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Market Internals


I would like to start a thread on market internals, partly because I don't see much here about internals, and partly to get a sense of how other people are using internals, if at all.

Although I primarily trade ES using MP (no indicators), I watch order flow (contracts hitting the bid or lifting the offer) and internals to help me determine whether whether I want to be get long/short off a given MP level. My primary tools for trading besides MP: daily/Globex vol profile, composite(multi-day) MPs and composite vol profiles, MarketDelta Footprint and Time & Sales strips (both raw and filtered for size, and various internals.

The internals I watch:

$ADD
NYSE TICK (one of my favorites, I can't trade without it)
Cumulative NYSE TICK
VOLD
TRIN
VIX (not an internal per se, but I lump it in here anyways)
Major SPDR Sectors - XLV, XLB, XLE, XLI, XLF, XLU, XLK, XLP, XLY
SOX (Semis)
Dow Transports
New Highs/Lows
Plus a few others that I'd rather not talk about yet

I'll kick things off by saying that it is not uncommon for ES and internals to be divergent. And its also possible for internals to be divergent among themselves.

In my experience, when internals are diverging among themselves (not showing the same picture), it can be a clue that the day will be a rotational (bracketing/balancing/consolidating) day as opposed to a directional day (trend day). Attempting to identify as soon as possible whether the day is directional or rotational is one my main jobs as an ES daytrader.


Agree, disagree? Thoughts?


PopDoc
Those are all solid internals to be watching and I pretty much agree with your take on them.

I use TICK more then anything else, especially in relation to Marketdelta footprint volume info. The footprint gives me the ES state of affairs while TICK gives me the actual stock market state.

When we are at critical levels such as O/N high/lows, YD high/lows and such I will also use ADD, TRIN and VIX to help support which ever trade I may be in, ie. fading those levels or trading for a breakout of those levels.

I also pay attention to key sectors and U/D volume and New Highs/Lows throughout the day for supporting or contradicting evidence of what is currently happening within the day structure.

Cheers for bringing up this topic. Certainly a topic very seldom discussed.

I think its very important to follow some kind of internal which allows the ES trader to see whats happening with the "real" stock market.
I hire a shoe shiner, 2 weathermen, and a economist and do the opposite of what they recommend.

Just joking how about the inverse relation of the bonds?
Originally posted by Lorn

Those are all solid internals to be watching and I pretty much agree with your take on them.

I use TICK more then anything else, especially in relation to Marketdelta footprint volume info. The footprint gives me the ES state of affairs while TICK gives me the actual stock market state.

When we are at critical levels such as O/N high/lows, YD high/lows and such I will also use ADD, TRIN and VIX to help support which ever trade I may be in, ie. fading those levels or trading for a breakout of those levels.


I also pay attention to key sectors and U/D volume and New Highs/Lows throughout the day for supporting or contradicting evidence of what is currently happening within the day structure.

Cheers for bringing up this topic. Certainly a topic very seldom discussed.

I think its very important to follow some kind of internal which allows the ES trader to see whats happening with the "real" stock market.


Yes, TICK with Footprint is great.

One caveat re VOLD I should mention. On a gap open it will be skewed until (if) the ADD reverses. VOLD adds to Down Vol for stocks that are below previous day close, if stocks recover but stay below previous day close, all the volume still gets calculated as negative vol on the VOLD.....something that a lot of people don't realize. So, a VOLD reversal (across the zero line) is quite significant, espcially if previously hit -400K or +400K

As a matter of fact, internals are so important to me that I rarely trade Globex (overnight where I live, U.S) because I need the internals to help me make a entry/exit decision.

PopDoc
I can't believe you gave away our secret!




Originally posted by CharterJoe

I hire a shoe shiner, 2 weathermen, and a economist and do the opposite of what they recommend.

Originally posted by CharterJoe

I hire a shoe shiner, 2 weathermen, and a economist and do the opposite of what they recommend.

Just joking how about the inverse relation of the bonds?


