We usually refer to the E-Mini S&P 500 futures (Es) contract when discussing broad market developments, but Monday's preferred index appeared to be the Nasdaq Composite as it crossed over the 5000 mark. A mark that quite frankly, has absolutely no bearing on a bloody thing. I can appreciate why the media is hung up on that specific figure, but please, do limit the amount of attention you pay to any TV commentator yammering on about Nasdaq 5000. I assure you it has no real relevance.
As far as the Es contract is concerned, Monday's regular session trade volume came in at roughly 925,000 contracts. That's definitely toward the lower end of what we've seen this year, but still, it's worth noting that value shifted above last week's 2009 composite value, and well above Friday's 2103 level. Low volume notwithstanding, Monday's price action was bullish.
Moving along to Tuesday's auction, we'll want to begin the session with a heavy focus on 2116.50 and last Wednesday's regular session intraday highs. My baseline view is that all trading above 2109 is likely to keep the focus on auctioning the contract to new life-of-contract highs. However, given the close proximity of Monday's day session close to the current life-of-contract high, I want to be very cautious when playing the part of the initiative (breakout) buyer. At a minimum, I would want to see a 10-minute bar close (displaying little to no upper shadow) above 2116.50-2117.75 before trusting the strength of our initiative buyer.
Failure to sustain a trade above 2116.50/2117.75 doesn't give sellers much of an edge, but it does suggest a trade back down toward 2109 (to attract additional demand) is in order. Assuming buyers remain active against 2109, one's focus should remain on new life-of-contract highs.
If, however, a break of 2109 is sustained, sellers would be expected to make another break toward 2100.75.
1. We last reviewed the iShares 20+ Year Treasury Bond ETF (TLT) in the Feb. 24 Trader Daily, just as the ETF managed to close above its five-day exponential moving average (EMA). Since that time, the TLT made it to within roughly a dime of our $130.50 initial upside target zone. I, however, failed to get short. If you managed to get short the TLT, consider running a trailing stop loss of either a close above $130.55 (one penny above the Feb. 12 intraday high), or simply a close above the 50-day EMA. Your preferred stop would obviously be a function of your risk tolerance.
2. Lumber Liquidators (LL) was one of the most discussed stocks on Monday, and for good reason. As most of you already know, LL was the subject of an expose by 60 Minutes this past Sunday. And if the findings prove accurate, I suspect LL is in for far more pain than it's already endured. The flip side is if the allegations prove false, the stock could rebound in spectacular fashion. As far as my view on trading the stock is concerned, I have no edge, since the stock's price action is being dictated by news events outside my control or general understanding. The bottom line is, I would avoid getting involved with LL unless you have a well thought out and easily identifiable edge.
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