Stoploss,
stoploss please said:
Sand
So it is the direction of the Perm around FV. ie the Perm maybe below fv but moving towards it which is bullish.
If you want to monitor it at that level of detail then yes you are absolutely right.
However, I don't attempt to use prem as a leading indicator (except possibly with the exception of active buy/sell program levels where you know there is going to be a reversal, you just don't know how long it will last).
So:
1) I look at the direction of the futures/cash. This is the primary concern every time.
2) If it's down I want to know if it's a cash based move or if it's just the futures pit offering the market down in order to buy it. If futures are trading above fair value then would indicate to me that the move downwards is cash based. If however futures are trading below fv then this would indicate to me that it's a futures based move. Now, unless there are major news announcements, or it's a very quiet day, the futures can only push the cash market so far. Cash is usually king so to speak.
So with that in mind, if a move down is led by the futures I regard it with suspicion most of the time. I have it in my mind that they are offering it down looking for institutional buyers to lean on and get long at a lower price. (btw, not a stop run as those guys would put it). Doesn't automatically mean that I won't short. Just that it's one that I'm going to keep sharp on. I'm looking for a level that they (the floor) might expect institutional support at with the expectation that I would reverse to long there or there abouts.
This is where TICK comes in as well. TICK, with the added help of China's divs/macd helps you to asses whether there is weakness or strength in the cash. If there is strength in the cash you are looking for a move down in the futures to go long.
3) Largely a repitation but I'll do it so wev'e got both sides clear. If a move is up I want to know if it's a cash based move or if it's just the futures pit bidding the market up in order to sell it. If futures are trading below fair value then this indicates to me that the move upwards is cash based. If however futures are trading above fv then this indicates to me that it's a futures based move.
So with that in mind, if this move up is led by the futures I regard it with suspicion most of the time. I have it in my mind that they are bidding it up looking for institutional sellers to lean on and get short at a higher price. Doesn't automatically mean that I won't go long. Again, I'm looking for a level that they (the floor) might expect institutional resistance at with the expectation that I would reverse to short there or there abouts.
A little bit more about these so called stop runs since we are talking about futures led moves.
Most of the time floor traders simply couldn't give a toss about retail stops it just simply isn't worth their while. What floor traders do care about is where they can get out. Since a lot of them only make a couple of tics on size they want to know where they can get out before they get in.
So, when they bid the market up people think they are gunning for stops. Almost all the time they are either just up ticking or more importantly, they are looking for size on the offer. Once they find the size on the offer they can lean on it (front run it) knowing that if they have to they can either scratch or take a 1 tic loss to get out. And of course the same happens in reverse when they offer the market down.
It's for that reason I'm sceptical about any of these sites who harp on about stop runs, gunning for stops, etc. It's just one part of the equation and as I said, blown out of all proportion in terms of its importance. Although having just read gmca686's post, maybe my skeptisism is unwarranted in this case
.
Oh, btw, just for completeness, when they are up ticking you've got a guy thats taken a small position, maybe long 10 cars/lots and he starts "bidding" the market up, he'll be bidding for 1 car/lot only, hoping that he doesn't get hit, but if he does, he'll bid for another 1 lot, and so on. If he moves the market 5 tics or so he'll sell his full position.
So. That's why we wan't to know whether a move is based on the futures or the cash. That's also why it's important to remember Skimbleshanks comments about time of day, i.e. a strong move in the cash followed by a quiet spell where the futures "mess about" followed by another strong move in the cash.
In summary:
If it's a cash based move, I'm going to hang in as long as possible waiting for things like China's TICK divs and macd to give me forewarning of weakness in the cash move.
If however, it's a futures based move then I'm looking to get out at the first possible area of S/R.
