TSLR Weekender

Just a few things worth covering tonight as the markets continue to grind away.  The Dow and 500 futures are at upper trend resistance of what is becoming a bearish ascending wedge, while the nasdaq 100 condenses into more of a bullish pennant formation.  Will the N100, so strong in the past month, show leadership once more to pop the markets out of their trading range with more conviction?  Or will the bulls give up the daily grind and drop off to test the basing lows.   It’s a waiting game at the moment, and one that is pretty difficult trade if you’re in and out intra-day.

For the first chart, a tick chart of the ES contracts from Thursday and Friday;

De-ja vu

The markets have been doing the above for the past fortnight or so.  Generally opening up/down then reversing, and then grinding back towards flat on the day.  It’s difficult to find the action as it never feels like there is participation out with the only real tradable action of the session.  I noticed it more on Friday than Thursday, but all the action is happening in the first hour before the chop and grind north into the close.  The basing on an intra-day timeframe seems to flit between indices at the moment.  On Thursday The NQ and TF showed good support as YM and ES formed higher highs and on Friday it was the Dow which caught the bottom.  Watching all indexes is pretty taxing, particularly when limited to 2 19″ monitors.

Anyway, besides this weeks chop I have spent more time tweaking the trading system in the past few days.  The system performed well through Friday, giving a few decent reversal indicators;

ATS indicators

I didn’t get a chance to use it as a leading indicator during Friday as it was a trial run for next week.  It did give a sell signal straight at the open, but that was due to the large opening gap and extreme bullish market condition at the time (see Thursdays open).  The system is not designed to short the extreme conditions, nor trade the opening 15 minutes (amount of data is needs to begin calculating values based entirely on todays range).  Plotted over the past 10 sessions, here’s the data;

Trading system at work

This is plotted over SPY where it should have been ES.  There is no difference in the indicator placement because they are neutrally calculated.  The trade signals are at their best on the 3 minute timeframe, with the 5 minute capturing most of the majors and anything else is pretty much a chop-fest.  The code is written specifically for an intra-day basis, so has no efficiency on timeframes larger than the 5min and must be on timescale charts not ticks.  The next step is to rewrite the ATS strategy in tos and continue to backtest and trial it on the ondemand feature within the platform.

This indicator is designed to give both market conditions (bars, underlines) for discretionary trades combining with price action/volume as well as the automated trade signals (lines from above) to phase in a more mechanical approach.  The plan is to trade relative strength and weakness within a small basket of stocks against the indicator as well as trading the main index etfs (with hedging through crude/dollar/bonds).

One thing which I find very unusual about this indicator is the lack of buy signals.  At first you may feel that with so many signals to short you are looking at a bear market.  It’s the total opposite though, the bullish nature of this grind means that the market internals are rarely in the bearish extreme.  For example, two days from ten have printed non-stop extreme bullish conditions with another two double greened at the open.  There have been 3 instances – all lasting half an hour – in which there has been an extreme bearish condition, and these have all been at the open or into the close.  When there is neither extreme, the negative side of 0 has been the most prominent but this too has failed to drop the futures out of the current range.

Looking to next week, I would like to see some more participation drive the price out of this range.  I am anticipating a slight recovery in the dollar back into the 80 range, with a pullback in crude also on the cards.  Bonds feel indecisive as they edge dangerously close to forming a lower high.  Should stocks drift lightly to the lows of this range with market conditions featuring a bonds double top with a bounce into 80 on the dollar futures along with some small retracement in crude, then that would be a situation in which I would be geared heavily to the upside in anticipation of a breakout in the S&P Dow and Qs.

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