Trader's Daily Notebook: Expect Slow, Choppy Intraday Conditions

 | Jul 31, 2017 | 7:00 AM EDT
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I know last Thursday's spike in volatility is still on everyone's mind. But aside from that one-to-two-hour spike in volatility, the week's trading in the equity indices was pretty dull.

For the week, the SPDR S&P 500 Trust SPY closed around the flat line, the PowerShares QQQ Trust (QQQ) fell around $0.20 and the iShares Russell 2000 Index ETF (IWM) declined around $0.40.

One area of the market that did make a sizable move is crude oil. For the week, light crude oil futures gained nearly 8.5%. And as you can see on the chart below, crude bulls now get to contend with the year-to-date (YTD) volume weighted average price (VWAP), 200-day moving average (MA) and late-May swing high near $52.

Light Crude Oil Futures -- Daily

As far a trade in crude oil is concerned, I simply don't see a favorable risk/reward setup. For now, I'll stay on the sidelines when it comes to crude, but remain long the Energy Select Sector SPDR XLE, which in theory should benefit from a strengthening crude price.

As we prepare for the coming week's trading, we'll continue to anticipate slow, and generally choppy intraday conditions. Put another way, typical mid-summer conditions. That said, I believe it's fair to say the Nasdaq and Russell are resting on support that bulls do not want to see break. Let's look at a couple of charts.

Nasdaq 100 Futures -- Daily
Russell 2000 Futures -- Daily

In the case of the E-Mini Nasdaq 100 futures (Nq), we can see why bulls need the contract to hold above the 5890 to 5900 early-June highs. A close beneath that area opens the door to an immediate test of the 50-day moving average, and potentially a round trip back to the YTD VWAP and early-July swing lows near 5560. A more simplistic way of looking at this is bulls do not want to deal with a failed breakout above 5900.

The Mini Russell 2000 futures (Tf) contract has been stuck in the mud for what feels like an eternity. I hesitate to believe a break of support between 1427 and the 50-day MA will result in a collapse toward 1345 support, for the same reason I remain skeptical of a sustained rally taking hold.

This contract feels like it's being shunned by aggressive participants. If forced to take a stand, I'd probably still consider getting long the Tf or iShares Russell 2000 ETF IWM on any intraday decline toward the 50-day moving average, but quickly selling the position if it failed to remain above that reference point on a closing basis.

S&P 500 Futures -- Daily Volume Profile

Unlike the Nq or Tf contracts, the E-Mini S&P 500 futures (Es) are just churning above their upwards sloping moving averages, and not currently at risk of breaking any major support areas. While I've no doubt the Es will be heavily influenced by how the Nq performs around 5900, at this point I don't see a price-based reason to adopt a bearish posture. As long as we're closing over the current 10-day moving average, I can't see even the weakest of bulls bailing on current positions.

Moving on to Monday's Es auction, we'll begin the session with a focus on 2467.75. An open above that figure that remains above the opening print encourages two-way rotation towards 2474.25. I'd expect the trading between 2467.75 and the mid-2470s to be choppy and difficult to trade in anything other than a very short term scalping manner.

As value is established above 2474.25, our baseline expectation, even if it does not occur during Monday's regular session, will be for a push to and through 2479, and a test of new all-time highs.

S&P 500 Futures -- Daily Volume Profile

Failure to hold above 2467.75 opens the door to another test of the low-2460s. As demand wanes toward 2461, bears gain an edge, and a path toward 2452.50 and 2445.75 is immediately illuminated. A close under 2445.75 would be a major warning sign that the shorter timeframe trend was in the process of turning bearish.

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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