Trader's Daily Notebook: Standoff Between Buyers and Sellers

 | Apr 07, 2017 | 6:00 AM EDT
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Sellers failed to take control of Thursday's auction, but by no means should we take that to mean buyers scored a significant victory. For the day, we saw the PowerShares QQQ Trust (QQQ) and SPDR Dow Jones Industrial Average ETF (DIA) close just above the flat line, the SPDR S&P 500 Trust (SPY) bounce roughly 0.3% higher, and the iShares Russell 2000 Index ETF (IWM) close nearly 1% higher. Aside from the IWM, which traded nearly 19% more than its one-month average volume, all other ETFs finished beneath their monthly volume averages. 

iShares Russell 2000 Index ETF (IWM) -- Daily

Those who traded on Thursday likely already know about the Russell's outperformance. After a very brief probe beneath Wednesday's lows, the IWM chopped around its developing volume weighted average price (VWAP) for 90 minutes before finally bursting above its opening print around 11:15 a.m. ET (see chart above). Those of us who expected sellers to take a more determined stand were obviously left shaking our heads, as the ETF never traded back through its VWAP or opening print after the late-morning break. 

Whether or not one believes Wednesday's decline or Thursday's bounce is meaningful is unquestionably a matter of timeframe. In my view, the IWM remains trapped between $133 and $138.50. If you're looking to adopt a more aggressive and directional posture, and not currently interested in fading either channel boundary, the sidelines are where you belong. If, however, you're actively trading either the Mini Russell 2000 futures (Tf) or IWM during the day timeframe, your best bet is to do so in the direction of VWAP and the opening print. This simply means not selling short when price is above VWAP and the opening print, and not going long when price is beneath them. 

PowerShares QQQ Trust (QQQ) -- Daily

Thursday's obvious underperformer was the QQQ. While the ETF managed to finish the session a few ticks in the black, the buying was labored and unconvincing. Names such as Apple (AAPL) , Alphabet (GOOG) , Amazon (AMZN) and Facebook (FB) failed to attract buyers. And that appeared to keep index traders on the sidelines, or even looking for reasons to fade any hint of intraday strength. I, for one, was short the QQQ for much of the session but obviously never got the break lower I was betting on. (Apple, Facebook and Alphabet are part of TheStreet's Action Alerts PLUS portfolio.) 

Those trading either the QQQ or E-Mini Nasdaq 100 futures (Nq) should note the contract bounced from 5390 during the Globex session Wednesday evening to Thursday morning. As we discussed in Tuesday's Trader's Daily Notebook, a close under 5390 would represent a fairly clear break of the bullish shorter timeframe trend. While the recent rejections from 5450 appear bearish, I don't want to consider slipping into too aggressive a short-term bear suit until price closes beneath the 5390 level. 

Moving on to Friday's Es auction, we'll begin the session focused on 2350.75 to 2351.50. As long as we're trading above that area, our baseline expectation will be for buyers to make repeated attempts to drive value back above 2357.50. As buyers become comfortable with prices above 2357.50, another attempt to test levels between 2363.75 and 2365 will become our objective. 

Those looking to fade strength should keep a close eye on the mid-2360s. A close above 2365 would likely find short-term traders abandoning losing short positions, and positioning themselves for another test of 2372.50 and 2380. 

5-Minute S&P 500 Futures Volume Profile

Keeping in mind that the premarket nonfarms payroll report will likely trigger some early session volatility, we'll look for a sustained break of 2350.75 to trigger a slide toward 2345. If bears manage to join together and finish what they began on Wednesday, we can look for price extension toward 2338.50. 

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

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