Trader's Daily Notebook: It's Almost Time to Take a Shine to Gold Stocks

 | Aug 04, 2017 | 7:00 AM EDT
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Stock quotes in this article:

IWM

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GDX

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amzn

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aaoi

Thursday's regular-session E-Mini S&P 500 futures (Es) auction turned out to be another snoozer, with roughly 910,000 contracts changing hands over a seven-handle intraday range. At this point, I believe it's fair to say most Es traders have checked out until we get value migration and a higher-volume close above 2500 or beneath the 20-day moving average (MA). As I'm sure most of you will agree that trying to scalp within a 10- to 15-handle range gets really old, really fast.

Daily S&P 500 Futures Volume Profile
 

Thankfully for those day timeframe scalpers unwilling to wait for the Es to come back to life, we have the iShares Russell 2000 Index ETF (IWM) . While the IWM appears incapable of holding a strong trend, it does tend to move throughout the trading day with greater consistency.

iShares Russell 2000 Index ETF (IWM) -- Daily
 

The IWM finished Thursday's session beneath the 50-day MA for the second day in a row. Unless you're scalping for small gains during the day timeframe, I'd encourage swing traders to remain on the sidelines until levels between that lower trendline and 200-day MA are tested (highlighted on the chart above).

Away from the major indices, I thought we'd take a look at a few charts that an increasing number of folks seem to be watching. First up is the VanEck Vectors Gold Miners ETF (GDX) .

VanEck Vectors Gold Miners ETF (GDX) -- Daily
 

Several readers have asked if I was ready to begin trading the gold miners again, and I'm close. As soon as the GDX breaks and closes above $23, I think it'll be time to become more active in gold stocks.

Readers have been oddly quiet when it comes to Amazon (AMZN) -- that is, until price settled solidly beneath the 50-day MA for the second time in four days.

Amazon (AMZN) -- Daily
 

I don't think there's a trader alive who isn't familiar with Amazon's dominance. Whether that means the stock is priced for perfection is a question every higher timeframe investor must ask themselves. From a shorter timeframe perspective, I'd rather sit on my hands until we see a test of $950 to $960. A bounce from that area seems like a reasonable expectation.

The one thing about Amazon's chart that continues to bother me is that the highest-volume sessions (of late) seem to occur on the downside. That's never a comforting observation.

Last on our list for today is Applied Optoelectronics (AAOI) .

Applied Optoelectronics (AAOI) -- Daily
 

AAOI reported earnings after the bell on Thursday, and was immediately crushed for between 25 and 30 points. Without digging into the earnings report, it's important to keep in mind the stock essentially gave back its July advance. That's a painful give-back for any trader, but not so severe that the stock should be placed permanently in the penalty box.

When it comes to trading AAOI during Friday's regular session, I'd begin by sitting on my hands for the first 10 to 15 minutes of trading. After that, I'd likely only consider trading it on the long side, and only if it's holding above its opening print and volume weighted average price (VWAP). From an intermediate timeframe perspective, I'd look for signs of a price reversal closer to $60 to $63. The support near $60 is crystal clear. And the year-to-date VWAP near $63 provides an additional reason to expect higher timeframe buyers to test the waters near that level.

Moving on to Friday's Es auction, let's not forget about the pre-market employment report. While I don't have any great interest in trading immediately following the release, I do believe the report offers traders a reasonably strong shot at seeing value migrate outside the range we've been trading for the past couple of weeks.

We'll begin the session with a focus on 2468.75. All trading above that figure keeps sellers on the sidelines, and buyers targeting levels near 2475. As value migrates above 2475, any remaining sellers would be expected to hit the exits for an early weekend, while those still trading make a run for 2480 and new contract highs.

15-Minute S&P 500 Futures Volume Profile
 

A failed trade, or bearish gap, from 2468.75 immediately directs our attention toward 2463 to 2461.50. As value migrates toward the low 2460s, we'd expect buyers to gradually head for the exits and sellers to throw anything they've got at the market. A sustained trade beneath 2461.50 has little support until closer to 2452.

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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