the instrument of choice for large traders. They hedge them with futures or outrights but when they take a position (a guess) to the market trading to one side or the other with options, often selling them but occasionally buying them.

Also noteworthy is that Goldman has been a quiet seller over the last few days selling 100 cars at time in 20 lots. They also sold 300 cars at 1200.00 (a car or “Big” is 5 times a e mini contract). I think they made enough to cover the SEC fines, funny how that works……

The market was due to break from it way way wayyyyyy over bought condition. Is this the start of a pull back or is it a change in the Continuity of Thought? If it was the Goldman story alone I would say just a pullback to the 1162.00 area before we finish this bull market in June or August. But the disruption of air traffic and commerce that this volcano is causing and the Greek crisis (that doesn’t seem like its being resolved as quickly as we bailed out AIG) makes me very attentive that this could turn into a reversal of trend.

Only time will tell………..

Tim Mack

BTW

Last weeks close was 92.50 so closing above or below this figure can influence how markets behave next week

There is a report at 9:55 ET so I wont initate any trades near that time.

Friday April 16 pre market

As of this writing 9AM, the market is trading just below yesterdays OR and appears to be finding a home there.If we open below 1205.5 this would suggest more downside activity. There is a lot of energy built up in the markets and if there are any short sellers left.... they will pounce on any sharp move down. There is support at the 1197-1198 area and 1188-1185 area.

Index options expire on the open and other options expire on the close, Monday is settlement so this usually brings extra ordinary activity.

The bottom line on the open is this...no one knows what big houses who move markets are going to do, nobody can predict it and if you think you can then you are flipping pennies. You will be right as often as you are wrong over time. You get burned when you start flipping fat tails, meaning that you are on a winning streak of being right and start placing heavier bets to suddenly learn you are wrong.

Paper (brokerage firms) will open on the bell either a big seller, big buyer or mixed, the locals will take the other side. If paper sells, they will buy. If its only one house doing the selling the locals will hold their longs and bid the market up and they can do it because they don't have resistance from other brokers who are selling. If several houses are selling they will cover their longs in the mini and join in on the selling, so you see they simply go with the flow of the market.

70% of locals in the S@P pit were there in 1987 so they learned (and survived) that it doesn't pay to fight the flow when its bigger than they are. Good words to live by as a day trader.

Tim Mack

On The Close and Recap

So we had a big paper seller on the opening bell, locals got long and they were able to bid it up past yesterdays high but didn't find any buyers to sell to. The market drifted back down to the opening range and found support for another trip up near the highs. For a brief moment i actually thought we may get a close below the opening range but instead we continue to build higher and higher value. The 8 day SMA of value is at 1,187.81 as long as we are above this number we are bullish.

On the cash close there were paper sellers with the exception of Merrill Lynch, they were buyers. When Merrill is a buyer you want to be a seller. They are like the 'ol Lind Waldock of yesteryear. We love to hear them come into the market because we know price will trade against them.

For tomorrow we have housing starts at 8:30 and consumer sentiment at 9:55 ET, I think this report gets out early to subscribers so be careful if you don't have a cush on your trade by then. If we open above 1204ish we are likely to see higher prices.

Tomorrow is Friday and the weekly settlement is an important area. Last week we settled at 1192.50. I think we also have options expiring so we could get some volatility near the close.

One thing esp. noteworthy is the wedge we are building in the Vix over the last few days this combined with low ARMS reading may be a warning of a trend change or at least the long awaited pull back. But again as of this close with higher value and above the OR we are still looking north, no sign of a reversal today.

End of Day

Typical last hour of trading of late, there is NO paper entering the pit and the markets just chopping around, locals playing hot potato in the pit. One day we will get back to normal volatility and we will see volume come in the last hour but until then we should be glad that we are seeing 5 whole handles of RTH range. Whoo!!

Tax Day

Looking at the daily returns for April from 2000-2009 April 15 has the poorest return for the month. You would think since we are falling into the turn date window of April 14-19 that this would be an ideal date to initiate a long awaited sell off.

Not the case. Although there was paper sellers off the open in the Spoos the locals have been able to keep the market above the opening range(OR) , Spending time above the OR will attract buyers and piss off sellers who will eventually give up and short covering rally may finish the day. We are at 1209 even as of the writing. Notice how we 1 ticked the OR low another sign of bullishness. Lets see what the afternoon brings but so far I haven't seen a change in the "Continuity of Thought" that would suggest we are changing direction - keep in mind that could change before you read this post - So trading goes.