Something you should know…..

I thought about starting a blog when I was bored during the dull market action we experienced in March. I needed something constructive to do mid day and I had the energy to share some of my experiences. It’s funny how no sooner that I start posting, the markets started getting range.

While learning to trade I read every bit I could get my hands on. I absorbed some of what fit my personality and discarded the rest. I thought this blog might help others that were interested in learning and willing to do the worked that was necessary.

I don’t promote anyone’s product or service. I only once suggested a book to read but I was not asked to do so nor do I have any affiliation with the author or publisher. Promotion is not the intent of this blog.

If you are interested in learning more please e mail me and I will share with you some resources I found useful but I do not believe it is appropriate to make such recommendations publicly.

I only posted a link to this blog 3 or 4 times in other blogs and it is incredible that this generated such a large following especially in such a short period of time. I guess because I talk about something that is not unique or exclusive, but simply rarely written about in a free format such as a blog; market auction as it is applied to the S&P futures trading.

I live by, and teach my kids, 3 simple rules of life:

1. Don’t take what you didn’t earn or was given to you, don’t steal

2. Don’t hurt people; physically or psychologically.

3. Do what you say/ promise.

In order to be compliant with rule 3 I will tell you that you can listen to a service that will provide commentary of what occurs in the pit in a chat room at Think or Swim™. This is free to anyone who has an account with them or TD Ameritrade™. You can also purchase the service at Tradersaudio.com.

I was fortunate that I was being trained by a bond local at the time I started using this service. I also had the opportunity to stand ring side at the bond, S&P and crude pits observing first hand, for hours at a time, how the markets auctioned between paper and locals. It can be extremely confusing unless you have comprehensive knowledge of what is occurring in the pit and how to interpret this information from chatter to a useful trading tool. You also must listen at all times so you know the position of locals and how aggressive paper has been. It takes a long time to master and there is NO medium that I am aware of that teaches an individual the value of this service and demonstrates daily examples.

This blog is getting a bit more complicated than it was intended. It apparently is not sitting well with some folks who feel the information I disclose is proprietary or exclusive. Instead of looking at this as an opportunity it is viewed as an obstacle. That’s alright because the markets are picking up so I am pretty busy during the day and exhausted at night and I still have my own homework to do. Also the weather is getting nice so I like to spend time biking with the kids when I can. So I may not post as often. However I will try to make the post better quality. I still have a post about the Holy Grail…… It cometh.

There is one trading technique I want to share today. Yesterday the IB closed at 88.75. There should have been a bunch of stops built up above that because of the way we traded there the last few days. We ticked above it and came right back. That means there were no buy stops up there that stopped out weak shorts. If there were, the price would have “zipped” up as the stops turn to market orders and the filling brokers aggressively try to fill the buy orders. Instead there was nothing.

Joey Borsellino got short and started to push the market lower but that isn’t necessary for you to know to sell near the high of the day. All you need to know is how the market works and how to read the price action. I plan to share more of this with you in the future but we will need more rain and less biking.

I would like to thank many of you for all the positive comments. It was very encouraging and motivated me to continue posting even when it was just about the last thing I felt like doing after a highly active trading day.


Tim Mack


“The average person puts only 25% of his energy and ability into his work. The world takes off its hat to those who put in more than 50% of their capacity, and stands on its head for those few and far between souls who devote 100%.” - Andrew Carnegie

Is there a PPT (Plunge Protection Team) ?

There was a Fed mandate after 1987 to set up a team of some sort to prevent chaos in a collapsing market. I read details on their responsibility a long time ago, can’t remember where. After witnessing first hand tick by tick several very severe breaks l can tell you that they are not present when the markets are crashing hard, and if they are, they are powerless to do anything about it.

The Fed usually does everything wrong anyway and trying to prop up the market wont be any different. Winston Churchill said it well when he said; “ Americans always do the right thing after they tried everything else first”. That’s because our government employees are not as smart as we hope they would be. I realized this even more so when I learned that Alan Greenspan called up Leo Melamed and asked him what he should do the night of the 1987 cash. Ummm… Alan was the Fed chairman managing the Federal Reserve of the wealthiest country in history; Leo was just managing the CME.

Well maybe they aren’t as dumb as I think and If that’s true then the PPT was in action today. The markets were set to break further. When we open gap lower so far from Value and below my proprietary range the markets tend to continue selling off sharply. It can rally off the bell but within the first hour (IB) and often within the first ½ hour, the market will peak and sell off straight through the opening range. The rally never fills the gap and the gap traders start puking adding to the sell off. Alternatively, the markets will sell off sharply right off the bell. The market may up tick the OR a bit but only briefly before breaking.

