Tuesday's E-Mini S&P 500 futures (Es) auction was more active than Monday's, but viewed over a multiday timeframe, there's no question we're still trading in a relatively narrow channel. Wednesday's FOMC meeting announcement and Fed Chair Janet Yellen's news conference are the week's most likely catalysts, but given the degree with which volatility has contracted in recent days, my guess is most traders are content to sit on their hands until after all FOMC-related news has been both disseminated and digested.
Small-cap stocks continue to lag larger-cap names, with the iShares Russell 2000 Index ETF (IWM) struggling to avoid losing additional ground relative to its year-to-date (YTD) volume weighted average price (VWAP) and 50-day exponential moving average (EMA). While I wouldn't want to be a short seller of the IWM as long as it's trading above the January lows (roughly $133), there's no question the prolonged trading beneath our short and intermediate timeframe moving averages is forcing bulls to rethink their positions.
The daily chart of the PowerShares QQQ Trust (QQQ) is stronger than the IWM, but here too I'm growing concerned. While we don't trade on divergences or indicators alone, the multiweek bearish divergence in the Relative Strength Index (RSI) is increasingly worrisome (noted on the chart above). At this point, any close under the 10-day exponential moving average would likely find shorter timeframe scalpers selling short with an eye toward the YTD VWAP (currently near 126.50).
Like many of you, I too was watching Valeant Pharmaceuticals (VRX) at Tuesday's regular-session open. And while the stock did recapture the session's developing VWAP within the first few minutes of trading, and the opening print a couple of minutes later, there simply wasn't enough buy interest to close the overnight gap (from above $12). Sellers pushed the stock back down beneath VWAP and the opening print by 10:20 a.m. ET, and the stock spent the remainder of the session rotating between $10.65 and $10.90. For those interested in tracking value, day timeframe value closed at $10.75, or a few pennies beneath VWAP.
While Valeant will likely remain on my day trading watch list for at least another week, it probably makes more sense to just set an alert and only return to the name after it's back above the YTD VWAP and 50-day simple moving average (SMA). Both the YTD VWAP and 50-day SMA currently sit between $14.10 and $14.50.
Moving on to Wednesday's Es auction, let's remember the FOMC meeting announcement is released at 2 p.m. ET, and the news conference begins 30 minutes later. As always, be careful trusting any move in the indices prior to the conclusion of the conference.
We'll enter Wednesday's auction with a primary focus on 2359.25. As long as the contract is holding above that level, buyers have an opportunity to auction prices above 2365.25 and make their way toward 2370.50. Value migration above 2370.50 is not something I'd be interested in fading (selling into) over the near term, as the most likely next move will be toward 2377 to 2378 and 2384.
Failure to hold above 2359.25 encourages day timeframe sellers to hammer the contract down toward 2354.50 and 2348.50. A session close beneath 2348.50 would be expected to trigger more sustained selling toward the YTD VWAP (2309.50) and the 50-day SMA (2313.50).
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