Price Clues I’m Watching

  • Posted by
  • on March 18th, 2011

Analyzing price requires more than just knowing the direction and distance traveled; an analysis of how we got there is just as important.  Following are important inputs that we can make objective with some simple tracking:

1) Are holders feeling better about their positions at 4PM than they did at 9:30AM? Keeping track of intraday points gained/lost is an objective way to measure this emotion.  The past week has been driven by overnight news from Japan, but this will subside as our markets begin trading on their own structure.  Thursday had potential to be one of those rollovers after the morning gap; failing to cave in was an awfully good sign.

2) Did a news event trigger today’s move, or did it evolve from healthy price structure? Headlines are fleeting, but the way a market treats those events tells us something about the positioning of its participants.  Also yesterday, the rally was built more on its own structure than on some great news from Japan or elsewhere…another sign the high energy part of the selloff is waning.

3) Is there a shadow inventory of buyers/sellers laying in wait for breakeven? The reason support and resistance are so powerful is the human tendency to accept a breakeven result after initially suffering a loss; knowing where price memory lurks is key to avoid running into a crowd of potential opposition.  For the first time since last May/June, there are just as many trapped buyers above as trapped shorts below…this means 2 way trade as those at a loss liquidate near their original entry point.

What we face until Q1 earnings get released in April is a roller coaster of emotions.  Hopefully, the situations in Japan and the Middle East work themselves out but there’s no way we can know.  All we can do as traders is study the clues, stay fluid, and wait for energy to wax and wane.  I was slow to believe the “sell mild” part, but buy wild/sell mild(or short mild/cover wild) is the right approach during any period in which true range and $VIX rise.  Positive feedback can occur intraday, but on a swing basis I expect to see a negative feedback loop.

As we move from down every day to alternating up and down swings, those remaining most flexible will be the ones accumulating chips from those chasing every news update.  After a wicked bounce over the last 36 hours, we’re now into the midpoint(50% retrace for TA folks) of the Japanese-driven selloff…an area of congestion, not clear skies.  Think psychology, and wait on news events not as a signal but for what they reveal about our competition.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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