The Trader Daily

 | Aug 18, 2014 | 6:30 AM EDT  | Comments
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Stock quotes in this article:

jcp

,

achn

,

TBF

In the Friday August 15 Trader Daily I outlined two scenarios that could reverse the bears' fortunes and trigger an immediate plunge in the E-Mini S&P 500 futures contract back down toward 1900. Scenario number one involved a vicious rejection of prices between the mid-1950s and low-1960s. Scenario number two was a tamer upside exhaustion, which lacked the violent excess of scenario number one. In both scenarios, the trigger point separating a simple long liquidation break or intraday dip from a full-blown bearish reversal was a shift in value beneath 1939/1940.

The obvious question is: should we view Friday's day timeframe bearish reversal in the Es as an indication that the multi-day or intermediate timeframe trend has also flipped bearish?

To answer this, let's begin by reviewing an updated version of the same four-hour Es volume profile I posted in Friday's Trader Daily.

 

E-Mini S&P 500 Futures -- 4-Hour Volume
Source: eSignal

 

As you can see, the Es was undeniably rejected from the low-1960s. This rejection, at first blush, might lead you to believe that Friday's sell-off was indeed a major turning point. However, as you study the chart above you should also see quite clearly that as prices traded through 1939/1940, supply was completely cut off. Put another way, the volume point of control, or value, didn't come even remotely close to shifting beneath the all-important 1939/1940 area. For reference purposes, it's far easier to see that value failed to follow price down through 1940 on the shorter, five-minute timeframe volume profile chart below.

The bottom line is that while Friday's volatility offered some great day timeframe opportunities, we finished the session lacking sufficient evidence to move forward with a bearish bias. The most negative thing I can say about the current positioning of the E-Mini S&P 500 futures contract is that Friday's rejection of the low-1960s has given the bears an additional lifeline. As long value remains beneath the low-1960s, there remains a chance that price could rotate back down inside the lower (1905 to 1940) balance area.

Until we see value shift beneath 1940, I'll continue to suggest that a bias somewhere between neutral and bullish is most appropriate. 

Moving on to Monday's day timeframe E-Mini S&P 500 auction, I expect to begin the session with neutral bias and an eye toward two-way rotational trading between 1939.25/1940.75 and 1956.25. Put another way, until I see a sustained trade (thirty minute bar close for those without a volume profile) above 1956.25 or beneath 1939.25, I want to avoid betting too aggressively on extension in either direction.

 

E-Mini S&P 500 Futures -- 5-Min Volume
Source: eSignal

 

As far as range extension is concerned, a sustained trade above 1956.25 continues to target 1960.75/1962 and 1967. A failure from 1939.25 would paint a giant bullseye on 1932 and 1923.50.

Additional Notes:

  1. Despite a poor showing following the release of their most recent earnings report, I want to keep J.C. Penney (JCP) on my radar. A close, especially on a weekly basis, above $10.20-$10.30 would likely be sufficient to push back into the stock.
  2. As noted in Columnist Conversation early Friday morning, I reduced the size of my Achillion Pharmaceuticals (ACHN) position into the premarket strength. The stock's chart remains bullish, so for now, I am maintaining a reduced long position against the $8.40-$8.50 area (closing basis). Next area of resistance is $11.
  3. Friday's massive surge in higher duration bonds forced me out of my Proshares Short 20+ Year Treasury (TBF) position. That said, the increased volatility across the bond complex has made for some fantastic intraday trading. So while I'm caving on my swing short, I am by no means shutting my eyes to this area of the market.

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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