Trader's Daily Notebook: Another Day Without Direction

 | Apr 11, 2017 | 7:00 AM EDT
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Monday's auction provided some tradable rotations for day timeframe scalpers. Those hoping for a more sustained drive to unfold, however, weren't so lucky. For the day, the SPDR S&P 500 Trust (SPY) , iShares Russell 2000 ETF (IWM) and PowerShares QQQ Trust (QQQ) all finished in the black by a few pennies. That said, all ETFs finished the day beneath their session volume weighted average prices (VWAPs), and only the IWM closed above the auction's opening print. In a nutshell, Monday's auction was both inconsequential and a near mirror image of Thursday and Friday's directionless auctions. 

If we review a three-day composite volume profile of the E-Mini S&P 500 futures (Es), we find that approximately 70% of the activity has occurred between 2351.25 and 2357.25, and the value has been established at 2353.25. 

3-Day Composite S&P 500 Futures Volume Profile

The primary value behind studying a composite chart like the one above is that we're better able to identify where value needs to shift in order to attract a more aggressive participant to the auction. While I find it difficult to believe the Es is going to spend a prolonged period of time bouncing between the upper 2340s and low 2360s, the profile above makes it pretty clear anyone trading within that range needs to embrace a responsive approach (fading levels just above and just below value). 

As Tuesday's auction gets under way, we'll want to maintain a generally responsive approach (or remain on the sidelines) until value has shifted above 2360.50 or beneath 2347. 

Away from the stagnating indices, and because we always need stocks to trade when the indices aren't cooperating, let's take a look the chart of Alibaba Group (BABA) and Essent Group (ESNT)

Alibaba Group (BABA) -- Daily
Essent Group (ESNT) -- Daily

Both stocks are in bull trends, in play and at or near yearly highs. In the case of Alibaba, the stock is trading at its highest level since December 2014. While stocks often pull back and consolidate after breaking to new highs, it's worth noting Monday's breakout was only the first day of strength for this stock. Beyond that, as long as the stock is closing above the 50-day exponential moving average (EMA), I see little reason for buyers to fret. 

Essent Group probably isn't as well known as Alibaba, especially among shorter timeframe traders. But with a $3.4 billion market cap and average daily trade volume (over the past 21 days) of more than 680,000 shares, this stock is sufficiently liquid for nearly all traders to consider following. Unlike BABA, ESNT isn't trading a yearly high. But that's only because it's got two candlestick wicks (bullish excess) from Feb. 10 and March 5 to work through. Even though the stock did not close above its high prints from those two days on Monday, it did reach an all-time closing high. 

If you're intrigued by Essent's chart, consider trading off the two horizontal lines I've drawn in. Because the stock is in a wonderful bull trend, the preferred trade would be long above $38.10 (the upper horizontal line). However, if we saw a close under the lower line, approximately $33.45 to $33.85, my guess is a quick slide toward the 200-day simple moving average ($30) wouldn't be far behind. 

Moving on to Tuesday's Es auction, we'll begin the day with a focus on 2354.75. As long as we're trading beneath that figure, sellers have a slight advantage, and an opening to sell the contract down toward 2347. If price begins to gain acceptance beneath 2347, the potential for a more sustained decline begins to unfold. Our initial target would be 2339, but realistically, we'd expect to be testing the year-to-date VWAP within a relatively short period of time. 

15-Minute S&P 500 Futures Volume Profile

A sustained trade above 2354.75 doesn't give bulls a meaningful advantage, but it does encourage buying toward 2359.50 to 2360.50. As price gains acceptance above that narrow area, we can again begin positioning for a push toward 2368.75 and 2375. 

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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