Wednesday's auction was a fantastic one for active, unemotional and unbiased traders. Because not only were there numerous 10-plus-handle intraday rotations in the E-Mini S&P 500 futures (Es), giving both buyers and sellers an opportunity to profit, but we also got to see a complete meltdown in the energy complex. Now, before anyone starts typing up hate mail criticizing my love of intraday volatility, please remember day time-frame trading thrives on price movement. And not simply straight-up or straight-down trends. But active, volatile and rotational environments.
Let's begin with light crude oil and the energy complex, since the meltdown in that arena was quite sensational. As far as the stocks on my watch list are concerned, only Exxon (XOM) declined less than 1%. In fact, if you only looked at XOM, you'd have no idea anything at all was wrong in the sector! Some of the worst pain was felt in the independent oil and gas stocks. Names like Apache (APA), Marathon Oil (MRO), SM Energy (SM), Murphy Oil (MUR) and Anadarko Petroleum (APC) were slaughtered, losing anywhere from 9.8% to 16.3% on the day. Keep in mind, many other well-known, theoretically high-quality energy names also declined more than 4% on the session. In a nutshell, it was a bloodbath.
We began discussing the $38.25 to $38.35 area on February light crude oil as our primary resistance zone last Monday. And since tagging that area during Monday's regular session, price has fallen like a rock. With the contract closing at a new multiyear low, we've little interest in guessing where the next turning point will be. However, with price as extended as it appears to be, there isn't a snowball's chance in hell I'd be actively selling the contract short. While I don't currently see any semblance of a buy setup on crude, my only interest here is in stalking the commodity (and the energy equity complex) for a tradable low.
Moving on to Wednesday's Es auction, we've been using 1975 to 2000 as our responsive buying cushion for a while now. And despite trading as low as 1970.50 during the latter part of the session, buyers did manage to push prices back into the mid-1980s to end trading. More importantly, Wednesday's profile had a very balanced look to it, displaying obvious signs of excess (price rejection) at session highs and lows. Things could obviously change during the overnight session or into the early part of Thursday's regular session, but given the data we have in front of us, I still want to lean on more responsive (buying, in this case) intraday strategies.
As we prepare for Thursday's Es auction, we'll take the path less traveled and, as uncomfortable as it may be, maintain a bias toward responsive buying as long as the contract continues to close above the mid-1970s. While there's no question the market's bid has weakened materially, I still believe we lack the necessary evidence to adopt a more bearish posture.
We'll begin the session with a focus on 1987.75. As long as value remains beneath that level, the intraday path of least resistance will remain lower, toward 1974.75 to 1977 and Wednesday's 1970.50 intraday low. Continued selling beneath 1974.75 immediately opens the door toward 1964.50 and 1955. But chasing price momentum on the short side (beneath Wednesday's intraday low) is not something I currently want to engage in.
A sustained trade above 1987.75 reopens the door to a probe of 1997 to 1999, with further bullish price extension putting 2012 back on the table.
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
