The Trader Daily

 | Apr 28, 2014 | 7:30 AM EDT
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We began Friday's report by reviewing the bearish implication of the IWM:SPY and XLE:XLF ratio charts. Let's continue with this risk on/risk off theme by studying the ratio chart of SPDR Barclays High Yield Bond ETF (JNK) to iShares Barclays 20+ Year Treasury Bond Fund (TLT).

The idea here is simple. We're building our ratio chart by utilizing JNK to represent high risk, while TLT is used to represent low risk. If the chart is trending higher, investors are actively taking on more risk, while lower prices are an indication of a reduction in risk appetite.




As we review the daily charts of our four major market ETFs, it's important to recognize that while the SPY and DIA may be establishing lower highs, they are still in balance (sideways consolidation). Put another way, the bears have identified a window of opportunity, but on anything other than a very-short-term timeframe they've yet to actually seize control.

As far as the QQQ and IWM are concerned, we began labeling these ETFs as those trading within short-term downtrends several weeks ago and this remains the case today. Both markets remain a sell, on rallies.


Major Indices -- Daily
Source: eSignal


Unless you've been hiding under a rock for the past eight-plus years, you know that Jim Cramer works tirelessly to identify bull markets for his "Mad Money" audience. So where is the current bull market? It's in energy, utilities, consumer staples, bonds, REITs and, to a small degree, materials and industrials.

We all know that strong bull markets are rarely led by utilities and consumer durables. But there's no denying that this is where bulls are currently hiding. Anyone stalking these sectors for short-side fades needs to recognize that aside from a few overbought RSI readings, their trends appear strong and intact. As a reminder, I tried to short the staples via the XLP a couple weeks ago, but I ended that fight and took my loss at Friday's close.


Four Strong Sectors -- Daily
Source: eSignal


If buyers are camped out in utilities, durables and energy, where are the sellers? The fact is they've been congregating in the same sectors for six-plus weeks now. Aside from the non-stop carnage in the high-growth momentum names, we've seen persistent underperformance in home construction, consumer discretionary, banking and retail (all early-cycle sectors). I still expect these groups to lead the way lower on any broad market decline.


Four Weak Sectors -- Daily
Source: eSignal


Rather than look at an ETF as a representation of past momentum darlings, let's examine the trading in a few specific names. The chart below shows the year-to-day trading of Yelp (YELP), WorkDay (WDAY), 3D Systems (DDD) and Tableau Software (DATA). There's nothing unique about these stocks other than their high growth rates and the love investors once had for them. The bottom line is that once these past momentum darlings broke their 50-day moving averages (in black), they were quickly abandoned and left for dead.

None of these stocks are necessarily down for the count. But with the exception of DDD, all three continue to trigger lower lows. These stocks are broken and in need of major repair before anyone other than a day-timeframe scalper should even look at them.


Four Momentum Favorites -- Daily
Source: eSignal


A daily trade plan isn't supposed to be overly complicated and Friday's plan certainly met that criterion. We began the day with a neutral bias between 188.65 and 187.05. Shifting to a more bearish one beneath 187.05 and a bullish one above 188.65. Suffice to say, the bulls gave up the ghost during the session's initial 10 minutes of trading and handed the win to the bears.

Monday's trade plan isn't much more complicated. I'm expecting a sell-the-rip mentality to persist as long as prices remain beneath 187.15. A largely two-way rotational auction to unfold between 186.10 and 186.80 and a more aggressive and motivated seller to take the reins as value shifts beneath 186.10.

5 Minutes SPY Volume Profile
Source: eSignal

Additional Notes:

  1. Peabody Energy (BTU) continues to show strong relative strength in a weakening tape. I still believe Swing Traders still need to see acceptance (via session closes) above $18.25. But aggressive and more-intraday-focused traders have obvious areas of support ($16.70-17.25) to trade against in anticipation of a more enduring upside break.
  2. Cliffs Natural Resources (CLF) is still a long way away from showing up anyone's bullish radar. But let's not ignore how impressive the action was following Thursday's after-hours slide when the stock traded as low as $16.80. On a regular session basis, the stock has managed to avoid violating its March 10 intraday low of $17.40.

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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