We didn’t get that sell off. In fact, after a quick test below the OR we found support at the opening range high and never looked back. Locals got short several times during the day but couldn’t get the market to break yet there was no huge stand out paper buying. This might be a sign that someone, with a huge bank role of.. umm the Fed, stepping in any buying the market. Maybe they saw the strong sell off yesterday and the sell off on Globex this morning and decided this would be a good time to step in prop the market. That wouldn’t be so dumb.

I still have a hard time believing this, I just don’t see a PPT organization run by the Fed doing anything right although they probably outsource the whole thing to Goldman and its their technicians that are trading the Fed account. That I might buy. Even still no market can be manipulated and if this IS the case we will be retracing the strong rally today at some point. If this was buyers stepping because they felt the market was below value then we should open and hold 79.00-81.00 tomorrow.

Regardless, as long as you disregard the “who” and “why” and only trade the “what” as in “what is happening to price in relation to the OR”, you will be on the right side of the market. The locals were a great tell too. If anyone is going to be effective manipulating the S&P’s intra day its going to be the locals. They are masters at it and when they cant get their way bulling the market lower you know you have a strong market on your hands and you want to be with that force.

May the force be with you.

Tim Mack


“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” - Henry Ford

Careful out there

Careful out there traders. We will be opening well below yesterdays Value Area low of 79.50 and a proprietary range low of 58.25. This means the sentiment of yesterday changed significantly to the downside.

Keep this handy, you might need it:

Daily Price Limits RTH: Successive 10%, 20%, 30% limits (downside only)

Yesterdays settle was 1071.00. You may want to book mark this link;

http://www.cmegroup.com/trading/equity-index/us-index/e-mini-sandp500_quotes_settlements_futures.html


Tim Mack

The secret of the Holy Grail Cometh

The market found value between 1090 and 1075 today. That’s not a bullish tone. Ideally for the bulls we should have retraced part of Fridays Raging Rally and traded above Fridays high by 3 handles to find higher Value. If so we would then make it back to 1105 area for a test. Now its wait and see how this market opens and trades in relation to this range. It could go either way because we stayed within Fridays Value Area so really there has been no change to the sentiment of Friday. Still we are closing far enough below the OR low that my guess is for lower prices.

There was very little paper today, mostly buy side this morning and sell side near the cash close. I have to jet this evening so I will keep this post short But I did spend some time drafting a post about the Holy Grail, I just don’t have time to finish it up today. If these dull markets keep up I can post commentary but my guess (and my hope) is that we will see lots of excitement in the very near future and lazy days like today that gives me a chance to write will become less frequent.

Tim Mack

And They’re Off!!!!

Straight up 28 handles right out of the gate. Paper sellers on the bell, locals long and the market just went straight up with little effort by the locals. A big Paper buyer came in at 65.00-64.00, locals found their buyer, and the market just kept going. The May 6 crash low was 1056.00 in the mini and 1060.00 in the bigs.

We tested this low on the bell at 1051.25 in the mini and 1051.50 in the bigs. A huge rejection of that tested low caused the rally. That can set a great double bottom and we can be off to new highs……..unless we retest that low again. Typically a 2.5-3 handle “test and reject” can set the tone for a change is trend and we would then consider the action since the end of April as a correction of the bull market since March of ’08. We went a little deeper than the 2.5-3 handles but that could be chalked up to the increases in volatility.

However, in my opinion we are at a critical point. I would have preferred not to see and move back into the range of the crash which would suggest that it was an anomaly meaning prices would never return to find Value at that level. But they did, and that’s not bullish. If it wasn’t for the fact that we rejected that low so vigorously Friday I would say tighten your helmet straps cuz is going to be a long 2-3 rear ride down the Slope of Hope.

Meaning if we head to the 65-00- 52.00 area and rotate, finding Value, there is a good chance that the decline will continue.

If so this offers traders a rare opportunity. Declines can be sharp and fast. Elliott Waver’s are calling for a 3rd of a 3rd wave which occurs when EVERYONE heads for the exit and the door opening cant handle it. This would be caused by the baby boomers who are heading toward retirement and they cant stomach their 401K statements shrinking as they witnessed in 2000-2003 and 2007-2008. Those memories are too fresh and they are too close to needing that investment. Add some car bombs in Times Square and elsewhere (this I am afraid isn’t a matter of “if.. its simply “when”) and more bank failures (this too is a when, ) and we can have lots of panic on our hands.

