Following my post on the Financial Select Sector SPDR (XLF) in Columnist Conversation on April 20, several readers asked for a bit more detail in regards to what might tip us off that higher prices are cutting off demand.
The main thing I want to see is bullish excess. And the easiest way to identify this is via bearish candlesticks, with long upper shadows/wicks. As an example, I'd love to see the XLF open near 24 at some point over the next couple weeks, trade up through that figure for several hours, and then come under pressure during the session's final hours. This sort of pattern would be an indication that traders were aggressively selling the ETF into strength.
For as poorly as the market closed on Thursday, biotech traded just fine. And both the iShares Nasdaq Biotechnology ETF (IBB) and SPDR S&P Biotech (XBI) are on my list for potential longs during Friday's session.
As you study the chart above, pay close attention to how close higher-timeframe resistance is on both stocks, the areas that I have highlighted in red. While the short-term outlook for both stocks appears promising, I'm not sure I'd get too comfortable in my positions. In a nutshell, biotech looks great for a trade, but beyond that I'm a bit skeptical.
Inovio Pharmaceuticals (INO) continues to hold above its eight-day exponential moving average (EMA) and recent $9.65 breakout area, and looks ready to push toward $11. My trade plan here is very simple. As long as the stock remains above the eight-day EMA, stay long.
I was asked for an opinion on bonds following the recent decline in shares of the iShares Barclays 20+ Year Treasury Bond ETF (TLT), but since I prefer to study the actual futures contract, we'll look at a weekly chart of 30-year treasury-bond futures.
Short-term traders focused on the long side of the bond market have reason to be concerned. Though not shown on the chart above, the year-to-date (YTD) volume-weighted average price (VWAP) resides just slightly higher than the area shaded in yellow (support #1) on the chart above. Given that the contract held its 50-day simple moving average (SMA) during its mid-March pullback, but closed beneath that reference point on Tuesday, my inclination is to lean bearish in the short term. Put in simpler terms, I want to give the bears the benefit of the doubt when it comes to breaking beneath the YTD VWAP and support area #1.
If you adopt a bearish posture on bonds, your focus should be on the 21-day EMA and 50-day SMA. A close back above those two reference points tells you bonds are not ready to decline in a steady fashion.
Longer-term traders, on the other hand, should be a bit more focused on the trendline dating back to late-June 2015 (labeled support #2). As long as that trendline remains intact, the higher timeframe trend remains bullish.
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.