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Markets in Profile 部分34
Markets in Profile 部分34
We stated in the preface to this book that you must understand the way
you process and respond to information. That way your ability to act is not
blocked or distorted by peripheral influences. In The Mature Mind (Ba-
sic Books, 2005), Gene Cohen discusses two types of intelligence: crystal-
lized intelligence, which is the intelligence we accumulate in school and
from everyday life; and fluid intelligence, which he describes as “on-the-
spot reasoning ability—a kind of raw mental agility that doesn’t depend
completely on prior learning. It includes the speed with which information
can be analyzed as well as attention and memory capacity.” Many traders
constantly listen to business news, visit blogs, talk markets with peers, and
read numerous newsletters—all of which provide conflicting opinions for
differing timeframes. For those information hounds, by the time the mar-
ket opens their memory is most likely crammed full, and their attention is
chapter08 JWBK129-Dalton metrics January 13, 2007 18:23 Char Count= 0
We have made it clear that the day-timeframe trader must sort through
extensive information prior to making a decision. Just like other timeframe
traders, volume analysis becomes incredibly important in attempting to
understand the inventory positions of other day-timeframe traders as well
as the actions of the longer timeframes. This is mandatory if you expect to
be a viable opponent. Before we delve into the details of volume analysis,
let’s first understand the context.
In 2006, inflation (or possibly stagflation) once again became the buzz
in the financial markets, with the experts constantly missing the mark. In
the Wall Street Journal on July 5, 2006, a headline read: “Sinai Tops Econ-
omy Forecasters With Aggressive Inflation View.” The article went on to
say that in the Wall Street Journal‘s December 2005 survey, Decision Eco-
nomics’ Chief Global Economist Allen Sinai topped the list with the most
aggressive forecast—up 3.5 percent for the 12 months ending May 2006.
The article went on to report that the actual number was 4.2 percent. The
survey included 56 economists.
Most market participants closely watch the monthly employment re-
port for signs of growth and indications of inflation that can influence Fed-
eral Reserve policy decisions. In this case, the next report was due to be
made public two days later, on Friday, July 7. Two of the key components
of this report, along with hours worked and wage rates, is the number of
new jobs lost or created as well as the overall rate of employment. Coming
into Wednesday, July 5, the expected number of jobs for the Friday report
was approximately 175,000.
Early Wednesday morning, ADP, a firm specializing in payrolls and
macroeconomic advisers, predicted that new private sector jobs would
equal 386,000—almost double what was anticipated by the market. With
chapter08 JWBK129-Dalton metrics January 13, 2007 18:23 Char Count= 0
Long-term trend
down
Market
gapped
lower on
July 5
Balancing
July 5 low
10514
10514
Low,10507
FIGURE 8.1 Intermediate term bracket (focus area) in U.S. Treasury bonds: Daily
bar chart ending July 7, 2006.
Source: Copyright ľ 2006 CQG, Inc. All rights reserved worldwide. www.cqg.com.
this background, we can now examine the trading in the Treasury bond for
that fateful Wednesday.
Figure 8.1 revels that the long-term trend is down (at least that is
how we view it—longer-term continuation charts might dispute this assess-
ment), with the market in a balancing phase that has developed for roughly
three months. This three-month range, as you recall, is an intermediate-
term bracket, which calls into play a strategy that suggests buying the
lower end of the bracket and selling the upper end, as long as volume
analysis supports that decision. (Volume isn’t increasing as the market
auctions toward the extremes, indicating change is underway.) Now let’s
expand our analysis to include the individual profile and volume analysis
for Wednesday, July 5.
