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