There's always something moving in the market, even when the indices appear to be stuck in the mud. On Monday we saw shares of Perrigo (PRGO) implode on an earnings warning and confirmation that the company's CEO was resigning to take the top spot at Valeant Pharmaceuticals (VRX).
These sorts of announcements tend to attract day time-frame traders looking for volatility to exploit. And provided you were either quick with a long position in PRGO off the open, or confident with a short position in either PRGO or VRX after the opening buyers ran out of energy, you likely finished with a profit.
As always, however, volatility cuts both ways. Anyone failing to remain unemotional and detached from the situation could easily have finished the session holding an ugly losing position -- a position they intended to enter, and exit within a matter of minutes or hours.
As far as the E-Mini S&P 500 futures (Es) are concerned, roughly 1 million contracts changed hands over a regular-session range of 12.5 handles. While there's no denying the session's range and volume were quite a bit smaller than usual, patient traders should have been able to identify at least a couple of tradable setups.
Given our recent discussion on the volume weighted average price (VWAP), I thought I'd share a 15-minute chart with a potential buy setup from Monday's auction.
As you can see on the chart above, the Es broke beneath Friday's low early in the session Monday. As discussed in Monday's Trader Daily, the opening rejection of 2080.25 to 2081.25 (#1 on the chart above) and break beneath Friday's intraday low (#2 on the chart above) provided sellers with an opportunity to test the low 1970s. Unfortunately for bears, that test was quickly rejected and price failed to gain acceptance.
The immediate rejection from the low 2070s resulted in a quick probe of the session's VWAP and Friday's intraday lows (#3 on the chart above), but as is often the case with any initial test of a breakdown zone and VWAP, price is once again rejected. The bulls managed to push through VWAP and back into Friday's intraday range shortly after 1 p.m. ET, and as you can see in the area highlighted in green (#4 on the chart above), the pullback to the breakout area, which conveniently lined up with Friday's intraday low and the session's VWAP, provided scalpers with an opportunity to get long.
Suffice it to say such opportunities aren't always this clean. But the general logic behind trading against VWAP, especially when it lines up with other short-term reference points, should not be overlooked.
Moving on to Tuesday's Es auction, we'll look to begin the session with a focus on 2078.50 to 2080. As long as value remains above that six-tick area, our baseline expectation will be for an upside test of 2088 and 2093.25.
Monday's afternoon rally resulted in the Es closing above the low 2080s. And while the rally may have occurred on relatively low volume, it left the contract above the eight-day exponential moving average nonetheless. No matter how much one dislikes the current market, this does leave dip buyers in the driver's seat.
A failed trade from 2078.50 to 2080 traps Monday's late-day buyer and encourages day time-frame sellers to auction the contract back down through 2074.75, and on toward 2069.75. Those expecting the contract to trade back up toward 2100 in the short term do not want to see a value shift beneath 2069.75, as such a move would suggest bearish continuation toward 2058.50/2060 (and potentially 2025) is right around the corner.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at firstname.lastname@example.org or posted to my Twitter feed @ByrneRWS