CharterJoe,

I do watch 10 yr notes and 30 yr bond futures, the dollar, gold,copper, and oil, but didn't include them in my list of internals becuase I felt it was a bit of a stretch to consider them "internals" (although I did include VIX).

I'm not sure if you've noticed or not, but lately the standard inverse relationship between equities (and ES) and bonds is not as as strong as before. I don't want to get into a political or economic discussion, but people I know in the institutional world would say that POMO, equity 'ramps', and the Chinese Govt. hedging their US debt holdings with commosities are the reasons for the weakened inverse realtionship.

Sorry...I didn't mean to get into that.....I try my best to only trade what I see in front of me, and not what someone else told me.....

CharterJoe, is that economist you hired a one-armed economist by chance? LOL....
Originally posted by popdoc

Originally posted by CharterJoe

I hire a shoe shiner, 2 weathermen, and a economist and do the opposite of what they recommend.

Just joking how about the inverse relation of the bonds?


CharterJoe,

I do watch 10 yr notes and 30 yr bond futures, the dollar, gold,copper, and oil, but didn't include them in my list of internals becuase I felt it was a bit of a stretch to consider them "internals" (although I did include VIX).

I'm not sure if you've noticed or not, but lately the standard inverse relationship between equities (and ES) and bonds is not as as strong as before. I don't want to get into a political or economic discussion, but people I know in the institutional world would say that POMO, equity 'ramps', and the Chinese Govt. hedging their US debt holdings with commosities are the reasons for the weakened inverse realtionship.

Sorry...I didn't mean to get into that.....I try my best to only trade what I see in front of me, and not what someone else told me.....

CharterJoe, is that economist you hired a one-armed economist by chance? LOL....


When bonds are inverse there is problems in the economy or world wide problems and you should be selling aggressively. When bonds move with stocks all is right with the world and you should be buying no matter we owe the Chinese $13octillion. Markets works as a whole....treasury Bonds drive corporate bonds they drive earnings, earnings drive individual stocks that drives the ES the ES sinks the US$ that lifts other currencies that adds to our dept which lifts inflation which lifts commodities...
The ES is but one small wheel in the clock of the markets.
Just an ex The 10 year ES inverse relationship has reached a climax to where it was moving together nearly tick for tick in Sept 22 and has been waning ever since. I have money on a large move up in bonds and a down move in equities.
I voted this up but I'd like to know how you can actually make a trade when this thread has already mentioned over 30 different things to watch ( including the sectors)....

It just seems like one would get frozen and unable to pull the trigger..there must be some way to to just focus on a few of them...

Looking forward to where this thread leads...hope I'm not coming off as too critical here
Originally posted by popdoc

I would like to start a thread on market internals, partly because I don't see much here about internals, and partly to get a sense of how other people are using internals, if at all.

Although I primarily trade ES using MP (no indicators), I watch order flow (contracts hitting the bid or lifting the offer) and internals to help me determine whether whether I want to be get long/short off a given MP level. My primary tools for trading besides MP: daily/Globex vol profile, composite(multi-day) MPs and composite vol profiles, MarketDelta Footprint and Time & Sales strips (both raw and filtered for size, and various internals.

The internals I watch:

ADD
NYSE TICK (one of my favorites, I can't trade without it)
Cumulative NYSE TICK
VOLD
TRIN
VIX (not an internal per se, but I lump it in here anyways)
Major SPDR Sectors - XLV, XLB, XLE, XLI, XLF, XLU, XLK, XLP, XLY
SOX (Semis)
Dow Transports
New Highs/Lows
Plus a few others that I'd rather not talk about yet

I'll kick things off by saying that it is not uncommon for ES and internals to be divergent. And its also possible for internals to be divergent among themselves.

In my experience, when internals are diverging among themselves (not showing the same picture), it can be a clue that the day will be a rotational (bracketing/balancing/consolidating) day as opposed to a directional day (trend day). Attempting to identify as soon as possible whether the day is directional or rotational is one my main jobs as an ES daytrader.


Agree, disagree? Thoughts?


PopDoc
Originally posted by CharterJoe

Just an ex The 10 year ES inverse relationship has reached a climax to where it was moving together nearly tick for tick in Sept 22 and has been waning ever since. I have money on a large move up in bonds and a down move in equities.


