Trader's Daily Notebook: Market Is Heavily Into Vacation Mode

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

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QQQ

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IWM

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jpm

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c

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pnc

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OIH

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If you weren't sure what mid-July trading in the E-Mini S&P 500 futures (Es) looked or felt like, just review Thursday's regular-session auction. With roughly 785,000 contracts changing hands over an incredibly narrow eight-handle range, there's no doubt we're in prime vacation season.

Thursday's lack of volume notwithstanding, it's worth noting the SPDR S&P 500 Trust (SPY) came within 20 to 25 cents of an all-time closing high. Think about that for a moment. We tested and rebounded smartly from the 50-day moving average on Tuesday. Folks on TV and in the Twittersphere began to panic about the sudden onslaught of selling. And yet here we are. Spitting distance from new highs.

Daily S&P 500 Futures Volume Profile

As far as Thursday's Es price action is concerned, we opened above our 2438.50 day timeframe pivot, tested above 2443.75 and failed, and slid back down toward our pivot and found more buyers. The majority of the auction's business occurred above 2443.75, so I believe we can safely say traders have accepted prices in the mid-2440s. A last point worth making is that the session's volume profile (see tomorrow's trade plan chart below) showed no worthwhile excess at session highs. This lack of excess suggests prices have not yet reached a level buyers are walking away from.

Away from the Es, we saw the E-Mini Nasdaq 100 (Nq) futures and PowerShares QQQ Trust (QQQ) shoot higher at the open of trading, only to lose all momentum and churn in a sideways channel for the remainder of the day. As we've discussed in recent editions of Trader's Daily Notebook, I'm willing to trade the Nasdaq on the short side as long as it remains beneath the late-June high. So if you look at the Nq contract, we wouldn't want to see value migrate above 5850.

If you're trading the Nq or QQQ during the day timeframe, consider ending the week with a primary focus on the mid-5790s ($141 on the QQQ). All trading above the mid-5790s encourages traders to bid the contract through Thursday's 5808.50 intraday high, and on toward 5825 and the low 5840s. While a failed trade from the mid-5790s puts 5780 and the low 5760s on the table. If you're positioning for another bearish rollover in the Nq contract, you need a close under 5715 before momentum begins to move in your favor.

I have a small QQQ short against several longs (left over from Thursday's auction), but wouldn't consider increasing the position until price is holding firmly beneath $141.

iShares Russell 2000 Index (IWM) -- Daily
 

Unlike the Nasdaq, which surged at the start of Thursday's session, the iShares Russell 2000 Index (IWM) fell out of bed and quickly slipped beneath Wednesday's intraday lows. On the plus side, as tech stocks came under minor pressure Thursday afternoon, energy and biotech stocks came back to life and triggered sustained buying in the IWM. Thanks to the buying against the 20-day moving average (MA) during Thursday's early morning decline, I got long the IWM. And aside from a small portion that I sold into the closing rally, I expect to remain long with all trading above $140.50.

While much of Friday's initial focus will be on pre-market earnings from JPMorgan Chase (JPM) , Citigroup (C) , Wells Fargo (WFC) and PNC Bank (PNC) , I want to remain focused on the energy sector. (Citigroup and Wells Fargo are part of TheStreet's Action Alerts PLUS portfolio.) 

VanEck Vectors Oil Service ETF OIH -- Daily
 
Energy Select Sector SPDR (XLE) -- Daily
 

Beginning around 2 p.m. ET, we saw strong buying flow into the VanEck Vectors Oil Service ETF (OIH) and, to a lesser degree, the Energy Select Sector SPDR (XLE) . This buying lasted into the close. And since both the OIH and XLE successfully held their shorter timeframe moving averages, I'll be looking for bullish follow-through toward the 50-day MA over the next few days. I am long both XLE and OIH from Thursday's session, and expect to remain so until they break back under the 20-day MA, or show signs of weakness near the 50-day MA.

Moving on to Friday's Es auction, we'll end the week with an initial focus on 2443.75. As long as we're trading above that figure, we'll look for traders to auction the Es through Thursday's 2447 intraday high, and then allow it to simply drift toward 2450 and new swing highs. A strong push past 2450, while bullish, would amount to a big run over the past week. I'd expect short and intermediate timeframe traders that bought the most recent test of the 50-day MA to begin selling into momentum into and above 2450.

5-Minute S&P Futures Volume Profile
 

A failed trade from 2443.75 isn't something I want to get too excited over. A quick dip toward 2438 to 2439.50 would be our baseline expectation, followed by a test of the low 2440s and secondary decline toward 2435. Aside from some day timeframe scalping, only a close under 2428 gets me interested in pressing a short thesis on the Es.

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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