The Trader Daily

 | Apr 24, 2014 | 7:30 AM EDT  | Comments
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Stock quotes in this article:

spy

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XLF

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TLT

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FB

,

aapl

,

gs

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gs

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c

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jpm

In my quest to find stocks and sectors that might have some catching-up to do with the broad averages, I chose to look at a ratio of the Financials Select Sector SPDR ETF (XLF) to S&P 500 SPDR (SPY). The XLF hasn't outperformed the SPY for many months, but that could be about to change. Note the support line at 0.116 on the ratio chart, and the frequency with which the ratio tends to bounce from that general area.

The bottom line is this: While the financial sector has been recent under performers, I want to look to the group for short-term trading ideas as long as that ratio holds above near-term support.

XLF vs. SPY -- Daily
Source: StockCharts.com

If you lock a dozen investors in a padded room and instruct them to discuss their stance on U.S. bonds and interest rates, the odds are high that 10 or 11 of them will insists rates have nowhere to go but higher. I too believe rates will eventually embark on a sustained move higher. The time frame of any such advance, however, is impossible to nail down.

With that in mind, I'll defer to my chart below and draw your attention to the higher highs and higher lowers in the iShares 20+ Year Treasury Bond ETF (TLT). Could the rising-wedge pattern be signaling trouble ahead for bond prices and rising rates? Absolutely. That said, until the TLT is breaking and holding beneath its 50-day simple moving average, I will happily maintain a bullish trading bias in the TLT.

TLT -- Daily
Source: eSignal

Wednesday's SPY trading was mind-numbingly dull, but thanks to after-hours reports from Facebook (FB) and Apple (AAPL), Thursday's action should be very different.

As you'll recall from Wednesday's Trader Daily, I highlighted the $187.35-to-$187.75 on the SPY as a probable area for dip-buyers to lurk. While that area contained almost all of Wednesday's trading, I want to begin Thursday's session with a focus on $187.90 and $187.15. The bottom line is that all trading between those two levels is expected to be choppy and rotational, and best left to intraday scalpers.

SPY -- 15-Minute Volume Profile
Source: eSignal

Assuming the SPY opens Thursday's session above $187.90, I'll be looking for dip buyers to be camped out between $187.75 and $187.90. As long as demand remains intact within that $0.15 window, my baseline expectation is for an eventual drive through the $188.40 high from Tuesday, and on toward $188.65/$188.85 and $189.55.

In the event the SPY opens strong -- above $187.90 -- but then collapses back down through $187.75 to $187.90, I'll expect traders to sell the stock straight through Wednesday's range and into $187.15. Given the bullish momentum that developed after Wednesday's close when Facebook and Apple released their earnings reports, any test of $187.15 is likely to fail in relatively short order. Any break of that level would have me targeting $186.65**, $186.05* and $185.69***.  

Additional Notes:

1. As far as any bank stocks on my radar, I am interested in Goldman Sachs (GS) as it trades through $161.45, Citigroup (C) above $48 (which it currently is) and JPMorgan (JPM) as it closes above the $56.25-to-$56.40 area. To be clear, however, I am not overwhelmingly bullish on the banking sector. All three stocks could quickly reverse course and lead the XLF lower. Should the broad market reverse course and head lower, these very names could morph into downside leaders.

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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