Trader's Daily Notebook: Thursday Was More Bullish Than It Seemed

 | Jan 06, 2017 | 7:00 AM EST
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Stock quotes in this article:

GDX

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amzn

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FB

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goog

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TLT

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m

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dds

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kss

Thursday's auction was all about strength in gold miners, high-beta tech and bonds and selling in retailers. But before we get to those areas, let's take a moment to discuss Thursday's early-session decline in the E-Mini S&P 500 futures (Es).

30-Minute Globex Session S&P 500 Futures Volume Profile
5-Minute S&P 500 Futures (Es) Volume Profile

The Es charts above display the contract's trading on a year-to-date base over two shorter time frames. Please note that the 30-minute chart includes all Globex session trading in addition regular session trading. The main takeaway from both charts is that despite Thursday's dip into the mid-2250s, price is still being (bullishly) rejected within an area where aggressive buyers want to see supply cut off.

As you review the five-minute regular session chart above, note how thin the volume profile is within the area shaded in yellow. On Tuesday, labeled #1, you can see how price spiked above the mid-2250s and was promptly cut off. Price failed to gain acceptance. The following day, labeled #2, price gapped above (and briefly traded within) the area bearishly rejected on Tuesday, but this time gained acceptance. Moving on to Thursday's auction, labeled #3, we see that the contract was sold back down within that area of low volume, and as bulls would have wanted to see, supply was once again cut off. In a nutshell, Thursday's auction, despite closing lower on the day, was notably more bullish than bearish.

Away from the Es, we saw very strong buying in the VanEck Vectors Gold Miners ETF (GDX) and the individual stocks that comprise that ETF. The short-term momentum that propelled the GDX from near $18.75 to above $23 likely has room to $25. But as buyers begin probing levels between $25 and $25.30 -- just above the 200-day simple moving average (SMA) -- I'd be on the lookout for increased supply to re-enter the market.

VanEck Vectors Gold Miners ETF (GDX)

On the high-beta front, we saw an impressive surge in shares of Amazon (AMZN) , Facebook (FB) and Alphabet (GOOG) , among others. (Amazon is part of the Growth Seeker portfolio and Facebook is part of Jim Cramer's Action Alerts PLUS charitable trust.) And while we've been discussing the idea of selling Amazon and Facebook short, I would likely remove both stocks from my immediate short consideration list for the time being. I'm still interested in taking a short position in Facebook beneath $115, but it seems to have bought itself a bit of time with Thursday's rally.

Like gold and gold miners, bonds continue to rebound and clearly have attracted the shorter time frame momentum crowd. For those dealing in iShares 20+ Year Treasury Bond ETF (TLT) , I'd be especially careful chasing price momentum toward $123 to $124. With the 50-day SMA sitting near $122.30, a push toward $123 might turn out to be a short-term exhaustion-like move. Remember, the longer time frame trend in bonds is still decidedly bearish.

I tend to avoid the retail sector because I tire of endless predictions of what will be hot and fashionable from season to season. And frankly, the fact that my 10-year-old daughter, 6-year-old son and 73-year-old mother all think of Amazon before any other retailer when I ask a shopping-related question tells me all I really need to know. Until changes are enacted that in some meaningful way levels the playing field between online and traditional bricks-and-mortar shopping outlets, I find it difficult to see how stocks such as Macy's (M) , Dillard's (DDS) and Kohl's (KSS) can compete with the shopping experience offered at Amazon. (Kohl's is part of the Dividend Stock Advisor portfolio.)

Moving on to Friday's Es auction, let's remember that the pre-market payroll figures will set the tone for the regular session's open. With that in mind, all trading above 2261.75 keeps the focus on auctioning prices beyond 2267 and on toward 2273. Barring a surprising (bearish) reversal above 2267, I can't see wanting to fade price action toward 2273.

5-Minute S&P 500 Futures Volume Profile

A failed trade from 2261.75, much like what we saw Thursday morning, won't necessarily mean buyers are trapped. However, it will open a door for sellers to auction prices down toward 2251 and 2240. If you want to make life easier on yourself, at least in a directional sense, consider maintaining a long bias above 2261.75 and either flipping short beneath 2261.75 or simply waiting to buy a dip toward 2251.

Any trading or volume profile related questions can be posted in the comments section below, emailed to me at parkcityyeti@gmail.com or posted to my twitter feed @ByrneRWS

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