Despite strong earnings reports from Amazon (AMZN) and Alphabet (GOOG) , Friday's auction left a lot to be desired and resulted in an increased number of traders questioning the sustainability of the week's early rally.
For the week, the iShares Russell 2000 ETF (IWM) and SPDR S&P 500 Trust (SPY) gained between 1.35% and 1.50%, while the Powershares QQQ Trust (QQQ) gained nearly 2.6%. The weekly gains, however, aren't what concerned traders. The obvious lack of momentum as the IWM and SPY probed swing highs is what caused many to go home uneasy about holding an overloaded long portfolio.
As you review the charts above, the first thing you should notice is both the E-Mini S&P 500 futures (Es) and IWM are still trading in the same range they've been in for quite some time. In the case of the Es contract, we've been trading between 2400 and 2320 for roughly two months. The IWM, however, has been bouncing around in its current range for five months. Given the length of time these two instruments have been trapped in their respective channels, I don't believe it's unreasonable for traders to question the sustainability of any bullish (or bearish) break.
In my view, both instruments should be given the benefit of the doubt over the short term. This means looking for reasons to buy a dip into their 13-day and 21-day exponential moving averages. From an intermediate and initiative (breakout) buying standpoint, however, I believe both instruments have more to prove. And this is especially the case of the IWM. After the failed upside break in late-February, it's only natural that higher timeframe buyers would demand more information (in the form of price data) before trusting a new leg higher has staying power.
Before we get to Monday's Es auction, several readers requested updated charts on light crude oil futures, U.S. dollar futures and International Business Machines (IBM) , so let's review a few charts.
First up is light crude oil futures.
Price volatility in light crude oil futures over the past two months has caught the eye of a number of traders. And that's to be expected. Especially if you're a shorter timeframe scalper. However, if you're stalking a more sustained move and not interested in trying to catch the next two dollars, I would continue to wait for a weekly break of either $45 or $55. If you're desperate for more information, take a look at the uptrend line dating back to last August. If that line holds, perhaps shorter timeframe buyers have a shot at testing the mid-$50s.
Next up is the U.S. Dollar Index contract.
Rather than take a hard directional stand on the greenback, I want to highlight the fact that I believe the Dx contract is on the brink of a major move. While I don't want to guess which way the move will be, I believe whichever way last week's range breaks is apt to produce tradable follow-through. My gut says price breaks higher. But I believe a break lower would produce quicker and more dramatic results.
Last up is IBM.
Since reporting disappointing earnings after the bell on April 18, the stock has done nothing but bounce around in the low-$160s. The downtrend on the stock is pretty easy to spot, and while a break above $160.50 could trigger another test of $162, I'm interested in what happens if the stock closes definitively beneath $160. Aside from scalping the stock long above $162 (for some amount of gap fill), the chart looks pretty crummy. A break of $160 could easily trigger bearish continuation toward $150, and then $143 to $144.
Moving on to Monday's Es auction, we'll begin the week focused on 2381.50. An open beneath that figure that begins to weaken would be expected to gain momentum, likely declining toward 2375 and 2371.50. We're still expecting dip buyers to re-enter the market toward 2371.50, but in the event they don't, our focus would shift down toward 2366 and 2357 to 2358.75.
A sustained trade above 2381.50 does not alleviate our concerns regarding last week's questionable momentum, but it does encourage traders to bid the contract toward 2389.75. As price gains acceptance above that figure, we can once again resume our drive toward 2397.50 and the big figure (2400).
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.