The Trader Daily

 | Aug 25, 2014 | 7:30 AM EDT  | Comments
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Stock quotes in this article:

UUP

,

twtr

For all the excitement and hoopla leading up to the Jackson Hole Symposium, the event, as far as traders are concerned, turned out to be a complete bore. Nothing particularly groundbreaking was announced by either Fed Chair Janet Yellen, or European Central Bank President Mario Draghi.

Given the E-Mini S&P 500 futures (Es) contract's close proximity to all time highs, I want to begin the trading week with a review of where things stand across multiple timeframes.

 

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

 

Beginning with the Daily Es volume profile above, we have a clear picture of balance being established earlier in the year between 1825 and 1875. Then, after surging through 1890 -- 1900 in late-May (note the obvious lack of volume on the profile), balance began to build between 1910 and 1980. One thing you're probably noticing is the elongated look to the upper (1910 - 1980) balance area. This is simply the result of value not being as firmly agreed upon as it was back in the mid-1850s (earlier in the spring).

As far as the daily timeframe is concerned, the Es is attempting to break higher from its upper balance area; this can only be characterized as bullish. While it's true it would be better, or more bullish, if value continued to shift higher (from the mid-1850s), there is simply no denying which way price is trying to move.

Any dip from Friday's 1987.75 close would have me targeting the high volume areas of the upper balance area. So, if a corrective dip is in our future, but the bulls are to maintain their edge, we would expect to find strong passive demand lurking between 1973 and 1967. Remember, sometimes a market must drop (to attract additional demand) before it can pop.

Let's set aside the higher timeframe daily profile, and focus solely on the trading that's occurred since July 1. This slightly shorter timeframe will allow us to see more clearly why we'll want to focus on the 1973 -- 1967 area for support on any near-term dip.

 

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

 

The Es has been on a upwards tear since bottoming out on August 8. And as of Friday's close, the contract is sitting above composite balance, awaiting sufficient acceptance/support to continue its drive toward 2000. But breaking free of a pronounced balance area isn't an easy task. And in my view, aggressive traders should be mindful of the possibility that the contract may need to back test composite value (roughly 1967) before continuing on toward 2000.

Such a dip could come in the form of a single day timeframe liquidation break, or a multi-day bleed back toward the upper-1960s. In no way, however, would I make a snap judgment that a trade back down toward 1967 is bearish.

As far as the four-hour volume profile is concerned, a two-way rotational bias can be justified beneath 1979/1980 because the Es would be back inside balance. A full-on bearish bias, however, wouldn't make much sense without a plunge back beneath 1940.

Moving on to the day, or our shortest timeframe, I want to enter Monday's session using 1980.75/1982 as my directional pivot. As long as the Es is trading above that area, my baseline expectation is for repeated attempts to force a shift in value above 1989/1990. Once value has shifted above 1990, I'd expect momentum buyers to make an immediate push for 2000.

 

E-Mini S&P 500 Futures -- 15-Min Volume
Source: eSignal

 

Failure to remain above 1980.75 doesn't immediately doom the short-term bull trend, but it would place the Es back inside composite balance. As a result, shorter term traders would want to prepare for the increased likelihood of a back test of 1973.50 and 1967.75.

Additional Notes:

  1. Euro and Yen futures contracts fell further on Friday, ending the week on a rather ugly note. That said, I took advantage of Friday's intraday strength in the Powershares US Dollar Index (UUP) to exit my multi-week swing trade. As noted in past reports, I remain a longer-term dollar bull. I will, however, step to the sidelines and await a pullback or multi-week period of consolidation.
  2. Though still trading beneath its late-July $46.30 closing swing high, Twitter (TWTR) has finally begun to show some signs of life. I introduced TWTR as a trade idea on August 12, and suggested traders begin to consider the name as it held above $44.50. And while it took more than six sessions of consolidating above that price point, the stock finally began to trade higher late Friday afternoon. Given the stock's strong close to end last week, I suspect most short-term traders will be trading long against a $44.50 -- $43.70 stop loss.

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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