chapter08 JWBK129-Dalton metrics January 13, 2007 18:23 Char Count= 0
106-23
MN 106-22
Pre-holiday
MN
Electronic 30-year 106-21
KLMN July 3rd 106-20
KLMN shortened day Treasury Bound futures 106-19
JKLM JK contract 106-18
JKLM ADIJKL 106-17
JKL ADEFIJKL 106-16
JK ADEFHIJ 106-15
HIJK ADEFGHI 106-14
HIJ ACDEFGH 106-13
HIJ ABCDFGH 106-12
HI ABCFG 106-11
GHI BC July 5 106-10
GH B 106-09
GH The letter
Lower opening gap 106-08
GH b 106-07
G 106-06
FG 2059 A 106-05
F 7270 A 106-04
F 8374 A 106-03
F 8754 A 106-02
F 6054 A 106-01
DF 6239 ABC 106-00
DEF 17992 ABC 105-31
DEF Numbers inside 13190 BC 105-30
ACDEF the vertical box 2440 BC 105-29
ACDE show the contract 7458 C 105-28
ACD volume at each price. 7379 C 105-27
ABC 2399 C 105-26
ABC 6666 CD 105-25
ABC 9060 CDMN 105-24
AB 12182 CDKMN 105-23
AB 23439 DIKLMN 105-22
A 22261 DHIKLM 105-21
A 22236 DFHIJKLN 105-20
A 25726 DEFGHIJ 105-19
A 35722 DEFGHIJ 105-18
19777 DEFGIJ 105-17
12922 DEFG 105-16
WINdoTRADEr ® 3488 DE 105-15
662 D 105-14
105-13
www.windotrader.com.
Viewing Figure 8.2, we see that July 3 was a shortened, preholiday trad-
ing session that demonstrated two forms of balance: (1) It was an inside
day, as it was totally contained within the previous day’s range; and (2) it
was also a narrow, balanced day on its own. As you read in Chapter 7, the
trading strategy is to go with any directional move following a balancing
day.
July 5 gapped lower following the ADP report discussed above and
sold off sharply for the first four periods (A through D). Once again, we see
the b formation that indicates short-term inventory liquidation. The buyers
taking the other side of this selling activity are apparently not buying for in-
stant gratification, but rather intend to hold for at least a day, if not longer.
It’s not uncommon to see an up-trend day following this kind of formation.
Now review Figure 8.1 and note that the bracket low is at 105’07, with the
low on the 5th at 105’14—only 7 tics from the bracket low. Trade location
for shorts, of any timeframe, was very poor on this day. Trading opportuni-
ties are created when investors/traders act impulsively and don’t consider
the risk/reward of their trade. From the profile shape we see here, we have
chapter08 JWBK129-Dalton metrics January 13, 2007 18:23 Char Count= 0
106 – 07
106 – 06
2059 A 106 – 05
7270 A 106 – 04
8374 A 106 – 03
8754 A 106 – 02
6054 A 106 – 01
Contract Volume
6239 ABC 106 – 00
89,608 (32%) 17992 ABC 105 – 31
13190 BC 105 – 30
2440 BC 105 – 29
7458 C 105 – 28
7379 C 105 – 27
2399 C 105 – 26
6666 CD 105 – 25
9060 CDMN 105 – 24
12182 CDKMN 105 – 23
23439 DIKLMN 105 – 22
22261 DHIKLM 105 – 21
Contract Volume 105 – 20
22236 DFHIJKLM
194,141 (68%) 25726 DEFGHIJ 105 – 19
35722 DEFGHIJ 105 – 18
19777 DEFGIJ 105 – 17
12922 DEFG 105 – 16
3488 DE 105 – 15
662 D 105 – 14
WINdoTRADEr® 105 – 13
105 – 12
www.windotrader.com.
evidence that the bonds were not giving up ground easily. Now let’s review
the actual electronic volume to assess confirmation of these findings.
The settlement, or closing price on the trading day before the one
shown in Figure 8.3, was 106’18, with the POC on the 5th at 105’20. After
opening approximately 1/2 point lower on the 5th, the market continued
to sell off to 105’14, which is approximately $1,100 lower for just one full-
size contract. The most important thing to reflect on here is that 68 percent
of the daily volume occurred in the lower portion of the range, which is
from 105’25 down to 105’14. The circled price at 105’23 indicates the closing
price on the 5th. That means almost 68 percent of the short traders from the
5th are going home with a loss. How do you think they feel, with such poor
trade location and already upside down? How might this affect overnight
and early trading on the 6th? How would your thinking have changed if the
profile from the 5th was elongated, volume was more evenly dispersed, and
the close or settle was near the daily low?
Figure 8.4 shows the first four periods for the following day, July 6.
The market was clearly higher, forcing short covering, or an “unwinding”
of the overenthusiastic trades of the 5th. An opportunity for a great long