The Trader Daily

 | May 15, 2014 | 7:30 AM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

spy

,

csco

,

bax

,

IWM

,

sgg

,

fcx

A big focus of Tuesday's Trader Daily was illustrating why fresh long positions in the SPDR S&P 500 (SPY), with the VIX trading at 12.25, made very little sense.

But despite the SPY falling apart late in the day Tuesday (and my disclosed short position in the ETF), my thesis was not entirely a bearish one. It was an observation that based on the past 16 months of data. It seemed unwise to bet on an immediate move higher until the VIX had an opportunity to adjust to a moderately higher level.

As with everything in trading, understanding one's timeframe is an essential ingredient. Until I see bullish pattern develop in the SPY, coupled with a VIX back above $13 to $13.5, I'll likely remain a short-term opportunistic short seller -- with an eye toward taking in short exposure on any one to two handles dips.

Away from the SPY/VIX relationship, I want to discuss another reason I am moderately negative on the SPY. The chart below is a weekly ratio of the IWM to SPY going back to 2000. This chart struck me as interesting because the current IWM:SPY ratio is at its most oversold point, on a Relative Strength Index (RSI) basis, in the past 15 years.

Put another way, we may be nearing an inflection point where the performance of the IWM and SPY begin to converge. If this is the case, traders may want to consider a long  iShares Russell 2000 (IWM) (via stock, options or futures) versus short SPY position in the very immediate future.

Weekly IWM/SPY Ratio
eSignal

"I went to the bank and asked to borrow a cup of money. They said, 'what for?' I said, 'I'm going to buy some sugar.' -- Steven Wright

I'd wager to say even the most active of traders rarely pull a quote or chart of sugar futures. But if we are to vigilantly scour the markets for signs of unbalanced supply and demand, we must be open minded. Similar to coffee or crude oil, if buyers are more anxious to buy, than sellers are to sell, prices will rise. This is exactly what I see developing in sugar futures.

I have to give a hat-tip to Wit, a fellow trader, for bringing sugar to my attention. As he rightly pointed out, this contract is beginning to shape up nicely on numerous timeframes. The contract hasn't quite broken through all its resistance levels, but it's getting incredibly close.

Weekly Sugar Futures Chart
eSignal

For non-futures traders interested in trading or monitoring sugar, I'd suggest keeping an eye on the iPath Dow Jones-UBS Sugar Subindex Total Return ETN (SGG). ETNs have their own unique issues, so be sure to read about this product before deciding to establish a position. That said, aside from the futures contract, this really is the only other way I know of to place a direct bet on the direction of sugar prices (outside of individual companies with sugar exposure).

Weekly SGG Chart
eSignal

Tuesday's late day slide in the SPY didn't kill Monday's breakout buyer, but it certainly left him in a precarious position. Momentum buyers wanting to extend the recent advance must defend $188.80. Session closes beneath that level would make the recent strength look like upside excess, and leave the bears in the catbird seat.

With the above in mind, day timeframe traders should consider using $188.80 as their intraday pivot. All trading above that level keeps buyers targeting $189.23 and $189.61. While a sustained break of $188.80 encourages traders to hammer the SPY back down toward $187.96 and $187.20.

15-Minute Volume Profile SPY
eSignal

Additional Notes:

1.  In the face of Tuesday's weak market, both Freeport-McMoran (FCX) and Baxter Intl. (BAXX) managed to hold their ground. FCX has enjoyed a sizable advance since the close of trading on Friday May 9, so some degree of consolidation is likely appropriate. As far as BAX is concerned, I am still anticipating a near-term break above its March 27 swing high. I remain long both names.

2. Cisco (CSCO) reported its quarterly earnings after the closing bell on Tuesday, and if the afterhours trading is any indication, this stock appears destined to join the ranks of old line tech companies leading the way higher.

 Setting aside the fact that I hold shares of CSCO in a long term account, I would probably avoid chasing the bullish afterhours price action. In my view, several weeks of consolidation above its 50 and 200 simple moving averages would leave the stock in a position to embark on a more enduring move higher. For reference purposes, a monthly close above $27.75 would look extremely bullish.

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 @Byrne

Columnist Conversations

If AAPL is going to continue to rally....this cluster zone and prior swing high need to be cleared! This is t...
Yesterday and today was the classic case of watching realized vol. in the SPX and other indexes jump. The mark...
I had the chance to talk at length with Whole Foods co-CEO Walter Robb yesterday for a piece on TheStreet.com....
When the market gives your a chance to take profits, you TAKE IT! Today is that day, and we will cash in on S...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.