Trader's Daily Notebook: No Need to Be Bearish, Least of All on Apple

 | Aug 02, 2017 | 7:00 AM EDT
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Stock quotes in this article:

aapl

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xle

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OIH

Sleepy summer auctions remain the name of the game, with the E-Mini S&P 500 futures (Es) trading roughly 815,000 contracts during the regular session over a range of seven handles. What's worse is that the bulk of Tuesday's trading occurred between 2471.75 and 2473.25. That's a 1.5-handle range, folks! And that's why we don't press index-related bets during these dog days of summer.

Daily S&P 500 Futures Volume Profile
 

As you review the daily Es chart above, the first thing that should jump out at you is how steady the consolidation has been above the 10-day and 20-day moving averages (MA). Bears love to target slowing momentum to support their generally bleak forecasts. But the fact is, the Es hasn't done a thing, based on price, to support the adoption of a bearish trading posture.

Does horizontal consolidation near swing highs guarantee an upside breakout? Of course not. When it comes to trading, absolutely nothing is guaranteed. It does, however, suggest higher prices (value) are being accepted by traders. And sooner or later, price may need to be auctioned (advertised) higher in order to attract additional supply.

Apple (AAPL) will obviously be a big focus during Wednesday's auction, and I'd refer those interested in my take to Tuesday's Trader's Notebook where I outlined a couple of ideas. Assuming Tuesday's after-hours strength holds into Wednesday's open, my only interest would be in fading the bullish gap after the first 15 minutes of trading, and only if price is beneath the opening print and developing session's volume weighted average price (VWAP).

To those who love all things Apple, please don't email me about why I'm wrong to be bearish on the stock. I'm not bearish in the slightest bit. I am, however, willing to fade the after-hours enthusiasm for a quick trade if momentum shifts and price begins to decline. As always, short-term traders should be dealing in timeframes more than absolute bullish and bearish biases.

Several readers caught my note in the comments section under Tuesday's morning note regarding my partial sale of the Energy Select Sector SPDR (XLE) and asked whether I was turning bearish on energy. The short answer is that while I don't like the price action in the VanEck Vectors Oil Services ETF (OIH) , I am still willing to be bullish on the XLE.

Daily Light Crude Oil Futures
 

Most of you probably spied the decline in light crude oil futures during Tuesday's regular session. That decline, while not entirely unexpected given the intersection with the downtrend line and year-to-date VWAP (noted on the chart above), bothered me enough to reduce the size of my position. Add to that the consistently crummy price action in the OIH, and I simply felt it made sense to reduce my risk to the energy sector. For the time being, I'm maintaining a stop around the 20-day MA for the remainder of my position.

Shortly after Tuesday's close, the American Petroleum Institute (API) released its weekly inventory report, and crude showed a build of nearly 1.8 million barrels. A drawdown of around 2.75 million to 3 million barrels was expected by most analysts. On a positive note, the drawdown in gasoline was quite a bit larger than what analysts were expecting.

Moving on to Wednesday's Es auction, we'll continue to anticipate slow and choppy trading. Our two initial areas of interest will be 2474.25 and 2469.50. All trading between these two levels is likely to be torturous to day timeframe scalpers. I'd encourage you to pick your spots carefully if you intend to trade within that narrow zone.

A sustained trade above 2474.25, or an open above that level that holds its opening print, encourages bullish extension toward 2479 and new swing highs. I'm interested in fading a bullish gap (above 2474.25) if price breaks beneath its opening print and VWAP.

15-Minute S&P 500 Futures Volume Profile
 

A bearish gap beneath 2469.50, which isn't what we're expecting given Apple's strong post-session trading, would have us looking toward 2461.50 as long as price remains beneath the opening print and VWAP.

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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