The Trader Daily

 | Aug 12, 2014 | 7:30 AM EDT  | Comments
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Stock quotes in this article:

spy

,

twtr

,

bax

,

wlt

If you were in front of your screen on Monday, you didn't need me to tell you how slow the trading was. In the E-mini S&P 500 futures (Es), regular-session trading volume barely made it above 900,000 contracts. We'd have to go all the way back to July 14 to find a session with fewer contracts traded. As far as regular-session intraday travel is concerned, futures only moved 10.25 points from high to low. To put that into perspective for SPDR S&P 500 Trust (SPY) traders, Monday's $0.95 SPY trading range amounted to a mere 57% of what the fund has been averaging over the past 20 sessions. 

E-Mini S&P 500 -- 15-Minute Volume Profile
Source: eSignal

Moving ahead to Tuesday Es auction, we'll want to begin the session by respecting Monday's lack of symmetry -- illustrated on the chart above -- which gives the Es a high probability of revisiting the mid- to upper 1920s. Still, assuming buyers step back in above 1925.50 and prevent a damaging downward shift in value, I believe day-time-frame traders can continue to look higher. Again, assuming a test as low as the mid-1920s would be promptly rejected, I'd expect the bulls to make another run at 1935 and the low-1940s.

A failure to hold the line near 1925.50 would weaken the bulls' case, and would put the market on course for another test (and likely break) of 1917.50/1919. Downside continuation from there would have me targeting 1911.50 and 1903.

Regardless of how one might position themselves for a single session, the view from 10,000 hasn't changed a bit. As long as the Es is trading beneath the 20-day and 50-day simple moving averages, I believe a cautious stance will remain warranted. Suffice it to say that I believe it's premature to say the recent weakness has run its course.

Away from the world of index futures, I want to talk about Twitter (TWTR). This name seems to be on everyone's short list of potential momentum breakout names, and for good reason. While the stock has yet to challenge its most recent post-earnings-report swing high (at roughly $48), I think patient traders could begin scaling into this stock above $44.50.

Twitter (TWTR) -- Daily Volume Profile
Source: eSignal

My longer-term view on Twitter is pretty simple. Upside continuation above $48 would have me targeting $56.50 (note the high-volume node on the volume profile above), while anything beneath $36/$35 would have me removing the stock from any sort bullish consolidation.

Additional Notes:

1. I had maintained a long position in Baxter (BAX) for a considerable amount of time, but I opted to toss the stock overboard on Monday. My primary reason for bailing on the position is that the stock has made zero upward progress since it broke above $76 in early July. Worse yet, the downside gap on July 31, and the weak trading in the days that followed, all reek of a failed auction. At this point, I think the odds favor a test of $71/$72 over a drive to new swing highs.

2. We continue to see strong performance among a number of coal stocks. That said, I reduced my overall exposure to this group on Monday. But I did so for a very different reason from that of my Baxter sale. Simply put, the coal stocks are volatile and tend to make large percentage-based moves. My favorite stock in the sector remains Walter Energy (WLT), and while I did sell down this position a bit on Monday, the stock remains on my short list to buy during periods of consolidation. 

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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