If we do head up from here and the Vix remains high we will continue to have 10 handle intra day swings so either way we should have some great near term opportunities….cant wait

Tim Mack




“If you are going through hell, keep going.” - Winston Churchill

Locals a.k.a Outliers

There is a book worth reading by Malcolm Gladwell called Outliers. The premise of the book is that if you are smart, lucky and hardworking you will be highly successful. The luckier you are the more successful you will be.

Bill Gates and Paul Allen were more lucky than anything else. So were the Beatles.

Bill and Paul found themselves as two 16 year old nerdy geeks who had the very rare access to a computer that they could program. At the time, it was unheard of to have access to a computer even for university students but they found themselves with the opportunity to play all night. While most kids were sneaking cigarettes and peaking at Playboy, they were in a computer lab writing software.

When they came across an opportunity to apply their skill they had logged 10,000 hours of screen time. They were smart and hardworking and took advantage of every opportunity but more importantly….. they were lucky.

The Beatles started out smart and talented but they had more luck than talent. One of their first gigs was to play at a German strip club 6 days a week for 8 hours at a time. These kids were talented enough to be offered the job and smart enough to take it. Well…. I’m not too sure how much intelligence that decision took. They were young kids with a chance to drink beer and sing to naked women for 8 hours a day. Not a whole lot of smarts were needed to make that decision….

What happened though is that all that stage time gave them the practice they needed to become a great band. By the time they played Shea stadium they had 10,000 hours of stage time.

You can still be successful without as much luck as Bill, Paul and the Beatles had. You just might not get to their level. But if you don’t put in the 10,000 hours of hard work you will never make it.

Most wannabe traders blow out and give up long before they log the hours needed. But once you make it past the required time, which is a feat in itself, you have a great chance of being successful.


Most of the locals in the pit have well over the 10,000 hours of hard work needed to be successful. They are also smart. More street smart in the S&P pit, more book smart in the options pit but smart nonetheless.

They are also lucky. There are not a whole lot of traders in this world that have the opportunity to “make the market” in the largest equity futures pit in the world. Oh sure, with enough money you can buy a seat and open a margin account, read the rule book and trade in the pit. But you won’t last long.

The lucky ones worked as runners and were smart enough to pay attention. Others had a dad or brother who showed them “how things worked”. That cut down on a lot of hours needed to learn the game. Its important that the teacher is a relative. You won’t doubt what a relative tells you. Lacking a relative, its up to you to learn a little here, learn a little there and spend 10,000 hours watching ticks on a screen.

Most wannabe traders don’t want to do the work. They want someone to tell them all there is to know. The problem with that is they never gain the confidence needed to be successful. They also tout themselves as heroes when the trade works well and blame others when it fails.

Trading is all about confidence. Locals can get run over time and time again and still take the next trade because they have the confidence knowing that they will end the day green and if not, they will get it back tomorrow.

We saw a lot of down side activity today. All houses sold size off the open and locals were long. We opened well below yesterdays opening range, Value Area low and my propriety range. This is bearish and the houses thought so too. The locals simply took the other side as they usually do and made a best effort to bid the market up hoping to attract buyers. Failing to find buyers they wasted no time reversing and we had a great break of 10 handles below the OR (Opening Range). Locals found bids on the low and joined in rallying the market back up to the OR but a sellers market wont make if far above the OR and back down we go test the IB low, back up to the OR and eventually a test above. Its noteworthy that we completely failed to find buyers above the OR and sold off hard. Tomorrow is options expiration so we may see some continued volatility as lots of puts will expire in the money….cant wait.


Tim Mack


"I find the harder I work, the more luck I seem to have" - Thomas Jefferson

????

Paper buyers came in strong off the bell. The locals were short and got run over. They reversed and got long adding to the straight up 10 handle rally. We hit 1122 and I think the whole world got short. I was expecting the OR to hold due to the aggressive Paper buyers off the open but we plowed right through after a test.

When we rally 10-12 straight handles such a move will exhaust the buyers. Nobody wants to buy the high after 10 handles. The bulls will wait for a pull back if they want to get long or add to a position. The problem with that is that the locals are short in a breaking market so they will scoop up any buyer who comes in above the OR. They will be more cautious around the OR but if they can muscle it through they will continue selling to any Paper buyer. And why not, they are short, green and the market is going their way. In my opinion it’s the way to make the big money. Some traders will put on their full position and scale out taking profits along the way. I prefer to add on to winning trades and quickly scratch or cover a loser. Both ways can work, its just your style and goals that drive how you manage a position.


