Inverted head and shoulders on the SPX?
- Thread starter fantastic4
- Start date
Quote from AMT4SWA:
I was comparing the cumulative delta from the 681's trade on 3/3/09 to the 681's trading on 3/5/09.......that is the difference.It was not until our third rotation down to the 681 level today that our multi-day continuous cumulative delta went neutral for that zone.
Hmm, I guess my question is, if price never broke the "high" water mark left by cumulative delta on the first pass down, how did it clear out inventory on 2nd and 3rd pass? The difference between my data and yours is you have a different "offset" since you are looking at longer term data.
If net buys/sells are basically equivalent (as shown in my picture) between these time points, doesn't that mean the amount of inventory is the same? (Again, I don't know how much is there like you do, but my info tells me that inventory has increased/decreased/stayed the same - in this case cumulative delta stayed the same or rose slightly at the same price level)
Unless I coded my indicator incorrectly.. lol. Does your screen show falling cumulative deltas?
Thanks!!
Ahh, I see now the connection to auction market theory: levels are not established until tested, and their strength is then related to the accumulation of positions, which can be estimated by differences in cumulative delta at a particular price.
But then this has nothing to do with "commercials" or "commercial hedgers". It's just an approximate accounting of active trader positions, whether they be from commercials or speculators.
Off to bed... am looking forward to AMT's discussion...
But then this has nothing to do with "commercials" or "commercial hedgers". It's just an approximate accounting of active trader positions, whether they be from commercials or speculators.
Off to bed... am looking forward to AMT's discussion...
Interesting that the TRIN was bullish yesterday, and the VIX didn't spike up like one would expect on a four percent down day. I'm expecting a bounce Friday and maybe a sell off before close.
Quote from chuckt101:
I think our understanding is not consistent yet. Negative or positive delta is only important when you look at the NET between the cumulative deltas at the same price level at two different times. The fact that cumulative delta is -100k means nothing by itself. You treat this as a watermark point and see what cumulative delta is when price returns to this zone and then figure the NET between these two deltas. That gives you the perspective you need. That being said, I think the reason for the confusion is you appear to be resetting your deltas each day?? That is definitely not the way to go
Same answer as above. The -100K doesn't mean anything until you give it perspective - i.e. comparing it to another time & price level.
Hi Chuck, that makes sense, thanks for your post!
You're right: effectively a positive/negative delta di per se doesn't mean anything ...
In the picture I posted there weren't any previous day in the area (it was after the gap down), if we don't count overnight trading. That's why I think the calculation there is right, as far as it concerns a session that begins at 9.30 ET.
Anyway, let's wait for the confirmation of AMT
Cheers.
So the problem is that, even though one can identify clusters of buying or selling in a price area the first time* it is encountered, one doesn't know what fraction of these trades are new positions vs. positions being exited. But if the area is retested, and the cumulative delta has changed, then its likely due to a change in the number of positions at that level. (There are probably additional positions from earlier passes through that level, but we're less certain of what these might be.)
So this works even if you're only tracking it intraday (or half a day, or whatever), the limitation just being that you won't see a lot of stuff from previous days and overnight sessions.
* "first time" = first time a price is encountered after cumulative delta tracking is started
Quote from AMT4SWA:
Yes there is now some short inventory (not statistically significant) at the 703's to 699's that would most likely get neutralized with any decent rally off the lows......this would NOT be the most optimal area to sell on any bounce imo. Delta zone at 720's to 724's would be a better area going forward on a first time retest of that zone which held so far yesterday.
Thanks for answering all those questions.....interesting stuff.
Right now i have a minor level at 691 and bigger level at the 723 area you mentioned earlier.
I had a hypothetical question. If we do not test and trade at the low 720s area and we go on to test that area a few months later, would the Net delta holders/resistance level still be in play?
thanks
For some reason when ever stocks surge in the first hour of trading and then go red they tend to rally in the final 2 hours of the day.
OK.....finally back. I had to do some work on the plane I fly after I found a maintenance item last night after a short flight.
