The Trader Daily

 | Jul 18, 2014 | 7:30 AM EDT
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The S&P 500 made it 62 days without advancing or declining 1%, but that ended on Thursday, with traders selling everything from biotech and home builders to banks and materials. The session's major downside catalyst was clearly the crash of a Malaysian Airline in Ukraine. However, between the crash, news reports that the plane was blown out of the sky with a surface-to-air missile and escalating violence between Israel and Hamas, it's a wonder the market wasn't down considerably more.

At the risk of sounding insensitive, this is one of those times we all need to make certain we're approaching the market from as unemotional a viewpoint as possible. The Malaysian plane crash is horrible. As is the violence in Israel. However, liquidating a winning position based on news reports and scary events is rarely a winning strategy. Horrible events happen all too often, but we don't find asterisks on our charts or in the news paper alerting us to that fact.

Base your trading decisions on price, and be disciplined enough to utilize protective stops. Trading discipline and risk management will always outperform haphazard trades initiated on events, reports or concerns of things that might, at some undetermined point, affect price.

As we review the daily charts of the four major market ETFs, we can see that, with the exception of the iShares Russell 2000 ETF (IWM), the bulls are still in control across nearly every timeframe. Market internals, increasing weakness in small caps (and momentum stocks) and the performance of some marquee names are concerning. But, as far as the major indices are concerned, three out of four remain in uptrends.

Since registering an incrementally lower low in late-June, the Consumer Staples Select Sector ETF (XLP) has been on my watch list for a possible short sale. My current hesitation in shorting the XLP is that, of the ETF's four top components, only Philip Morris International (PM) looks moderately bearish. The other three, Procter & Gamble (PG), Coca-Cola (KO) and Wal-Mart (WMT) all look neutral at worst. All that aside, a drop beneath $44.40 will be difficult to resist.


Consumer Staples Select Sector ETF (XLP)
Source: eSignal


Additional Notes:

  1. The CME-traded 6j Japanese Yen contract continues to be at the top of my buy list. I love seeing the contract trading, and closing multiple sessions above its 200-day simple moving average. All we need now is a close, preferably a wide ranging one, above 0.988-0.99. For those who prefer ETFs to futures, you'll want to look into the CurrencyShares Japanese Yen Trust (FXY).
  2. Natural gas futures have been trending consistently lower since mid-June. And after Thursday's abysmal performance, the contract's declined roughly 17% over the past four weeks. A number of traders have asked for thoughts on where to catch this falling knife, but, to be blunt, I don't want anything to do with this market. Until I see the Ng futures contract stabilize and put in some sort of recognizable bottom from which to manage my risk, I will avoid this contract like the plague.

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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