First of all trading is about probabilities. Nothing is written in stone and the market will do what it does whether you are long or short. However we as traders do have tools we can look to, indicators, to help us make an informed decision of what the probabilities for tomorrow’s tape will be.

So what brings me to this subject is the homework we as traders must do each night to prepare ourselves to make the best informed decisions which will lead to best trades giving us the best opportunity to be successful in tomorrow’s tape.

Last night after the market closed Fari of Hamzei Analytics via twitter posted a analysis of why he was preparing for a market bounce today. Look how Fari developed his plan and was also asking questions not only to his followers but to himself. I know this exercise was highly beneficial to Fari because he came into the morning long ESZ9 and he participated in a large percentage of today’s market bounce.

I would also like to add that the McClellan Oscillator closed at -381.49 yesterday which was the lowest reading for 2009. Now I really do not pay attention to this indicator until we are at extreme levels +200 is overbought and -200 is oversold. So when we push +300 or -300 I definatley look for a reversal.

Here is Fari’s long argument from yesterday afternoon:

here we go — my 2 Euros on Market Timing — (that’s only currency soup nazi accepts now) :about 22 hours ago from TweetDeck

Chart 1: Timer Chart http://pic.gd/2054b0>> notice neg 336 on NYSE McClellan Osc. this is a “launch pad mode” back in Feb 23rd hit neg 359 about 22 hours ago from TweetDeck

extremely oversold in NYSE market — big names — look at VOLUME MO — at -179 – big time oversold – short/term bounce is a given from hereabout 22 hours ago from TweetDeck

one early warning was prices rising (higher highs) yet key indicators like CI or McClellan Osc were showing lower highs – a big warning signabout 22 hours ago from TweetDeck

was the selling enuf ?? not sure, I would vote MAY BE — volume was not there (1.6 B) intensity was not there (9 to 1 dn to up volume ratio)about 22 hours ago from TweetDeck

Chart 2 — Wyckoff Chart http://pic.gd/b127cf DJ Trans at -2 sigma, RUT near -3 sigma, NAZZ near -2 & beginning to see volume spikeabout 22 hours ago from TweetDeck

in both NYSE and NAZZ — is it enuf ?? no — not IMHO — but we are very close — a good intraday FLUSH could put us thereabout 22 hours ago from TweetDeck

Sentiment ?? — beginning to see some pain in some faces — specially in “kids in diapers” category – $ put/calls were a bit neg CAT at 3.2about 22 hours ago from TweetDeck

$WFC put/call was at 2.9 $MS at 2.5 — $AMZN at 0.88 — $GOOG at 1.1 — $XOM at 1.37 – nothing horrible in high beta big caps — not yetabout 22 hours ago from TweetDeck

Chart 3 last chart — very clean cut — as we discussed last Friday — vol of the vols chart http://pic.gd/9f731d $VXO and $VXNabout 22 hours ago from TweetDeck

$VXO is just below +2 sigma — $VXN is at +1.5 sigma .. ideally i like to see them in +2 to +3 sigma range, could be there tomorrow first hrabout 22 hours ago from TweetDeck

if GDP comes in below exp — by a notable margin, of courseabout 22 hours ago from TweetDeck

overnight position — long ES good amt — long NQ very small amtabout 22 hours ago from TweetDeck

why ? a number of setups and prop readings on various charts today – very focused trading — my emails and half of TweetDeck were closedabout 22 hours ago from TweetDeck

I hope this was beneficial to you all.

Have a blessed weekend and safe Halloween.

James