Its noteworthy that the market rallied 9 handles above the OR high and found a top then sold off to 9 handles below the OR low. This symmetry occurs often. Its always a place to look for support or resistance when we cross through the OR. After rallying to the OR we sold off and made a solid low 1099. Then back to the OR to chop around. It’s a bit puzzling because we sold off pretty well, really chopped around this OR all afternoon, was down all day from yesterday’s settle but the Arms was rather bullish settling at .52. Options expire Friday so maybe their will be some games played. We have been down most Fridays since the first of the year and May 20th (Thursday) should be an important pivot date so I have a lot of mixed signals right now.

Nevertheless because of how we rotated around the OR 13.75-12.50 I believe how we open against this range will set the mornings activity after that and beyond the first hour trade (Initial Balance period) its anybody’s call. Still feeling bearish as long as we are under the 8 MA VA at 43.25



Tim Mack


“Play the game for more than you can afford to lose... only then will you learn the game.” - Winston Churchill

Lacking Paper Sellers

That was the story today. It was just a slow grind lower on with the occasional scaled down Paper buyer who loaded the locals short. I was expecting a decent rally after finding support from the Value Area High 34.75 which would then continue yesterdays late day reversal. However once we crossed back through the low of 33.00 (within the wiggle room of the VA) there was no looking back, just a continued slow grind trend day. The locals didn’t have to work to push the market lower. This is a clear indication of a trend day, no stand out Paper either way but the market just wants to drift lower.

Trend days can chew up traders who like to pick bottoms (or tops in up trends). Few can do it successfully. Paul Tudor Jones liked to pick tops and bottoms. He was mostly picking bottoms in a bull market and made a fortune. It would take him a few tries before he found the true bottom and being a brilliant trader trained by a brilliant trader also helped. I have watched traders lose fortunes trying to pick tops and bottoms. After witnessing the carnage I learned quickly that I would rather go with the flow and have all the momentum of the markets at my back than try to fight it.

We closed at 1118.25 which is below today’s OR, yesterdays OR and come to think of it….. all the OR’s from last week. That’s not a sign of a healthy market.

My wife is a fan of the television show Greys Anatomy, I’m more the Scrubs type but rarely ever watch it. But on the even rarer occasion that my wife and I are in the same room, the TV is on and she has control of the remote, its Greys that’s on the tube. I never dreamed of being a doctor and after watching Greys it is the furthest thing from my mind.

However, sometimes when I get deep in to the zone, I think of the market as a patient laying on an operating table with all the monitors hooked up. The up ticks and down ticks of the bonds, gold, crude, and index futures are the scales on the instruments. As the market ticks past the OR, then the Value Areas high, then low, then the IB, the patient slowly dies, occasionally coming to life and gasping for air after hitting the support of a Value Area or old OR but then falling back into a comatose state and a slow death. Morbid I know, what’s even more morbid is while the patient is dying I’m short, making money and loving it.

We have Fed meeting minutes tomorrow at 2:00ET and unless they announce that they plan to go “negative” next meeting, I don’t see much happening to the upside. There is a chance that we are putting in a double bottom to yesterdays low of 1112.75. That print sure spoke “leg bottom” at the time, which is another reason that I was looking for more upside today. Taking out that low by more than 3 handles and we can say "good night Gracie".


Tim Mack


"Believe nothing, no matter where you read it, or who said it, no matter if I have said it, unless it agrees with your own reason and your own common sense." - Buddha

Family First

Family matters are keeping me extra busy, I will be back to posting regularly soon.


"Continuous effort - not strength or intelligence - is the key to unlocking our potential." - Winston Churchill

Market Profile Value Areas

As defined by Dalton and Jones in the book Mind over Markets: “The area where 70% of the day’s business is conducted”

Based on yesterdays trading 70% of the volume traded between 1169.50 and 1162.50. When markets are “orderly” these Value Areas are an important gauge of the market. When the market is trading inside the area on the following day, the sentiment that created this area (or range) hasn’t changed. The market simply rotates from one side to the other. Lacking any other time frame traders stepping in, either long or short, the market will simply continue to rotate. In other words, both buyers and sellers found value in this range.

When you have a “disorderly market” like last Thursday, you get a huge Value Area like 57.75 handles!! as compared to a typical market like yesterday where the Value Area was 7 handles. Huge Value Area days wreak havoc on my 8 day moving average and using the Value Area high or Value Area low as support or resistance is worthless.

