The Trader Daily

 | Jul 10, 2014 | 7:30 AM EDT
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Wednesday's close was hardly an overwhelming victory for the bulls. Because despite being led lower by small caps, momentum stocks and the iShares Russell 2000 ETF (IWM) as a whole, the IWM actually finished the day beneath its opening print.

That's right. While the Powershares QQQ Trust (QQQ) and SPDR S&P 500 Trust (SPY) closed 0.5% and 0.25% above their opening prints, the IWM closed 0.1% lower. So the index that's been sold most aggressively during the recent sell-off remains incapable of attracting much interest from the dip-buying crowd. The one bright spot worth noting is that a number of beaten-down momentum names, such as LinkedIn (LNKD), Facebook (FB) and Workday (WDAY) have found support at their 50-day simple moving averages during the past two trading sessions.

Let's switch gears and focus our attention on a group of stocks rarely associated with the momentum oriented hot-money crowd: the Utilities Select Sector SPDR Fund (XLU).

Back when I started watching the iShares 20+Year Treasury Bond ETF (TLT) for a rotational trade inside its composite balance (discussed in the June 30 Trader Daily), I also began stalking the XLU for a similar sort of trade. As the XLU broke higher in mid-to-late-June, away from its consolidation area, it looked like the bulls were set to seize control. However, the bearish reversals and collapse beneath $43.30 on July 2 (noted on the chart below) resulted in a failed auction (or breakout). As a result, we're left looking for a trade toward the other side of composite balance, or roughly $41.50.

The trade idea here is pretty straightforward. I like the odds of selling the XLU short as close to $43.25 -- $43.40 as possible, with a stop loss (on close) of $43.90 -- $44. An initial downside target would be $41.50. But should that level break, we'd immediately begin targeting $40.25 and $39.70.


Utilities Select Sector SPDR Fund (XLU)
Source: eSignal


As far as Thursday's SPY trading is concerned, I want to begin the day with a focus on $196.85 -- $197. Given that we closed Wednesday's session above $197, I believe the bulls deserve the benefit of the doubt. With that in mind, all trading above $197 keeps the focus on auctioning prices toward $197.90.

Failure to hold above $196.85 -- $197 pulls sellers back into the market and shines a light on $196.45, $195.75 and $195.20. Suffice it to say, a close beneath Tuesday's intraday low of $195.76 would likely be viewed as both bearish and a notable shift in the market's short-term tone.


SPDR S&P 500 Trust (SPY)
Source: eSignal


Additional Notes:

  1. I've never been much of a gold bug, but there's no denying some of the best-looking charts at the moment are being found in the gold and silver mining sector. Stocks like Goldcorp (GG), Eldorado Gold (EGO) and Silver Standard Resources (SSRI) are just now breaking higher from multi-week consolidation zones. Others, like Pan American Silver (PAAS), Royal Gold (RGLD) and Newmont (NEM) are within inches of breaking higher. As a whole, and from the vantage point of a higher timeframe, the group looks to be strong and getting stronger.
  2. Gold and silver futures continue to consolidate in relatively narrow trading bands. As far as Gold is concerned, bulls need to see the contract close above $1330, and not close beneath $1300. All trading above $1330 shines a light on $1356 -- $1364, and likely lights a fire under the bulk of the gold and silver miners.

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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