Prior to Tuesday's Globex session sell-off, we were looking for responsive buying in the E-Mini S&P 500 futures (Es) against 2095.25. Our concern, you'll recall, was that a sustained value migration beneath the mid-2090s would result in a bearish slide toward 2081/2082. What ultimately played out serves as yet another reminder of why the current market is so treacherous, and so consistently difficult to navigate.
Shortly after the regular session open we saw the Es drop as low as 2080.25. Barely more than an hour later, the contract was already challenging session highs and was well on its way toward the big figure (2100). And as far as value is concerned, we saw Tuesday's regular session value established, on a closing basis, at 2095.25.
So while the bears managed to provoke price volatility and hammer the contract as low as 2080.25, they completely failed at sustaining the selling long enough to trigger a meaningful shift lower in day timeframe value. Suffice it to say this remains a market only suited toward the most agile and aggressive of short-term traders. If you're trying to position-trade the indices on a multi-day timeframe, you're more than likely suffering from persistent heartburn.
Moving on to Wednesday's auction, we'll want to begin the session with a heavy focus on 2101.50. As prices are sustained and accepted above that level, the bulls will be back in position to make an assault on 2113.50, 2119.75 and new life-of contract highs.
Failure to sustain a break above 2101.50 doesn't doom Tuesday's responsive dip buyer, but it does increase the chances that we'll simply rotate between the big figure and approximately 2090/2088.50. Only a bearish migration in value back beneath 2090/2088.50 returns the short-term momentum to the bears, and puts Tuesday's responsive buyer in the hot seat.
1. Tuesday morning's premarket reversal in bonds produced an easily identifiable level for traders to buy against. Traders of the 30-Year Treasury Bond Futures would be expected to trade against approximately $151, while equity traders will be keying off $118 on the iShares 20+ Year Treasury Bond ETF (TLT). Both the TLT and 30-Year Treasury contract are trading well beneath their eight-day exponential moving averages (EMA), so prospective buyers must recognize that the short-term trend is still pointing down. That said, I believe Tuesday's bullish reversal has set the stage for a near-term bounce toward the declining 21-day and 50-day EMAs.
2. It's been so long since coal stocks were worth looking at, I didn't realize just how many of them were trading under a buck. That aside, I am once again tempted by Peabody Energy Corp (BTU). The chart of BTU still looks horrid. The stock is trading well beneath its consistently declining intermediate and longer-term moving averages. I am only interested in the stock based on its bullishly diverging Relative Strength Index (RSI), and only if price begins to hold above $4.75.
Just so there is no confusion, please note that the stock's RSI has been diverging (bullishly) from price since October 2014. And during that time the stock has declined from around $10 to beneath $5. I want to see the stock recapture its most recent breakdown level, or approximately $4.75. Diverging RSI or not, I would avoid BTU completely until price begins to confirm what we're seeing via the bullish momentum divergence.
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