Today however was a good example of the “value” of the Value Area that is created in a typical trading day. The market opened up inside the Value Area at 66.50 with aggressive Paper sellers. Locals had “attitude” and bought every scrap. The market traded down to 61.75 as the locals were loading up on aggressive selling. The low was just a few ticks from the Value Area low.

Locals were long and initial Paper sellers were done. Without another wave of heavy Paper sellers the market, in the hands of the locals on the bid and the natural rotation back through the Value Area range, rallied. More Paper sellers came in one at a time and with rising prices the locals kept buying. The locals will add to their position and absorb the Paper selling as long as the prices are rising and its one house (one trader), at a time. They will cover and reverse if the next wave of Paper selling is from several houses. If several houses all start selling this means traders in different areas of the world are all seeing the same thing and betting on (in this case) lower prices. Value Areas won’t hold when these traders who are thinking on a longer term basis, believe prices are too high (or low).

The price traded up to and through the Value Area high by 2.5 handles. This didn’t attract the buyers the locals were looking for to lay off their longs. This market wanted to trade lower and once the afternoon session kicked in that’s exactly what it did trading right through the Value Area low of 1162.50 and even yesterdays OR.

The Vix at 26.82 suggests continued volatility so based on this afternoon’s action I am looking for some more downside activity. It will probably all come overnight while I’m dreaming about cold beer, warm beaches and hot bikinis.


Tim Mack

More Big Buyers

Another day of big buying, JPM bought 1000 cars aggressively within the first few minutes of trade. Goldman joined in, Solly, even the perma bear Swiss is now a buyer.

The locals were size short from selling to Paper … and here comes Joey…..

Joey stepped into the pit at 9:50 ET and started showing bid. Joey picks his moments carefully. The whole pit was size short and he knew it. He also knows the market wants to go up. He fights the whole pit and he has the skill and margin account to do it.

He lifted every offer in sight. Most of the time the other locals will just put their hands down and let him just bid or offer the market to see which way the market trades. But Joey was long and on a mission. He pushed the market higher and I don’t think he had a tough time doing it because the market was bullish anyway. He wasn’t fighting the market he was just fighting the locals in the pit. The locals didn’t put up much of a fight. They saw a bullish market and once we started trading above the opening range they puked.

Every time big buyers came in in what looked like capitulation, the locals got short but the market just rallied back up. Joey had a good day but most of the locals went home down to kiss the dog and kick the wife.

I have seen many times after the locals go home down for the day, the next day is quite volatile. They step in the pit with attitude, wanting to make their money back. They usually do and I will be right in step with them. Cant wait…


We continue to create higher value and big Paper keeps buying aggressively. I think they hope its another 1987 but its 2010………


Tim Mack

Some days it doesn’t pay to be a local, most days it does.

Paper buyers came in aggressively out of the gate and locals sold. Locals were stuck and they did everything they could to push the market lower. Then at 10:30 ET the big gun stepped in to the ring, Joey B. As I have said it is great when he is on a mission because if he gets his way he can move the market to the point that if enough sellers step in the longer time frame traders will start selling too. If he cant get his way then you know there is some good up side potential. I am always watching closely when he is on a mission.

Today, Joey’s mission failed and that was bad news for the locals that were short and continued to get short off the open. The market was so strong that these guys (and gal) couldn’t even push down to near the OR much less the top. They held those short 10 handles before puking and reversing.

The market topped out at 1169.0 with a push high on a size buyer. Locals flattened up but were not heavy short. It was one local who started aggressively pushing lower around 1167. He simply recognized the top and got short so I don’t see that it was a false move like Joey often does. Joey will fight the trend and when he is done, if the market doesn’t accept the level as value, the market will sometimes snap back in like a rubber band. This local just saw a change in trend and got on board. Locals stayed short until 1152. I wish I covered there too.

I’m not sure what to make of things here. I was expecting a pull back off the months of a steady creeping market then off to new highs into June - August but last Thursday was a little bit more than a pull back. Is “Sell in May and go away” in gear this year?

I think the break last week scared a lot of investors. Moms and Pops who still have 2008 fresh in their minds and want to preserve whatever is left in their retirement accounts may be calling up their mutual funds and moving out of equities.

I ask - has the Continuity of Thought changed?

My Value Area moving average was at 66.75 today. The market didn’t hold it so overall it is still bearish. Although we did close above the OR we could not settle above the Value area high of 56.75 or the IB high of 54.50. If we open below 44.25 tomorrow I will look for continued selling and it might just get very very interesting…cant wait!

Tim Mack

The Battle of the Titans

I was looking for a rally to retrace the major move from last week but I didn’t expect it to happen with 51 handles BEFORE the market opens.

