Thursday's E-Mini S&P 500 futures auction may have only resulted in a 2.75-handle drop from the prior day's close, but for those operating during the day timeframe, the price movement was quite satisfactory.
Thursday's auction opened roughly in line with Wednesday's close. And after an extremely quick dip to 2340, traders began supporting price above the opening print and the session's developing volume weighted average price (VWAP). The consistent buying against VWAP and the opening print should have served as an early warning that while the contract was rotating within the prior session range, day timeframe sellers were failing to gain a foothold.
Fast-forward to 10:40 a.m. ET and the contract began to break to the upside (highlighted in green on the chart above). As you'll recall, we entered Thursday's session with an expectation that a push above 2347 would both ignite a drive toward 2354.75 to 2356.50 and encourage more aggressive sellers looking to get short the market to get involved.
Traders are rarely given the opportunity to execute trades at optimal prices. But in the case of Thursday's auction, the contract churned in and around our 2354.75 to 2356.50 area of interest for nearly two hours. Anyone that got short (or sold early morning longs) near the mid-2350s was left with great trade location for the afternoon session. Whether sellers can build on Thursday's bearish price momentum during Friday's auction is anyone's guess. I, for one, would expect any attempt to open Friday's auction between 2345.50 and 2347.25 to fail miserably, and likely be faded to new multisession lows.
Given that the iShares Russell 2000 Index ETF (IWM) was the only index ETF to close in the black Thursday, I thought I'd post an updated daily chart to prevent anyone from turning bullish prematurely.
The IWM could still pull off an upset and recapture the 50-day exponential moving average (EMA) and year-to-date (YTD) VWAP. But in my view, it's highly unlikely. There still appears to be more reason to be stalking shorts, both responsively and on an initiative basis as price breaks beneath $133, than contemplating reasons to buy the dip and get long.
After my comments on the steel sector in Wednesday's Trader's Daily Notebook, several subscribers asked whether U.S. Steel (X) or AK Steel (AKS) might be worth buying. The quick version is I think U.S. Steel has more downside, and I'd avoid it. AK Steel, on the other hand, might be worth watching. Let's take a look at each of them.
My issue with U.S. Steel is Tuesday's collapse left the stock beneath the $35 breakout level it cleared on Feb. 9. But that's not all. The stock is also, again, clearly beneath both the 50-day EMA and YTD VWAP. While I'd be willing to reconsider my opinion of the stock if it definitively recaptured those reference points, for now I'd stay on the sidelines until levels closer to $27.50 are tested. And that's nearly 20% lower.
As far as AK Steel is concerned, I can see why higher timeframe traders might want to begin paying attention. While you review the weekly chart below, keep in mind on a daily timeframe, the stock looks pretty weak. I've opted to share a weekly chart to highlight the way AKS tends to trade and trend.
Referring to the weekly chart above, the blue moving average represents a 40-week (or 200-day) simple moving average (SMA). The yellow dotted line beneath the blue, 40-week SMA simply indicates where one average true range (ATR), subtracted from that weekly moving average, would be. For reference purposes, I am using a 200-day ATR.
As you can see, AKS, while volatile on a price percentage basis, loves to trend when it's above or beneath that 40-week and 1-ATR price zone. As long as the stock continues to close above the 40-week SMA, I'd only consider going long. And at present, anything near the late July $7.09 swing high looks interesting. Given how consistently AKS trends, I would likely use a weekly close beneath the 40-week SMA as a stop, with a break beneath the 1-ATR marker as an intraweek stop (for those unwilling to wait for a weekly bar close).
Moving on Friday's Es auction, we'll end the week with an initial focus on 2345 to 2347.25. While I have no idea where Friday's auction will open, we need to consider how Thursday's closed. The contract, while still holding above recent swing lows, ended Thursday's session beneath the session's opening print, VWAP, value area low and prior session close. To say the contract auctioned poorly would be an obvious understatement. For this reason, our initial expectation at Friday's open will be for immediate selling should the contract open anywhere toward 2347.25.
As long as price is beneath 2347.25, we'll look for sellers to test 2338.75 to 2339.75. A sustained trade (I'll likely use either a five-minute or 15-minute bar close) beneath 2338.75 immediately shifts our focus toward 2332.25. While a bounce could materialize from near 2332.25, a sustained trade beneath that level likely finds its way toward 2315.25 to 2317.25 relatively quickly (one to three days would be my guess).
A sustained trade above 2347.25 removes some pressure from buyers and allows for a drift toward 2350.75, with frequent attempts to push past 2354.50. If traders want to exit the week on a bullish note, they'll need to close Friday's auction with value well north of the mid-2350s.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at email@example.com or posted to my Twitter feed @ByrneRWS