Trader's Daily Notebook: Our Baseline Expectation Is Rotation

 | Jul 03, 2017 | 7:00 AM EDT
  • Comment
  • Print Print
  • Print

Friday's E-Mini S&P 500 futures (Es) auction, despite being more active than I expected, turned out to be a non-event. After a bullish opening gap and prompt dive toward Thursday's regular session closing print, buyers spent the next five to six hours trying to work up the energy to auction past 2428.

Their efforts were for naught, and the Es closed Friday's session a single handle higher than where it closed Thursday. Such is life in a pre-holiday tape.

S&P 500 Futures -- Daily Volume Profile

The Es closed beneath the 21-day exponential moving average (EMA) three out of the past five sessions, but that doesn't mean the bull market's over (see chart above). It does, however, suggest the short-term trend has weakened and is vulnerable to breaking lower.

Over the next few days, our focus will be on whether the contract is able to recapture the eight-day and 21-day EMAs, or if demand among responsive (dip) buyers continues to decline and the contract begins to trade beneath the 50-day simple moving average (SMA).

As price is repeatedly rejected from the shorter timeframe EMAs and begins to gain acceptance beneath the 50-day SMA, the 100-day SMA (not shown on the chart above) and year-to-date volume weighted average price (VWAP) become our two near-term dynamic targets.

With the above idea in mind, the approach that most interests me as a day timeframe scalper, is stalking selling opportunities into and slightly above the 21-day EMA, but staying open to buying a dip as downside momentum slows toward the 50-day SMA and the big figure (2400).

Moving on to Monday's holiday-shortened session, we'll enter the auction with a focus on 2426.75 to 2428, and 2416.75 to 2418.75. Our baseline expectation will be for rotation within that roughly 11-handle range, and our initial strategy will be to fade the edges.

S&P 500 Futures -- 15-Minute Volume Profile

A sustained trade above 2428, something I am not expecting during Monday's auction, would open the door to buying toward 2434.25 and 2443.75. On the flip side, a failed trade from 2416.75 -- something I believe is far more likely than a rally above 2428 -- would paint a giant target on 2400.75 to 2401.75.

Some degree of interest among day timeframe buyers is to be expected near 2408.25, but after a failed bounce, our focus would turn back down toward the big figure (2400).

Enjoy your Fourth of July holiday and I'll see you Wednesday.

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.

Columnist Conversations

KMX is heading for a nice finish. The stock is up just over 2.7% and is one of the top ten gainers in the SP 5...

BEST IDEAS

REAL MONEY'S BEST IDEAS

News Breaks

Powered by

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.