WOW! Cumulative ticks finished at a whopping -240,000! So despite the major indices finishing flat, underneath the surface the sentiment was extremely bearish as more stocks were getting hit on the bids than the ask. Interestingly though, Rennie Yang of Market Tells (one of my quant subscriptions and where I get my cumulative tick data) points out that when we don't get a major sell off (>1%) on a day where cumulative ticks exceed negative 100,000 that usually points to higher prices one month later. Just in case you were wondering, the average sell off that accompanies a negative 100K plus tick reading is a whopping 4%. From a market auction theory point of view, the fact that we made a sharp and sudden sell off into the 1259 low on the ES followed by an equally sharp bounce represents that the 1259 area is below value as regulated by time. An analogy of this is if your local bike shop had a bicycle on sale that is below value (below cost) than time would regulate that opportunity either through the fact that the sale is for a limited time only or the bicycle is sold completely out of stock. The quick and sharp rebound from the 1259 area indicates that there is an area where buyers think that the market is below value and thus the opportunity to go long at these levels was quickly gobbled up. The stage is set then for further short covering and to see whether there will be initiative buyers coming into the market. Other factors supporting a short term bounce is that a number of key sectors like industrials, technology and energy are at key support levels (previous swing lows) also financials have stabilized over the last 3 days. There has also been a decrease in the number of new 52 week lows on both exchanges so that indicates that the selling pressure is subsiding.
Gap stats also show that it's less than favourable fading the large gaps we already see in the overnight futures so that's another sign that we might see a gap and go type of day.
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