• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Futures

Trader's Daily Notebook: It's Too Early to Put on the Bear Suit

Much of basic materials sector suffers horrid price action.
By BOB BYRNE Apr 13, 2017 | 07:00 AM EDT
Stocks quotes in this article: SPY, QQQ, IWM, X, AKS, MT, GGB, AA, CENX

Wednesday's decline in the SPDR S&P 500 Trust (SPY) and PowerShares QQQ Trust (QQQ) wasn't atrocious at between 0.4% and 0.44%, but small-caps gave up all their gains from Tuesday and essentially finished at session lows. In Wednesday's Trader's Daily Notebook, we discussed the idea of not placing much importance (or faith) on Tuesday's bullish outcome in the iShares Russell 2000 ETF (IWM) , and that guesstimate appears to have been well-timed. 

While we're discussing the IWM, let's remember we're primarily concerned with how traders react to a trade above $138 to $139, or beneath $133. So while Wednesday's decline may have been fantastic for those who faded Tuesday's rally (or got short at Wednesday's open), I believe it's still a bit too early to slide fully into our bear suits. And as a reminder, that 200-day simple moving average (SMA) is moving higher in a hurry, and sits a mere 3.25% beneath our $133 channel floor. 

On Monday, the Financial Times ran a story in which Jeffrey Gundlach "warned that appetite for the so-called reflation trade will evaporate further as expectations for an acceleration in U.S. economic growth and inflation are tempered." Whether or not you agree with Gundlach, or even care about his opinion, really doesn't matter. All that matters is price action. And Wednesday's price action across much of the basic materials sector, previously loved for its connection to the reflation theme, was horrid. 

The steel and aluminum industries were crushed Wednesday, both declining roughly 4.6%. Individual steel companies, such as U.S. Steel (X) , AK Steel (AKS) , Arcelor Mittal (MT) and Gerdau SA (GGB) , all declined between 5% and 10% on the day. The two most actively traded stocks in the aluminum industry, Alcoa (AA) and Century Aluminum (CENX) , were hit for nearly 10% and 7%, respectively. 

Charted as an industry, neither steel nor aluminum is beneath their 200-day SMAs. But a few more days like Wednesday's and they'll be there in a hurry. For now, I'm still only interested in buying a dip in these sectors. But only after the current declines stall and price begins to show strength above short and intermediate timeframe moving averages.

Moving to Thursday's E-Mini S&P 500 futures (Es) auction, let's take a quick look at the contract's daily chart. Note that while the contract is still trading above the 50-day exponential moving average (EMA) and year-to-date (YTD) volume weighted average price (VWAP), Wednesday's close was its lowest since March 27. 

Daily S&P 500 Futures Volume Profile
View Chart »  View in New Window »

Given how consistently the Es has been bouncing from the 50-day EMA these past few days, I believe dip buyers should be concerned with the potential for the contract to slice straight through the YTD VWAP should the 50-day EMA give way. If this were to occur, the next logical stopping point would be the 200-day SMA, which sits more than 100 handles lower at 2220. 

We'll end the week (remember, markets are closed on Friday) with a focus on 2339.50. Since we got the two-way rotation between 2347 and 2339 we discussed in Wednesday's Trader's Daily, we'll end the week looking for a break lower. 

All trading beneath 2339.50 encourages sellers to target 2333.25. Acceptance beneath 2333.25 has very little to support price before we test levels near 2323.75 and 2318. 

5-Minute S&P 500 Futures Volume Profile
View Chart »  View in New Window »

As long as we're holding above 2339.50, buyers have a chance to auction the contract back toward 2347.50 and 2353.25. For now, my baseline expectation is for any spike into the low 2350s to be quickly faded.

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

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Byrne had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Futures | Markets | Stocks

More from Futures

Commodity Bull Runs Have Proven Unsustainable; Can This Time Be Different?

Carley Garner
Jun 30, 2022 12:00 PM EDT

It's possible, but unlikely, as we've yet to see the commodity complex hold gains forged in a bull market.

Epically Bad First Half, Inflation's Origins, Defense Stocks, Seasonal Investing

Stephen Guilfoyle
Jun 30, 2022 7:34 AM EDT

Is Defense recession proof? Not in 'normal' peacetime, but maybe this time.

Zero-Covid? NATO's China Challenge, Quarter-End Volume, Yields, Trading Chevron

Stephen Guilfoyle
Jun 28, 2022 7:23 AM EDT

There was a time when Covid vaccine news was headline material. Not now, though, and this news could matter.

Baltic Powder Keg? Telltale Treasuries, Cringy Congress, Lost in Fed Translation

Stephen Guilfoyle
Jun 23, 2022 7:26 AM EDT

Despite Wednesday's hit, XLE remains the only sector SPDR ETF still up year to date (+34.8%).

An Oversold Bounce Is Developing -- But Don't Be Too Trusting

James "Rev Shark" DePorre
Jun 21, 2022 7:35 AM EDT

Now is not the time to build longer-term positions.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:49 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Stop Wishing, Hoping, and Praying and Take Control...
  • 07:59 PM EDT PAUL PRICE

    Very Good Quarterly Numbers From Bassett Furniture (BSET)

    Bassett Furniture blew right through analysts es...
  • 04:41 PM EDT PAUL PRICE

    First-Half Results - Putrid; Second Half Results - Likely to Be Much Better

    It's great that we're done with June. 2022 mark...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login