The current market environment remains best suited for day or multi-day timeframe scalpers. Higher timeframe trend, and momentum oriented participants are having their patience (and trading accounts) tested on a daily basis.
The bottom line is this: if you are unwilling to alter your market bias on a daily basis, this is probably not the best environment for you to participate. There's a time to chase breakouts (breakdowns), and a time to fade the crowd. Suffice it to say the current environment favors the latter.
Turning our attention to Wednesday's SPY trading, I expect the session's tone to be determined by which side of $187.81 to $187.93 the ETF is trading. All trading above that area encourages buyers to bid prices back toward Monday's highs. While everything beneath keeps pressure on dip buyers, and shines a light on $187.07.
As for range extension, a sustained break (15-30 minute bar close) of $187.07 gives the bears a meaningful advantage, and encourages day timeframe traders to press their intraday short bets toward $186.50. And as a reminder, a close beneath $186.50 would violate the 50-day simple moving average, leaving only low volume price support at $186 to prevent the SPY for sliding down toward its mid-April lows of $181.30 to $181.50.
When you see names like Caterpillar (CAT), United States Steel (X) and pretty much every iron ore name getting thrown in the trash heap, you can't help but look under the hood of the materials stocks still trending higher. This thought led me to Alcoa (AA).
Spoiler Alert! Alcoa bulls won't like what I have to say.
AA began trending higher in mid-October 2013, and since that time it's paid handsomely to buy any and all pullbacks in the name. But I think this bullish trend is nearing an end. What's got me concerned is that Tuesday's sell off occurred on significantly higher-than-average volume, the Relative Strength Index (RSI) cracked 50 for the first time since the rally began and the multi-month trend line (dating back to early February) was broken. Ordinarily, I might excuse a single technical hiccup. But when I see three or four technical issues arise within a single session, I can't help but sit-up and take notice.
So, despite the still up-sloping 50-day and 200-day simple moving averages (suggesting that the longer term trend is still intact), I believe profit or stop loss orders should be tightened up on existing long positions in AA. The next most logical supports for AA are the 50-day SMA, and early April base of roughly $12.35.
1. Cliffs Natural Resources (CLF) and Walter Energy (WLT) are two names I had been watching for several months. As previously discussed, my hope was that these two stocks would hammer out a bottom and reverse their horrendous downtrends. Suffice it to say these stocks should be avoided on the long side by traders of virtually any timeframe.
2. Into FireEye's (FEYE) lock-up expiration I'd suggest traders keep a close eye on $28 and $34.40. Failure to hold above 28 likely results in new all-time lows in the stock. While a Zulily (ZU) like price surge could have buyers bidding prices all the way to the stock's 20-day exponential moving average (roughly $34.40). As for the trading between $28 and $34.40, I'd suggest scalping tourists and higher timeframe traders steer clear. I will likely ignore FEYE until the market has had a few days to digest whatever new supply is ultimately unleashed.
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