Today’s Economic News:
Not much happening today pre-USA opening. We like the CBI industrial trends trend. Watching for existing homes and crude inventory numbers.
Quote of the Day:
You cannot build a reputation on what you intend to do.
Featured Breadth Chart of the Day:
This is a 3 day view of the Zweig index which gives us more time to look back and study how the market has tended to bounce in the past from these levels. Since August of 2011 these moves have tended to mark the low spot of the pull-back, fiddling and diddling a bit before getting back on the track and humming higher. Our last pull backs in May & June signaled a possible change in that pattern. Each one of the pullbacks at the bottom this year was also marked with a signature double band 9:1 negative thrust down days. We are thinking the bulls have not exhausted enough yet and therefore we will see some more downside. We are looking for 1606 as a target and possibly lower.
On the bulls side is a Zweig oversold (DH that is right, right?), moving above 40 has started a Zweig Thrust countdown. Should the bulls show an ability to move the Zweig above 60 in the next 10 trading days, a continued bull rising market into the end of the year would be a pretty sure thing.
Comments and Levels for the Front ES (S&P500 – Emini futures) contract:
Things are settling here on price and while we did get our bounce yesterday (two day’s a charm), the close and the data from the MiM were too much to bear and the market sold the close and that carried on overnight. We don’t think that 1657 counts as the bounce high, we wanted something a bit more that would allow us to explore 1606 easier. The close yesterday caught us totally by surprise, well I have the MiM so I was surprised at 3pm as opposed to 3:45 pm .
For today, we are marking 1635 as the low area that the bulls must hold in order to fake a run higher to 1668 and satisfy our need for a bounce. Should that break, then the bears are short-cutting it and trying to get this correction over as soon as possible. It is difficult to call daily in here, our longer term outlook is bearish until we see some exhaustion and the trenders begin to correct to the upside.
On the MiM:
Two days ago nobody loved the MiM. Yesterday was all love.
I think it’s worth reminding ourselves exactly what the MiM is and how it works. There are new readers and even for those that read every day, the more you read it, the more it will sink in.
The MiM is simply the collection of early imbalance indication from a subset of stocks on the NYSE. This subset of stocks is consistent from day to day and are chosen for their correlation to the closing price movement on the S&P 500. In other words, if they tend to have selling imbalances, the market tends to sell. The collection of the data is by hand. We are the only source for this data that is generated through the hard work of clerks on the NYSE floor that gather the data and assemble it real-time into a database from which we pull the MiM data from. It is a hand process (noise) and the stocks are a subset of the NYSE (noise).
I add that noise word in parentheses in because, as an engineer, I am always interested in where noise or errors are in the data I am looking at. I am looking for a signal and that signal has to be stronger than the noise to be accurate. That is why I have my 66.6% rule. I use that all the time for other things in the market too, like for testing trading algorithms. I want to know that my signal lives outside the error band to improve my odds.
For us meter readers, remember, we have a consolidated view of early-imbalance readings that most people don’t have. We have a unique view. The market specialists of course are working hard to bring their books into balance for the close of their particular symbols, but they don’t have the bigger market-wide picture like we do.
Relating this all to yesterday: I was out of the market all day yesterday working on other projects. I make it a habit of getting into the MrTopStep trading room before 3pm ET and getting a feel for how the day traded and looking for a MiM reading to start coming in. In my piece yesterday on my blog, I made a call for a move up and was happy to see that around 2:45pm ET we were up +10 ESu on the day bouncing from the low area we thought would hold. I wanted higher still into the close. Then the MiM data came and I was a bit surprised. Strong sell. It was 97% sell side dollar-wise, 90% symbols-wise and the overall dollar amounts were decent enough to warrant a look for a signal and possible entry.
So in the trading room we watched and waited to see how real and fluid the numbers were. I like 3:20PM entries. There was a discussion of the previous day’s MiM readings and how there was a decent buy signal but the markets sold off against the MiM. This MiM had one thing going for it that the previous day did not and that was the symbol list bias. Of the 318 symbols showing imbalances, 84% of them were on the sell side. That aligned what we were seeing for dollar imbalances. That did not happen on Monday’s MiM reading.
For yesterday, the NYSE released the committed MOC orders at 2:45pm and the MOC trade was sealed and the market reaction was to sell. That release is when the other 99% got their first view of the imbalance data. The same imbalance us meter readers saw about 45 minutes earlier. That to me is a real advantage.
While the MiM does not produce a signal ever day, when all things align it is a terrific tool in understanding the close and the mechanics of the close and even no signal is information.
I consistently get requests for free trials to the MiM. That is not going to happen because setting up a trial and working with new meter readers will just kill my productivity, but here is what I tell those that are curious. First, if you can’t afford to test the MiM for $99 for the month, read through the blog and the snapshots and see how the close works. There is plenty of data we share, all free, that will tell you how the MiM works. That being said, seeing the meter in action, live, is very different. Having it on your screen while price moves for that last hour of the day adds a new “feel” to how you view the closing market. Even if you use it for a month, it will most likely instill in you a feel for the mechanics of the close that will stay with your trading psyche forever. It is a $99 investment in understanding another aspect of the markets, the close. I think that is a great education at a very good price.
If you want to join the meter readers you can go to: Join the MiM
Comments about TLT (Twenty year Bond ETF):
TLT just on a holding pattern. 102.50 is the obvious hold line, looking for 105 at some point.
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Breadth Charts in Full :
Zweig Breadth Thrust:
Bounce and a count start, but unlike Seals & Crofts, we believe we will pass this way again.
Cumulative Volume Index:
Tip of green.
Number of NYSE issues trading ABOVE their 40 day moving average (40DPI):
We are going to start looking for divergence but we have just bounced too early.
New Highs / New Lows ratio chart :
For those bullish, this pattern on the NH/NL is almost the exact pattern we saw in June that marked the bottom for the previous run into August.
Short Term Trender – McClellan Summation Index:
Thank you for Reading –
Marlin aka RedlionTrader @redliontrader
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