Trader's Daily Notebook: Bulls Won't Rest Easy

 | Jan 10, 2017 | 7:00 AM EST
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Stock quotes in this article:

IWM

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XLF

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FB

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aapl

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amzn

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goog

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baba

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nvda

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IBB

If we set aside the fact that the iShares Russell 2000 ETF (IWM) finished Monday's session beneath $135 and at a new 21-day (closing) low, I believe I'd categorize Monday's auction as a generally sleepy event, but with the potential to give shorter timeframe bulls a few nightmares. 

Light crude oil futures breaking beneath the (albeit very short in duration) year-to-date volume weighted average price (VWAP) and 21-day exponential moving average (EMA) is a concern for shorter timeframe traders. I am of the view that equity bulls need energy stocks to pitch in with the heavy lifting, so crude's inability to sustain a break above $54 to $55 is a bit of a problem. Let's hope only a short- term problem. 

Daily Light Crude Oil Futures
 

Over the intermediate timeframe, I continue to believe (responsive) buyers have the edge with the rising 50-day and 200-day simple moving averages (SMAs). But the repeated rejections from the mid-50s, accompanied by a close under the 21-day EMA, paints a convincing picture that any upside break will need to wait a while longer. 

Another short-term concern revolves around the flat-lining bank stocks. Nearly every analyst that's swung by CNBC over the past few weeks has noted financial stocks as being one of their top bullish ideas for 2017, but so far the stocks are struggling to break to fresh swing highs. Using the Financial Select Sector SPDR (XLF) as our proxy, the group's gone nowhere for a month.

 Now that we've covered crude and financials, two areas of the market that have the potential to trip up shorter timeframe buyers, let's take a moment to consider what's doing well. 

Higher-beta momentum, or FANG stocks, continue to hold their own. I ended 2016 with an eye toward shorting Facebook (FB) beneath $115. And while that level may still break at some point, for now buyers have returned and the stock is showing strength above the 50-day and 200-day SMAs. In addition to strength in FB, shorter timeframe bulls are also showing increased interest in names like Apple (AAPL) , Amazon (AMZN) , Alphabet (GOOG) , Alibaba (BABA) and Nvidia (NVDA) . In a nutshell, those trading during the day timeframe are finding increased opportunities in a group that, until recently, had fallen a bit flat. (Facebook, Apple and Alphabet are part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of the Growth Seeker portfolio.) 

Another high-beta play that's come back to life recently is biotech. While the iShares Nasdaq Biotechnology ETF (IBB) has a major hurdle ahead of it near $300, the fact that it's closed the past four sessions above the 200-day SMA, something we've spent an inordinate amount of time discussing in Trader's Daily Notebook, can only be viewed as a positive development. 

iShares Russell 200 ETF (IWM) -- Daily
 

Shifting our attention back to the IWM, there's no question short-term bulls are bothered by the ETF's break beneath the 21-day EMA. And while a bit of selling toward the rising 50-day SMA may now be an increasingly reliable bet, I would encourage higher timeframe bulls to avoid turning bearish too soon. Until price breaks beneath the area shaded in yellow on the chart above, consider ignoring the naysayers who insist the inauguration is destined to usher in a new bear market. Let price be your guide, rather than the frequently fluctuating opinions of folks on TV. 

Moving on to Tuesday's E-Mini S&P 500 futures (Es) auction, we'll begin the session with a focus on 2270.25 to 2270.75. As long as value remains beneath that area of low volume from Friday's auction, we'll give sellers some leeway and expect them to take a crack at 2259.50 to 2260.75. An open beneath 2259.50 (that then goes offered beneath that figure), or value migration beneath that level during the regular session has strong potential to slide toward 2248.25 before attracting a fresh batch of dip buyers. 

5-Minute S&P 500 Futures Volume Profile
 

A sustained trade above 2270.75 is not something I'd want to fade as the path of least resistance would be higher, toward 2277 and new contract highs.

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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