Trader's Daily Notebook: Don't Stay Short Out of Spite

 | Jun 14, 2017 | 7:00 AM EDT
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Stock quotes in this article:

xle

,

OIH

As hard as it may be to remain bullish on the E-Mini S&P 500 futures (Es) with Friday's bearish reversal still fresh on our minds, we need to stick with our charts and keeps things as simple as possible. 

Daily S&P 500 Futures Volume Profile
 

There's no arguing the reversal from above 2440 looked pretty bearish. However, the fact remains the Es is still closing above the eight-day and 21-day exponential moving averages (EMAs) and hasn't come close to its 50-day moving average since mid-May. A reasonable strategy for the bearish short-term trader would be to sell short against 2440 to 2450, but given the lack of sustained downside in this market, remaining short because you disagree with how the market is moving simply isn't a viable investment strategy. Remember, discipline trumps conviction every time. 

Despite the ongoing bear trend in energy stocks, I'll have my eye on the Energy Select Sector SPDR (XLE) and VanEck Vectors Oil Services ETF (OIH) at Wednesday's open. Both ETFs have bounced nicely over the past three days, but I believe dip buyers are going to be tested Wednesday. 

Shortly after Tuesday's regular-session close, the American Petroleum Institute (API) released its weekly energy report, and the figures weren't bullish. According to Bloomberg, the report showed a build of 2.75 million barrels of crude and a 1.79 million barrel build in gasoline inventories over the last week. And given that analysts were expecting a drawdown in supplies, this isn't good news. 

Those trading during the day timeframe may want to stalk both the XLE and OIH for longs shortly after the regular-session open, or immediately following the 10:30 a.m. ET release of the Energy Information Administration's (EIA) weekly report. My idea behind stalking longs in these ETFs still trapped in a bear trend is fairly straightforward. If the recent bounce from swing lows has staying power, and isn't just another oversold rally, we'd expect buyers to pounce on any early weakness in both names. As the XLE and OIH trade above their opening print and developing volume weighted average price (VWAP), I'll consider trading them long toward Tuesday's closing print. Any rollover back down through opening swing lows would offer fairly logical stop loss points. 

Moving on to Wednesday's Es auction, let's not forget about the FOMC meeting announcement at 2 p.m. ET and Fed Chair Janet Yellen's news conference 30 minutes later. We often see the market make an initial move on the release of the meeting announcement, followed by at least one reversal, and then an additional round of volatility during the press conference. 

We'll enter the auction with an initial focus on 2434.25 to 2435.25. As long as value remains above that one-handle zone, the odds favor continued buying toward 2441.75 and new swing highs. The thought of new swing highs may be difficult for some traders to swallow after the recent volatility, but don't lose sight of the fact that we're still closing above all short, intermediate and higher timeframe moving averages. 

15-Minute S&P 500 Futures Volume Profile
 

A failed trade from 2434.25 opens the door to selling toward 2428.50 and the mid-2420s, but only value migration and a session close beneath those areas push traders toward a more bearish state of mind. A session close beneath 2428.50 shifts our focus back down toward 2414.25 and 2402.75 to 2404.25. 

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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