Trader's Daily Notebook: The Calm During the Storm

 | Mar 14, 2017 | 7:00 AM EDT
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Stock quotes in this article:

intc

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mbly

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vrx

Monday's trading was astonishingly quiet. And while some degree of the slow trading can be blamed on the two-day FOMC meeting that begins Tuesday morning, there's no question the impending Nor'easter kept a number of participants out of the office. Based on current storm projections, and the fact that the FOMC meeting announcement isn't released until Wednesday afternoon, I'd expect Tuesday's volume to mirror Monday's.

Monday's index trading aside, the session's auction wasn't entirely without activity. The day started out with news that Intel (INTC) would buy technology firm Mobileye (MBLY) for more than $15 billion dollars. That figure amounts to a share price of roughly $63.50, or 34% above Friday's closing price. For Intel's part, the stock declined a bit more than 2% on the day, closing beneath its 200-day simple moving average (SMA) for the first time since late-June 2016.

Late-Monday afternoon news broke that Bill Ackman had finally thrown in the towel on his firm's investment in Valeant Pharmaceuticals (VRX) . Apparently, after purchasing the stock around $200 and watching it melt to near $12, the hedge-fund titan saw something he didn't like.

Sarcasm aside, Ackman's failure to recognize his investment mistake and sell the stock at higher levels is a valuable lesson for individual traders. While it may be difficult for a large fund to exit an oversized position that's begun to accelerate lower, there's rarely a time an individual investor can't exit a position in mere seconds. And frankly, there's never a good reason to be holding a stock that's declined 70%, 80% or even 90% in value.

The obvious next question when it comes to Valeant is: does Ackman's exit amount to a final, bell-ringing level of capitulation?

Valeant Pharmaceuticals VRX -- Daily Chart

I've never been the type of trader that buys a stock just because a well-known investor announces on CNBC that he's long. Similarly, I don't view the exit of a tarnished investor to be a reliable enough catalyst to ignore a horrific chart. However, depending on one's timeframe, I can envision a scenario where Valeant might be worth buying.

To begin, it wouldn't surprise me in the least to find day timeframe scalpers jumping on the bid at Tuesday's open if shares open around $11. The stock's been trashed, Stochastics and Relative Strength Reading (RSI) are in the gutter. And based simply on how many folks seemed to want Ackman to get squeezed out of VRX, I can imagine a handful of folks now willing to get long the stock, for a very short term trade, as long it holds above the session's developing volume weighted average price (VWAP) and opening print.

Looking beyond the day timeframe, we might find buyers show interest as the stock closes back above $12.95 to $13.65. Such a move would make the recent decline look like bearish excess. In this case, a close above $13.65 might prove interesting for aggressive buyers, provided one utilizes a stop loss beneath whatever the current swing low turns out to be.

As far as higher timeframe participants are concerned, I'd avoid buying the name until the year to date (YTD) VWAP and 50-day SMA are recaptured, and held, for at least a week.

Moving on to Tuesday's E-Mini S&P 500 futures auction, we'll enter the session with a focus on 2369.50. If the contract opens the regular session beneath that figure, our baseline expectation will be for a swift probe of the mid-2360s. If buyers exit the auction near 2364.75, bearish continuation toward 2360.75 would be expected.

S&P 500 Futures -- 15-Min Volume Profile

As long as we're trading above 2369.50, however, buyers have an opening to auction prices toward 2377 to 2378, with 2384 being a slightly more extended target. As a reminder, with the snowstorm pummeling areas of the East Coast and the two-day FOMC meeting beginning Tuesday morning, we're likely to see another session of incredibly depressed trading volume.

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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