For the question about the activity at delta zones being "commercials" or not, well it is......the action in the "pit" when at these zones AND the size of orders passing through in the order flow are not retail guys buying or selling. My experience with the delta over many years has very much confirmed to me that "commercial" activity is the bulk of the activity in these zones.
Tracking the cumulative delta over a multi-day period we will make an example - On lets say March 3rd the market traded to 685.00 LOD and the most negative reading of the cumulative delta was -150,000 contracts at that time (when that spike low was created). Now lets say two days later on March 5th (after tracking the delta at all times the globex is open) we trade to 685.00 but the cumulative delta was now showing -132,000 contracts........at this point we would be showing there are NET Long Holders potential remaining from this level who bought two days prior (difference at current days reading is +18,000).
At this point I would look at the PER TICK delta from the day we first touched 685.00 on March 3rd and add up all the TICK levels ONLY with a positive delta in the area 3 to 4 points from 685.00 on up (or at least in that 3 to 4 point zone that has the biggest pocket of high positive delta ticks). This area may show all the positive delta TICK levels added up together to about 11,000 contracts in that 3 to 4 point area.....this I call a delta zone (zone which had a very positive bias to the delta in a small 3 to 4 point range where sellers lost control to buyers and price then change directions as the 685.00 LOD was created).
If I saw price at any point now trade down to the delta zone at 685.00 again and the overall cumulative delta went to -150,000 contracts, I would know we are in a neutral state (and as a confirmation I would want to have seen at least 50% of the 11,000 contracts noted before, which created the delta zone initially, showing now as negative delta within the TICK levels making up the previously defined delta zone of 685.00 and up about 3 to 4 points). This activity would confirm that delta NET Long Holders flipped out of the previously entered Long positions within this zone in a concentrated manner.
When you see this previously created Long Holders zone go heavy negitive delta, as price returns to this zone again, you can expect price to run through this zone and neutralize this previously held inventory (and then usually make a run beyond this zone which had previously held as support......many times it will run a minimum of 5 to 10 points after the held inventory capitulates).
Hopefully this will help make the concept become more clear.
For the question about the activity at delta zones being "commercials" or not, well it is......the action in the "pit" when at these zones AND the size of orders passing through in the order flow are not retail guys buying or selling. My experience with the delta over many years has very much confirmed to me that "commercial" activity is the bulk of the activity in these zones.
Tracking the cumulative delta over a multi-day period we will make an example - On lets say March 3rd the market traded to 685.00 LOD and the most negative reading of the cumulative delta was -150,000 contracts at that time (when that spike low was created). Now lets say two days later on March 5th (after tracking the delta at all times the globex is open) we trade to 685.00 but the cumulative delta was now showing -132,000 contracts........at this point we would be showing there are NET Long Holders potential remaining from this level who bought two days prior (difference at current days reading is +18,000).
At this point I would look at the PER TICK delta from the day we first touched 685.00 on March 3rd and add up all the TICK levels ONLY with a positive delta in the area 3 to 4 points from 685.00 on up (or at least in that 3 to 4 point zone that has the biggest pocket of high positive delta ticks). This area may show all the positive delta TICK levels added up together to about 11,000 contracts in that 3 to 4 point area.....this I call a delta zone (zone which had a very positive bias to the delta in a small 3 to 4 point range where sellers lost control to buyers and price then change directions as the 685.00 LOD was created).
If I saw price at any point now trade down to the delta zone at 685.00 again and the overall cumulative delta went to -150,000 contracts, I would know we are in a neutral state (and as a confirmation I would want to have seen at least 50% of the 11,000 contracts noted before, which created the delta zone initially, showing now as negative delta within the TICK levels making up the previously defined delta zone of 685.00 and up about 3 to 4 points). This activity would confirm that delta NET Long Holders flipped out of the previously entered Long positions within this zone in a concentrated manner.
When you see this previously created Long Holders zone go heavy negitive delta, as price returns to this zone again, you can expect price to run through this zone and neutralize this previously held inventory (and then usually make a run beyond this zone which had previously held as support......many times it will run a minimum of 5 to 10 points after the held inventory capitulates).
Hopefully this will help make the concept become more clear.