Trader's Daily Notebook: Bears Put Up Their Dukes

 | Aug 11, 2017 | 7:00 AM EDT
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Stock quotes in this article:

IWM

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GDX

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XME

Bears came out swinging Thursday morning and put on an impressive display of short-selling power. For the day, the E-Mini S&P 500 futures (Es) traded a bump over 2 million contracts over a 27.25-handle range. For those keeping track, Thursday's session marked only the fourth this year where 2 million or more contracts have traded. It may also be worth noting that the prior three times were also wide-ranging selloff days.

Daily S&P 500 Futures Volume Profile
 

It's not difficult to spot Thursday's decline on the chart above. But what isn't readily obvious, primarily because I didn't include Bollinger Bands (BB), is that the Es closed beneath its lower BB line for the first time since July 6. Given how many traders like to see how similar situations played out in the past, I believe it's worth noting that each time the Es has closed beneath its lower BB line this year, the following session, on a closing basis, was either positive or relatively flat.

The last time we saw a multisession decline from beneath the lower BB was in early November, leading up to the presidential election.

As far as Thursday's intraday Es auction is concerned, the contract opened a single tick beneath our 2461.50 support level, and was making new lows beneath that figure and the volume weighted average price (VWAP) within the first 15 minutes of trading. At no point during the day did the Es gain significant ground above its VWAP. In a nutshell, the bears had their way with dip buyers for the first time in a long time.

iShares Russell 2000 Index ETF (IWM) -- Daily
 

I know a number of you have been actively trading the iShares Russell 2000 Index ETF (IWM) , and as you can see on the chart above, we're finally testing the 200-day moving average (MA). While a reversal in the vicinity of the 200-day MA would be a perfectly respectable pattern to stalk, I'd still prefer to see a reversal from closer to $133 to $134. In either case, I don't want to bid into weakness. I'm only interested in trading long after an intraday reversal has triggered.

VanEck Vectors Gold Miners ETF (GDX) -- Daily
 

We first discussed the VanEck Vectors Gold Miners ETF (GDX) a week ago, and it looks like buyers are finally ready to test levels above the year-to-date VWAP, multimonth downtrend line and 200-day MA. Buyers of Thursday's upside break should consider using a close beneath $22 for risk management purposes. Traders still stalking a trade might consider entering on a backtest of the downtrend line (roughly $22.80).

SPDR S&P Metals & Mining ETF (XME) -- Daily
 

Another ETF on my watch list is the SPDR S&P Metals & Mining ETF (XME) . We've had our eye on this for a while, and a bullish reversal (such as a hammer pattern where bearish intraday excess is triggered) from beneath the 50-day MA would offer a logical entry. The very most I'd want to give a trade like this would be a close under $29.

Moving on to Friday's Es auction, we'll want to keep in mind how difficult it's been for sellers to push prices significantly lower after closing a day beneath the lower BB. That said, all trading beneath 2445.25 to 2447.25 encourages sellers to chip away at Thursday's 2435.75 intraday low, and break the contract down toward 2424.75, filling the gap left from the bullish gap open on July 12.

Continued selling beneath the mid-2420s targets 2419.50 and 2412.

5-Minute S&P 500 Futures Volume Profile
 

A sustained trade above 2447.25 sets us up for a two-way rotational trade between it and the mid-2450s. And rather than plan for a sustained advance beyond 2454 to 2455, my inclination is to stalk a turn back down on any slight reversal from the mid-2450s.

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 Titter feed @ByrneRWS

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