The Trader Daily

 | Aug 14, 2014 | 7:30 AM EDT  | Comments
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Stock quotes in this article:

spy

,

IWM

,

QQQ

,

DIA

Labeling the current trading environment as "bullish" or "bearish" is entirely dependent on one's trading time frame. For example, with the E-mini S&P 500 futures contract currently trading more than 80 points above the rising 200-day simple moving average, it's virtually impossible to argue that the longer-term trend is still solidly bullish. That debate comes in when we're discussing more intermediate- and short-term time frames.

If one's activities were generally confined to the day time frame, I would argue that the trend is bullish.  The reason for this is that value has been shifting higher since Friday, Aug. 8. For reference purposes, over the past five regular session the most actively traded price -- or volume point of control (value) -- has shifted from 1905 on Aug. 7 to 1923 on Aug. 8, and all the way up to 1943 on Aug. 13. There's no arguing that upward-shifting value is a bullish development. So as far as the short-term, intraday trader is concerned, the market is in an uptrend.

Now for the more controversial time frame. If one trades from a multiday approach, the fact that the Es remains trapped beneath the 50-day simple moving average should raise some concern. In this situation -- and I am referring to the trader that generally has a three-, five- or even 10-day time frame -- I would argue that the trend is, at best, neutral. At worst, we're witnessing a short-term corrective bounce within the context of developing bear trend. 

In order to better understand the intermediate time frame, which I'll define as three to 10 days, let's review a chart of the four major market ETFs.

SPY, QQQ, IWM, DIA -- Daily
Source: eSignal

Keeping in mind that there are always individual stocks and sectors outperforming or underperforming the major indices, I would argue that the iShares Russell 2000 (IWM) is stock in sideways chop. The SPDR S&P 500 Trust (SPY) and SPDR Dow Jones Industrial Average (DIA) are in intermediate-term downtrends. The PowerShares QQQ Trust (QQQ), despite closing beneath a three-week downtrend line, remains relatively bullish across all time frames. Put another way, the market is neither uniformly bullish nor bearish.

The bottom line is that, if you're a short-term index trader, focused specifically on the Es, I believe a bullish bias is warranted as long as value remains above 1939/1941. That said, the intermediate-term trader (looking out three to 10 trading days) will want to remain focused on the 50-day simple moving average. Until the Es is closing daily bars above that average, I believe it would be a mistake to rule out a rotation back down toward 1900-1905.

E-mini S&P 500 Volume Profile -- Five-Minute
Source: eSignal

Let's move on to the Thursday's Es auction -- and keep in mind that I am approaching this from the perspective of a day time frame trader. For today, I would argue that a bullish posture is warranted as long as the contract remains above 1939/1940.75. All trading above that roughly 2-point zone would encourage buyers to bid prices up toward 1948 and 1953.

Any bearish argument is dependent on either upside intraday excess (preferably toward 1953), or a complete collapse beneath 1939. Upside excess would begin to make the recent bounce look corrective in nature, and suggest that a rotation back down toward the 1900-to-1905 area is now likely.

Failure to remain above 1939, but without triggering any sort of meaningful upside excess, while not as dramatic a development, would give sellers an opportunity to sell the contract back down toward 1932 and 1925.50. And as far as the day timeframe trader is concerned, I'd be on the lookout for dip buyers reconvening around that 1925.50 level.

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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