Wednesday's narrow-ranged E-Mini S&P 500 futures (Es) auction was another inconsequential session where no new information was provided. And to echo the sentiment many of you have expressed to me via email, I wholeheartedly agree the sideways chop in the Es contract is growing tiresome. As far as the daily Es chart is concerned, you can clearly see the contract has been in virtually the same position for the past five to eight days.
Between earnings reports and Friday's inauguration, I believe it's fair to assume most participants are expecting price to break free of its narrow range in the very near future. And while price could always break lower toward the rising 50-day simple moving average (SMA), my inclination is to ignore many of the talking heads fretting over Donald Trump's inauguration and remain bullish until price gives me a reason to change that bias. Nothing in trading is ever guaranteed. But in my experience, consolidating prices above rising intermediate and higher timeframe moving averages is more bullish than bearish.
Away from the stagnant Es contract, I thought I'd share the charts of two stocks on my watch list. First up is Cliffs Natural Resources (CLF) .
While some traders may be scared to buy a stock that's tripled since last summer, I'd encourage you to view CLF a bit differently. Could the stock get cut in half, dropping back down toward $5? Absolutely. However, given the stock's close proximity to the 50-day SMA and support near $8.30, we'll be long gone before any sort of bearish trend takes hold. I believe intermediate and higher timeframe swing traders could look to get long CLF anywhere near current levels with a stop back under $8.30. And for those who use average true range (ATR) to measure their risk, 2x a 20-day ATR would have you risking approximately $1.06 (which would amount to a stop very close to 8.30).
Next on my list is the Energy Select Sector SPDR (XLE) . While crude oil futures will no doubt have an impact on the XLE, I believe a close above the year-to-date volume weighted average price (VWAP) and 21-day exponential moving average (EMA) would be a logical sign that the six-week pullback in shares of the ETF is nearing an end.
My plan here is fairly straightforward. Traders who like to anticipate could get long near current levels, using a close under the 50-day SMA as a stop. Alternatively, one could wait for the stock to close above the 21-day EMA and year-to-date VWAP (both located at nearly the same point), get long, and once again use a close under the 50-day SMA as a stop.
It's impossible to know whether CLF or XLE will continue to move higher. However, sticking with names that are consolidating above rising intermediate and higher timeframe moving averages, which both CLF and XLE are, tend to place the odds in our favor.
Moving on to Thursday's Es auction, we'll begin the day with nearly the same areas of interest we had at Wednesday's open. With an expectation for rotational trading between 2256 to 2257.25 and 2267.50, we'll avoid chasing breaks (in either direction) until a meaningful shift in value has occurred.
A break above 2267.50 would be expected to target 2272 and 2277. However, while all trading above 2267.50 is bullish, my inclination is to approach any such break with extreme care. Vanishing demand every time the contract has traded above 2270 can't be ignored. As a result, I'd expect most traders to have one hand on the sell button until value has migrated all the way through 2277.
A sustained dip beneath 2256 returns our focus toward 2248.50 and 2240. But more important, a close beneath 2248.50 likely results in a giant target being placed on the rising 50-day SMA (currently located near 2230).
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