Agree with everything you say.

One thing I try to do is watch the relationships between diff. markets (which i didn't include in my list of 'internals'), and as a day trader I try to see the changing nature of inter-market relationships during the trading day.

One thing I forgot to mention is that I used to watch TIKI (TICK for just the DOW 30). An extreme reading, say above 26 or so, often represents a buy/sell program hitting the market; and with programs responsible for more and more volume as time goes on, the programs that buy/sell baskets have less and less to do with true (long-term) equity demand or lack of. That, and having too much to watch, I eliminated TIKI. But I'm open to hearing other opinions.

PopDoc
Originally posted by BruceM

I voted this up but I'd like to know how you can actually make a trade when this thread has already mentioned over 30 different things to watch ( including the sectors)....

It just seems like one would get frozen and unable to pull the trigger..there must be some way to to just focus on a few of them...

BruceM, excellent point regarding potential analysis paralysis.

I didn't start off with all these indicators. I added to them over time as I became more confident as a trader. Besides being a full-time trader, I also happen to be a psychologist, so I'm acutely aware of issues such as information overload, stumulus/response, etc.

In my opinion (and its just an opinion), the internals you decide to watch should in part depend on what time-frame you are trading. An ES daytrader could easily get by with just the TICK and the ADD. But as you lengthen your time frame you may find that additional data is helpful (or not helpful). Someone who likes to take many very quick in/out trades could easily get by with just the TICK & ADD. With my style of trading (I play the long rotations or I ride the trend if I can get on it fast enough) I tend to need more than TICK and ADD.

BruceM, One idea for you..... create a list of internals that you watch, and after watching how your set-ups perform in relation to the what's on the list, rank the internals from most important to least(maybe even group them into A-B_C priority) Then decide on how much data you can process and have an A list that is your personal 'go to' list at decision time.

BruceM, now having said all that, I do believe simplicity in trading helps to prevent analysis paralysis. However, for me hesitation was never an issue, my Achilles heel is something else (I'll save that for a psychology thread one day) Although I look at a lot of internals...my ES candle chart is naked...no lines, no indicators.

What I've described is how I've evolved as a purely discretionary ES trader who uses MP for structure and internals for bias, and order flow for tactics. Most traders would be weighed down by my list, but I have 'grown into it'... if that makes sense.

PopDoc

Originally posted by BruceM
Looking forward to where this thread leads...hope I'm not coming off as too critical here
Originally posted by popdoc

I would like to start a thread on market internals, partly because I don't see much here about internals, and partly to get a sense of how other people are using internals, if at all.

Although I primarily trade ES using MP (no indicators), I watch order flow (contracts hitting the bid or lifting the offer) and internals to help me determine whether whether I want to be get long/short off a given MP level. My primary tools for trading besides MP: daily/Globex vol profile, composite(multi-day) MPs and composite vol profiles, MarketDelta Footprint and Time & Sales strips (both raw and filtered for size, and various internals.

The internals I watch:

ADD
NYSE TICK (one of my favorites, I can't trade without it)
Cumulative NYSE TICK
VOLD
TRIN
VIX (not an internal per se, but I lump it in here anyways)
Major SPDR Sectors - XLV, XLB, XLE, XLI, XLF, XLU, XLK, XLP, XLY
SOX (Semis)
Dow Transports
New Highs/Lows
Plus a few others that I'd rather not talk about yet

I'll kick things off by saying that it is not uncommon for ES and internals to be divergent. And its also possible for internals to be divergent among themselves.

In my experience, when internals are diverging among themselves (not showing the same picture), it can be a clue that the day will be a rotational (bracketing/balancing/consolidating) day as opposed to a directional day (trend day). Attempting to identify as soon as possible whether the day is directional or rotational is one my main jobs as an ES daytrader.


Agree, disagree? Thoughts?


PopDoc

Here is what it would look like on the TOS platform. I believe you can do this on a free paper trading account
Click image for original size
TOS Market Internals