The Trader Daily

 | May 14, 2014 | 7:30 AM EDT  | Comments
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Stock quotes in this article:

spy

,

VIX

,

zu

,

feye

After Monday's broad based advance, I suspect the bulls were a bit annoyed by Tuesday's lack of upside follow through.  Ordinarily, I might remind everyone that generally quiet and range-bound sessions are common following direction breaks.

However, I believe Tuesday's sleepy and lifeless session was the result of something else entirely. I believe Tuesday's lackluster price action can be attributed to the VIX closing at an incredibly low level.

I am not a die-hard follower of the S&P Volatility Index (VIX), but even I am able to see how the SPDR S&P 500 (SPY) performed throughout all of 2013 anytime the VIX traded beneath 12.25. Such a low level on the VIX wasn't necessarily bearish for the SPY, but it did seem to prevent the ETF from pushing noticeably higher in the short term.

If last year's pattern holds true, the odds favor quiet churning with limited upside (in the SPY), before once again sliding back down a few percent. Put another way, a better opportunity for short term traders anxious to add long exposure in the SPY is probably a few weeks away.

Daily VIX Chart with SPY Overlay
eSignal

Gold futures were a standout winner during the first two months of 2014. But since mid-March, the precious metal has faded back down beneath $1,300, giving back more than 50% of its early year advance. After spending the past six weeks churning between $1270 and $1,330, the CME-traded Gc Gold contract appears ready to break out of its narrowing consolidation.

As for direction, I believe the prudent course of action is to await a break above $1,300 or beneath $1275 to $1280. If forced to opine on a likely direction, I'd be inclined to give the bears the benefit of the doubt because the RSI has remained pinned beneath the 50-center-line for the majority of the past six weeks, and the 50-day simple moving average has begun to curl lower.

Daily Gold Futures
eSignal

Turning to Wednesday's SPY trading session, my baseline expectation is for a continued slide toward $189.49. As far as what reverses this expectation, a simple 15-or 30-minute bar close above $190.11 would likely do the trick. With that in mind, it's reasonable to assume that a more bullish day timeframe bias is warranted as prices are sustained above $190.11.

As things currently stand, I expect to find dip buyers lurking between $189.25 and $189.49. That said, if the SPY is unable to recapture $189.49, the odds would quickly flip in favor of the bears and a continued slide toward $188.65 to $188.75.

5-minute Volume Profile SPY
eSignal

Additional Notes:

1. Our next high profile IPO lockup expiration is online retailer Zulily (ZU). After trading as high as $73 in late-February, ZU began trading with a twenty handle just this past Monday. When you consider that ZU has slid from the low-$70s to the high-$20s on roughly one to two million shares a day, the thought of an additional 110 million shares coming available to sell is a bit daunting. That's right. As of May 14 an additional 100-plus millions shares of stock will become eligible to be sold. Proceed with caution and caveat emptor.

2. Following ZU lockup expiration, the next IPO lockup expiration on traders' radar is the May 21 release of 91 million FireEye (FEYE) shares. Having seen its stock price slide from the mid-$90s in early March, to $27 at Monday's close, it's fair to say that FEYE has suffered in the same manner that ZU has. With the unlocking of a massive amount of supply just around the corner, it stands to reason that prospective FEYE buyers will take a wait-and-see approach with this stock.

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 @ByrneRW

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