Wow. I never saw that before.

Sooner or later we will fill that gap and then new lows. A double bottom before the double top or a double top first is yet to be determined but the Titans are battling it out right now.

But before we get in to today’s action you may want to take note of the lock limits for the ES. I have the limits down on my work sheet but I never thought I would need limits up! There is a 5% lock limit up on overnight trading that is released on the bell. We came within 3 ticks of that this morning which also happens to be right at a great 1 tick setup but if you are wrong and the market trades to the limit you’re sitting on a short trade that’s lock limit up. That is a place I never ever want to be regardless of the potential reward.


Daily Price Limits RTH: Successive 10%, 20%, 30% limits (downside only)
ETH (overnight): 5% up or down


There are several houses that are standout players. Goldman has always been one of them. They have the best analysts and the wealthiest clients. Other standout players come and go but recently Swiss bank has been very active. If you recall me mentioning they have been very aggressive to the downside before the crash.


This morning we had very aggressive buyers off the bell. Goldman kept buying totaling 1000 cars in the first 5 minutes. Then JP came in buying 600 cars at 9:43. This was the last of the aggressive buying and the high of the day. The locals were size short as they didn’t lay anything off in the mini that I could tell. After a little local push- here comes Swiss. They sold and sold size and continued to do so which completed the IB.

No other stand out sellers came in, just Swiss, and after a test of the IB we rallied up but couldn’t take out the high so back down to test the low. With the Titans done taking their position we just auctioned around creating Value. The pit was packed most of the day as locals were expecting heavy trading that didn’t materialize. We did rally enough late day to settle above the OR but not enough to say we should seek more upside.

The Vix is in a good spot for active trading above 17 suggesting volatility but below 33- the “chaos level”. Breadth was pegged to the upside all day suggesting a pull back or resumption on Turn around Tuesday. Tick is rising suggesting continued up side and Arms is at a calming .64

I am still looking for more downside activity to test the low but I sure would like to know what Goldman is thinking right now. Regardless I will be long above and short below. Cant wait…….


Tim Mack

My Apologies

I published a post earlier today regarding some traders that had a really bad day yesterday. Apparently some of those traders read my posts. It was unfair of me to publish anything negative about other traders. This business is just way too difficult to be successful in to have anyone making negative comments about them. I could easily be in their shoes tomorrow and I wouldn’t want anyone bringing that to the worlds attention.

Also the comment did not bring any value to other traders which is my intention of this blog. I deleted the post and again, I apologize to those traders I referenced and offended.

Tim Mack

Billions lost, Millions made

Today is one for the record books, In fact I have witnessed several free fall markets but not like this.

All houses were buyers off the open, locals were stuck and puked some but held their core short position. At the test of the OR at 10:30 ET is when the Paper selling started coming in heavy with 400 contacts on the sell side. Once we broke and held the OR there was continued weakness in all the markets. The breath printed the lowest reading I have seen in a very long time which was indicative of the day. Paper sold steady through out the day with only 2 meaningful buyers, Goldman, buying 250 cars at 51.00 and Swiss buying 200 at 44.50 at 1:25 ET. With short locals and a weakening broad market there was only one way to go and heavy paper selling came in as traders realized we were in for a sharp drop.

But NOBODY expected the drop we got.

There was an offer at 1128 for 200 cars. The locals didn’t want them. We were selling off all day and they saw more downside a head so they didn’t want to get long. Once we traded below 1120 the “Fast Market” started.

A fast market is when trading happens so fast the brokers are not obligated to give the best bid as fills on sell orders to their clients. That’s because the market moves so fast there could be at 1120 bid on one side of the pit and a 1118 bid on the other side at the same time. If a customer is filled at 1118 instead of 1120 he cant claim it was a bad fill.

However, as I had mentioned in an earlier post there are few occasions that there are NO bids, I mean none. Not one. As I said there where only two paper buyers and the locals wanted nothing to do with getting long in front of the freight train that was bearing down the tracks. No Paper buying and no locals buying mean no bids

Well at around 1120 something happened. Rumors say it was a fat finger bad tick of P&G or a large sell order in the e mini that was fat fingered to a huge sell order. What ever the reason, Paper sellers came in so fast, so aggressive that I thought there was a major terrorist attack or Israel nuked Iran.

I have never ever seen no bids for 60 handles!! Followed by no offers for 60 handles!! The locals just put their arms down. Remember these guys have lived through 1987, 9/11 Lehman, surprise Fed rate hikes.

