My baseline opinion of the E-Mini S&P 500 futures (Es) contract and the market as a whole hasn't changed in recent days. Bullish momentum continues to slow, but intraday dips are routinely bought. There's little reason to be a rush to buy the market at current levels, due to the slowing momentum. But the simple fact that sellers are unable to gain a sustained foothold also tells us that we shouldn't focus too intently on selling the market short. Unless you are an active day timeframe participant, this is probably a fantastic time to exercise a bit of patience.
The bottom line is, swing traders should still be focused on the long side, albeit with an eye toward cutting exposure should value continue to migrate lower. Day timeframe traders have the luxury (or burden, depending on your viewpoint) of playing the market from both sides. Based on last week's composite balance, sellers are expected to lurk toward the top of balance (2111-2112), while bids are expected to build toward the bottom of balance (2101.75-2102.75). The most actively traded price last week (composite value) was 2109.
Based on current information, a value shift and session close beneath 2101.75 would be expected to kick-start a quick dip toward the low-2080s, and potentially as low as the prior low-2060s breakout area.
Moving on to Monday's regular session Es auction, short-term traders may want to begin the trading week by noting two things. The first is that value has been migrating lower for the past four sessions, with Friday's drop in value representing the largest session-over-session decline for the entire week (noted on the chart below). And second, for the first time all month, the Es closed beneath its five-day exponential moving average on Friday. Neither statistic is particularly damning. But both highlight the fact that bullish momentum has hit stall speed.
I want to begin the week with a focus on 2101.75. As long as buyers remain active against that level, I believe we can auction the contract back toward last week's 2109 volume point of control (VPOC/Value) and the top of balance 2111-2112. Based on Friday's bearish migration in value, my current bias would be to fade (sell) any rally into 2109 and 2111-2112.
Failure to hold the line near 2101.75 would be expected to trigger a more meaningful wave of selling. Immediate downside targets become 2095.50 and 2091. But based on the ongoing deceleration in bullish momentum, I highly doubt anyone will rush back into the pit to support price until the low-2080s.
Additional Notes:
1. New Gold (NGD) is a roughly two-billion dollar market cap gold mining company based in Vancouver, Canada. And like most gold miners, New Gold explores for silver and copper deposits in addition to gold. My interest here is purely technical. And as many of you can probably guess from glancing at the chart below, I am interested in playing NGD from the long side against its potential double bottom. I like the stock long near current levels, with a stop on close beneath $3.13. The stop level is derived from subtracting the 20-day Average True Range (ATR) from the current $3.37 double bottom. An initial upside target would be approximately $4.60.
2. The US Dollar Index futures (Dx) contract, or the Powershares DB US Dollar Index ETF (UUP), has been on a tear since last August. And while I am rarely one to stand in front of a powerful trend, I can't help but stalk the dollar index for a bearish reversal. My interest here would be a close beneath the 21-day exponential moving average, or roughly 94.37 on the Dx contract.
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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