Stealth attack!

Well it was a stealth attack for the bears yesterday. After gapping down huge on the open, the ES found support at 1050 (weekly S1 floor trader pivot) and then trended higher all day. Cumulative ticks finished at a whopping +100,000 indicating institutions were buying all day. In fact on the NYSE tick, we got an instantaneous tick reading of +1633 which is the highest level in years. Other internals like the A/D line and breadth started off extremely poor but by the time we closed, the NYSE A/D line had gone from -2000 at the open to almost +2000 and it was a similar story with the breadth having gone from 90% down volume versus up volume to finish with almost 90% up volume versus down volume. It was a similar story on the NASDAQ although not quite as strong of a reversal. On the volume front, volume finished well above the low volume of recent days with SPY volume finishing on par with the 30 day median average (there was quite a surge after 1.30pm E.T) which was probably attributed to some short covering and/or breakout buying as the 107 level was taken out. Note that a similar thing occurred on the ES when 1070 was taken out although this occurred 40 minutes earlier.

On the quant front, the fact that we saw so much buying pressure after such a weak opening appears to favour limited upside and a slightly bearish tone in the next couple of sessions by virtue of the fact that buying pressure in the short term is exhausted (one example is the 1633 tick reading). Again I still think this market is hovering around near value and the fact that the large gap down was immediately bought by the institutions points implies that the market is definitely not at value lower down even though we had weaker housing numbers yet again. Perhaps the buying may have been instigated by the rumors earlier in the Asian session, that China will soon be allow a loosening of its fiscal and monetary policy. After all the Aussie Dollar (commodity currency) held up extremely well amid the early weakness and it was in positive territory the entire day. Also commodities or materials to be more exact were by far the best performing group/sector for the day.

On the trade front, I still don’t feel too directionally biased either way and so will likely keep playing it small and short term until I see/feel that we are going to break one way or another. I still feel that selling out of the money put spreads on the long bonds is a good trade idea and will be looking to enter a trade for August expiration. Another trade idea I will be exploring more is shorter term trades using the SPY weekly options to better exploit my quant subscriptions prognosis and short term direction picking skills. More on that later.