One filling broker said he had a sell order for 18 cars at 1100, a sell stop no less. It was filled at 1060. There were no paper buyers to sell to and the locals simply didn’t want them until 1060. That was the first bit of paper that the locals started buying. Can you imagine the trader who had a protective stop (which was likely placed because of a loss of the trade already) and he doesn’t get filled after $180,000 further loss!!! That was just that one order and there were thousands of contracts. Not to mention all the other stops on all the other futures, stocks and options that didn’t get filled until it was too late. A lot of traders blew their accounts out today. A LOT! It will be a different market tomorrow with a lot less players due to liquidated accounts.

The locals started buying the paper offers at 60. After they bought all the paper offers there were no more offers in the pit. All traders around the world were trying to figure out what had just happened. Once traders saw the futures starting to rise buyers stepped in on the screen but there were no Paper buyers in the pit until we retraced 60 handles. We don’t see 120 handle moves in a month and we saw it in 10 minutes. An amazing day.

I have no clue what tomorrow will bring but I know a lot of traders who were trying to pick the bottom all day long wont be around anymore.

My rule to be short below the OR, long above served me well today. I think I will take tomorrow off……….. probably not.


Tim Mack

Continued Paper Selling

Today was a bit uneventful, heavy paper selling came in off the open and the locals joined in. Paper quieted down and locals found a bunch of stops at 57.75 so that they were able to cover their shorts and get long. They met some paper selling on the way up which they absorbed and kept the bid going until paper buyers came in above the IB.

I expected the market to sell off after a test of the IB high but buyers came in. The market is in a difficult spot to read. There is a bearish wedge building but we closed above the OR. I think the market may need to rest a bit until it starts another major move which as long as 77.00 holds should be down. Nevertheless wild horses couldn’t get me short above the OR. before the IB is complete.

Tim Mack

Offered off the open – Joey is back at his old tricks

Two hands raised palms out right off the bell.

There are several ranges I look at before the open. The value area which was 1202.00 – 1192.00, a proprietary range which was 1206.00 - 1191.00, the prior days RTH range 1202- 1187.

When the market opens above or below all these ranges you can bet that the sentiment of the prior day changed overnight. In other words, don’t expect the same mindset that created the value areas and most of the prior days range to continue. If it continues you would likely see a rotation back to at least the middle of the range before other time frame players stepped in and started to move the market in one direction or the other. This morning those “other time frame” players had already stepped in as sellers (and lack of buyers) and that is why the markets were already trading lower. This case may be more prevalent now that European traders are actively trading the e mini (either arbing or outright) and much younger traders than I are getting up early (or stay up late, or don’t sleep at all). I need me beauty sleep.


Joey’s back to his ‘ol tricks

The markets sold off with paper sellers and short locals to 77.00 which was an important support area as it was a single print from April 8 and support from April 28. Although there weren’t any paper buyers stepping in, there was some size buying on the screen. The whole pit was short and why not, they hadn’t felt a bottom and they needed more Paper sellers to buy from to cover. Joey sees this and he comes in bid fighting the whole pit. He was aggressive on the bid using the size screen buyers to hopefully gain momentum. Those buyers, after they came in at 77.00, didn’t follow through. If you don’t believe 1 guy can move the market look at prices from 10:06- 10:26 ET. This 3 handle move is “Joey and crew” manipulating the market by bidding up the market and selling 1 lots for prints. But you can only manipulate the market for so long. This is why the “Plunge Protection Team” is a bunch of crap. Not even the Fed is big enough to manipulate the markets. And if there was a PPT where were they in ’08? Oh right - it’s a Fed program so it worked as well as all the other Fed programs.

The OR held and the weight of the selling pressure came in and that was all she wrote…….

I think we may have found an import bottom at the 64.00 area. The locals got short and aggressively offered the price lower starting at +/- 69.00 at 3:36 ET. They pushed into the low print at 64.25 where they found ONLY stops and bought the low. The whole rise from 64.25 to 73.0 were locals on the bid and lack of Paper. Lets see you do that electronically - good luck. I am not saying that they always get their way, they get run over like the rest of us but the locals have the master ability to manipulate the market when the opportunity presents itself and they are experts at recognizing those opportunities.

If we open above +/-64.00 we should see higher prices. If 64.00 doesn’t hold then we have something else on our hands and warrants a very careful evaluation.

Tim Mack

He’s Back…..

Joey Borsellino was back in the pit today. It’s great to have him back as his trading is a terrific gauge of the market. Joey and his brother Lewy started in the gold pit and moved to the S&P when it first opened. Lewy is no longer a local …umm… I heard his style of trading did not sit well with the compliance department.

