What a way to kick off the New Year!
Traders returned from the ski slopes and beaches to find Asian markets trading between 2.7% and nearly 7% lower. Europe was in the tank by up to 4%. And during the premarket Globex session, all U.S. equity futures contracts were getting crushed. Hardly the way most participants wanted to begin 2016.
Away from volatility in equity markets, light crude oil futures traded higher to begin 2016 after Saudi Arabia's foreign minister said on Sunday that his country was severing all ties with Iran. Prior to 2015, I suspect most would have expected a large and sustained rally in oil. But not in today's oil market. Demand for crude oil futures contracts dried up very close to the $38.25 to $38.35 zone discussed in Monday's Trader's Notebook.
Like most of you, I'd rather not waste much time opining on why the rally in crude fell apart. I prefer to keep things simple. So barring bearish price extension beneath $35.35 (February contract), we'll want to avoid turning at all bullish until prices close above $38.25 to $38.35.
Getting back to equities, the session turned out OK for the bulk of energy, basic materials and mining concerns. Despite the intraday (bearish) reversal in crude oil, names that were trashed during 2015, stocks like Chesapeake Energy (CHK), Tidewater (TDW) and Range Resources (RRC), all did impressively well.
What didn't perform so well were biotech, bank and homebuilding stocks. While many stocks in these sectors closed Monday's session off their lows, often generating hammer (or reversal) patterns on their daily charts, the overwhelming majority of stocks still have a long way to go before they begin to look healthy.
The bottom line is while Monday's auction was a rough one for bulls, I don't believe it has any bearing on where the major indices will end the year. For now, let's refer back to the 1975 to 2000 support zone we've used on the E-mini S&P 500 futures (Es) numerous times over the past couple of months, and continue to view that 25-handle zone as a responsive buying cushion. As long as we continue to close above that area, I'd rather look for reasons to be a responsive (dip) buyer toward support (1975 to 2000) than an aggressive initiative seller betting on a sharp and sustained break toward 1875.
Moving on to Tuesday's Es auction, we'll begin the session with a focus on 1997.50 to 1999.75. As long as any early session selling is supported above that area, my baseline expectation would be for continued bullish price extension toward 2011.25, 2020.75 and 2032.50. Any spike toward the latter two targets should be expected to attract increased supply. Put another way, I'd avoid chasing price momentum toward the low 2030s.
Failure to find a buyer in and around 1997.50 to 1999.75 opens the door to a retest of Monday's lows. With slightly stronger support near 1985, and again between 1975 and 1978.75, my inclination would be to tread lightly on the long side, but remain biased toward responsive (buying) opportunities as long as we're closing above 1975.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at firstname.lastname@example.org or posted to my Twitter feed @ByrneRWS