Trader's Daily Notebook: As Long Weekend Nears, Volume Will Stay Low

 | May 24, 2017 | 7:00 AM EDT
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The preferred explanation, or excuse, for Tuesday's anemic trade volume is that the major indices are four days into a V-shaped recovery, and perhaps buyers need a breather before they press on past the big figure (2400) on the E-Mini S&P 500 futures (Es). And while there is likely some truth to that explanation, I also believe traders want to avoid taking on additional exposure, be it long or short, ahead of the three-day Memorial Day weekend. What this means for the short timeframe trader, unfortunately, is that, barring a major catalyst, volume is likely to remain low and trend lower for the remainder of the week. 

As far as Tuesday's volume figures are concerned, the S&P 500 Trust (SPY) traded approximately 48 million shares, which is nearly 21% beneath Monday's already anemic levels. The ETF's 73-cent intraday range was also one of the narrowest we've seen in recent months. 

Longtime traders, especially those focused primarily on index ETFs and futures, know there are going to be times when volume and price movement slow to a crawl. So as we've discussed, consider spending some time prior to the auction's open to identify stocks with company-specific catalysts. 

During Tuesday's session, we saw massive volume and intraday ranges in names like Alexion Pharmaceuticals (ALXN) , Momo (MOMO) , Orbotech (ORBK)  and Pinnacle Foods (PF) , to name a few. Sometimes the price and volume expansion is attributed to something as simple as an earnings release, while other times we're dealing with trend continuation from the day before. The bottom line is if your goal is to remain active during the day timeframe, you can. But you're going to need to do a bit more work ahead of the open. 

As far as the Es contract is concerned, we continue to build value above 2383.75 (an important level highlighted in Monday's note), likely in preparation for an assault on 2400. So while short-sellers may not want to hear it, there remains very little evidence to support aggressively selling the Es short near current levels. As long as the contract continues to close above 2382.50 to 2383.50, the path of least resistance will remain higher. 

We'll enter Wednesday's Es auction with a focus on 2395.75. An open above that figure that holds the opening print and the session's developing volume weighted average price (VWAP) would be expected to grind higher toward 2401 and new swing highs. 

5-Minute S&P 500 Futures Volume Profile

A sustained trade beneath 2395.75 opens a window of opportunity for day timeframe scalpers to sell the contract down toward 2389, but as you might expect, we'll remain skeptical of downside lasting through the entire session. For now, we'll maintain a generally bullish posture as long as we're closing above 2382.50 to 2383.50. 

Any trading or volume profile related questions can be posted in the comments section below, emailed to me at or posted to my twitter feed @ByrneRWS

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