However, his brother Joey is still hanging in there. He was in Italy, Naples (where my ancestors are from) for 3 weeks and then was on and off the floor for the last week or two but never traded in the pit. Joey is a very aggressive trader. He likes to push the market often selling through the bid on an aggressive push lower. Sometimes he gets his way and sometimes he doesn’t. What’s great is that he falsely moves the market. In other words he is not part of the market auction process where bidders and sellers decide on price. He is a market bully. That’s just fine with me because when he is getting his way he paves a way for the path of least resistance and I have a better understanding of where the market is heading. Often the market will bounce back like a rubber band once he is done with his aggressive pushing. Today he came in aggressive and was able to muscle the market lower but as soon as he let off the gas the market came right back. This is when I know the market wants higher prices which is exactly what we got for the first Monday of a month.

Paper buyers came in off the open and came back soon after. When the locals see all the houses with two hands in the air - palms facing in, they know that this is a battle they should join and not fight, not on the first Monday of the month. They jumped on the bid as well and up we went. Joey was part of the push that came in after the IB was formed but once we saw that the move wasn’t getting any steam there was only one other way the market was headed - up.

I am still thinking lower prices but I will simply drift with the wind and go along for the ride.



Tim Mack

Only The Local Knows……

Friday morning I read a number commentaries from highly respected technicians of which most of them called for higher prices. These market opinions came from analysts who have decades of experience and long track records of accurate market calls. Some called for lower prices off the open but most called for high prices into the close in spite of the typical last day of the month afternoon sell off. And why not, we closed on a bullish note on Thursday.

Apparently many other traders who have some sizable accounts were thinking the same thing as these analysts and they picked 1202-1203 area to stake their claim. Paper buyers came in off the open but the real buying came in fast and furious about 10 minutes off the bell as we traded within the OR at 02.00-03.00. Everyone bought! And they bought size! Swiss Bank, who has been unusually active lately, bought 300 cars at 02.00 and another 100 at 02.80 and another 200 at 3.00. This is aggressive buying. Usually big money traders have an opinion about the direction of the market and when they want to add to a position they will patiently wait until the market pulls back so they can buy cheap. This is known as other time frame players stepping in as buyers when prices are trading below value or at bargain prices. However, when these players get aggressive to the point that they are not willing to wait then they just lift the offers in the pit.

In addition to Swiss, the old Solomon desk, (now Barclays or was that Lehman, I can’t keep track?) bought, Goldman bought, First Boston bought, Merrill sold. When all the big houses buy (and Merrill sells) it’s a good sign that we will see higher prices as the Gurus predicted. They were buying before the PMI number at 9:45 ET, (released early to subscribers which I imagine all these houses are). So my guess is that they thought the numbers would be good and the market would continue on its irrational exuberance.

The locals had a different idea. You see they were big time short. So short that they did have to lighten up their shorts by laying off some in the mini but they stayed short. When no big Paper buying came in after the positive number they held their shorts. What was interesting through is that they were so loaded up that they continued to hold short even after prices broke to the 94 area, They will usually cover and call it a good pay day, especially on a Friday when "happy hour" starts at noon.

You can see how they held offer from 10:50 – 12:00ET. Other traders left for lunch, (the ones that get paid by the clock and not the contract) which gave the locals the opportunity to start getting their way. Once they begin pushing lower and the outside world starts seeing lower prints they begin to change their bullish minds. The sell stops they hit along the way just adds fuel to the fire and soon the traders who were sitting on the sidelines start joining the party. These are the trades who thought the market was over bought and were seeking an opportunity to join a sell off. Last day of the month also adds fuel especially when trading below the prior week close. The fund manager’s start thinking they need to save their gain (actually cut their losses) and start covering their longs especially when they realize that we are trading below the close of ALL the weekly closes of April.

The key here is not to have a firm bias going in to the trading day. Fortunately I can read these analysts opinion and know, like any business consultant you deal with, 50% of what they tell you is crap. Your job is to figure out which 50% has value.

For next week I am planning on more downside activity although I am not convinced ..yet… that this is a major trend change as I don’t see a change in the “Continuity of Thought”. All that means is that I will hold my shorts a little longer and take gains early on longs but I will eagerly take the long if the market gives me that opportunity…regardless of all the bearishness I will now be reading from the Gurus …

……as an added note.. Merrill was big time right!!, who would have thought? You see in this game you can never tell who will be right and who will be wrong except the market ....which is always right.

“Go with the Flow and Take Advantage of the Moment” - Leo Melamed

Tim Mack