The Trader Daily

 | Apr 08, 2014 | 7:35 AM EDT  | Comments
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Stock quotes in this article:

spy

,

QQQ

,

ko

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pep

,

gs

,

gs

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jwn

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IWM

,

DIA

Aside from Coca Cola (KO), Pepsico (PEP) and a handful of other consumer durables, Monday was another rough day for the bulls. However, before we get too bearish, let's note that the selling didn't hit the technology, high-beta momentum and biotech sectors quite as hard some might have feared.

As we prepare for Tuesday's session, it's worth jotting down that as measured from Monday's opening print, the PowerShares QQQ Trust (QQQ) traded far stronger than either the SPDR S&P 500 (SPY), the IShares Russell 2000 (IWM) or SPDR Dow Jones Industrial Average (DIA). Simply put, dip buyers were more aggressive (or sellers less so) in the Nasdaq than any other major index.

As you review the daily chart of the major indices below, please note that the SPY and DIA are still trading within their respective balance areas. While the QQQ and IWM are in clear-cut (short-term) downtrends. In my view, while all four ETFs are due for some sort of bounce, I continue to believe that the QQQ and IWM should be sold on any meaningful rallies.

Daily Chart of Major Indices
eSignal

 Since many traders don't follow the 10-year Treasury Note (ZN) contract during the day, I thought I'd share a chart of the S&P 500 futures with a 10-year T-note futures overlay. As you can see, the bonds failed to make a higher high as stocks (via the Es futures contract) were hitting session lows. This divergence prompted traders to look for a bounce in equities.

To be clear, this sort of relationship doesn't always work. However, a quick glance at your charts should reveal whether traders are fleeing to bonds for safety. And when they are, this is exactly the sort of chart I want on my screen.

5-minute S&P futures--10-Year T-Note Overlay
eSignal

 Goldman Sachs (GS) has been trading poorly for months. And thanks to Monday's sell-off, it's finally broken beneath its upward sloping price channel, and begun registering new multi-month swing lows. Next support is 8.5 points lower at $150.

Daily and Weekly GS
eSignal

 Balance ranges are not only for indices. Check out this chart of Nordstrom (JWN). The stock has been rotating between roughly $55.85 and $62.85 for nearly a year. And thanks to Monday's collapse back beneath the upper end of balance, the stock appears poised to slide back down toward $56.

 

Daily JWN
eSignal

 

 If I were going to sell JWN short, my strategy would be to run a stop on close (stop-loss) above $63.50, with downside targets of $59.50 and $55.85. This clearly isn't a two or three day trade idea.

As far as Tuesday's SPY trading is concerned, my primary area of interest is expected to be $183.75 to $184. Similar to what was discussed in Monday report, I am still looking toward that .25¢ range to attract our dip buying cabal. And the fact that the ETF's 50-day simple moving average is also located within that range should give buyers all the more reason to test the waters as downside momentum begins to wane.

If the bears return at Tuesday's open (read: Turnaround Tuesday) and hammer the SPY through $183.75, I will looking for a hard flush lower. Such a slide would have me targeting levels between $183.06 and $182.68. However, in the spirit of a turnaround Tuesday, any test of those lower levels would find me lurking on the bid-side of the market.

 

5-Minute SPY Profile
eSignal

 

At the risk of jumping too far ahead of a potential trading set-up, any flush beneath $183.75 to $184 that attracts buyers toward $183.06, and then recaptures $184, would have me looking for upside continuation toward $185.80 to $186.

 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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