Everyday we're reminded by the various media outlets that the current bull market in equities is the most hated of all time. And while I'm sure there are sentiment figures to back up such a statement, I can't help but shake my head.
You see, I've heard this exact statement numerous times over my more than 15- year trading career. Like many of you, I tend to tune out the moment I hear this tagline thrown out on CNBC or Bloomberg.
You want to know what everyone loves to hate? Bonds.
Like Rodney Dangerfield, bonds get no respect. Aside from DoubleLine's Jeffrey Gundlach, all I ever hear is why the bottom must soon fall out from under the bond market. I will concede that on the shortest of timeframes, price has a tendency to fib (or even lie) from time to time. Over a period of months, however, price is both truth and reality.
Given the flexibility the majority of us enjoy as short-term and intermediate-term traders, I'd rather follow price and a few simple moving averages than many of the experts on CNBC.
Let's switch gears and consider the bond market on a shorter timeframe. With the iShares 20+ Year Treasury Bond ETF (TLT) trading at the top of its rising price channel, and closing outside of its upper Bollinger band, I'd be inclined to either sell an existing (trading) long, or even stalk a short sided trade. The bottom line is that short-term buyers have likely gotten out over their skis, and are due for some pain. Longer-term participants, however, have little reason to fret until price collapse beneath $110.50 to $110.75.
Having failed to eclipse the mid-April highs of roughly $105 over the past few sessions, bids thinned early Wednesday morning and sellers began lining up to sell crude futures. The end result was a nearly $2 slide in the front month crude contract.
If we stand on a box and consider a slightly longer-term viewpoint, we see a market that's stuck in a narrowing consolidation pattern. Energy traders can either fade the edges of developing consolidation, or sit on the sidelines and trade in the direction of the eventual break. In any event, I'd have zero interest fighting a break above $105, or beneath $99.
A two-day composite volume profile of the SPDR S&P 500 (SPY) shows a market in relative balance. As a result, Thursday's trade plan will involve fading the edges until one side of balance breaks (illustrated via a 15 or 30 minute bar close outside our balance extremes).
With the above in mind, day timeframe traders are expected to either fade balance extremes near $191.73 and $191.10, or simply remain on the sidelines until one side crumbles. A sustained break of $191.73 has nothing but air above it, so stalking a short above that level, for the day timeframe participant, would appear ill advised. A break of $191.10, on the other hand, would give sellers an open door to sell the SPY back down toward $190.15 to $190.30.
1. Most high tech beta and biotech stocks have bounced smartly from their mid-May lows, but two still bouncing around recent lows are Seattle Genetics (SGEN) and Biomarin Pharmaceutical (BMRN). Between the two, I prefer the chart of SGEN. But I believe it's fair to say both could catch a bid pretty quickly if biotechs continues to recover.
Throughout the month of May, the bulk of SGEN's volume occurred between $34.10 and $35.40. So if one were acting as a dip buyer, entries as close to $34.10 as possible would seem logical. A session close above $35.20 to $35.40 would likely be sufficient to attract the momentum oriented breakout buyer. In either case, I'd want nothing to do with this stock (on the long side) should it close a session beneath $32.75.I
2. Anyone praying for a snap-back reversal in gold futures failed to have their prayers answered on Wednesday. Keeping in mind that there are those that believe the metals and miners have once again been washed out, I will defer to the price action in this scenario and suggest that following a brief period of horizontal consolidation, the most likely direction (for gold futures) remains down toward $1,230.
3. The majority of the stocks that comprise the Consumer Staples Select Sector ETF (XLP) are in up trends, and appear healthy. But deterioration in the ETF's largest component, Procter and Gamble (PG), has me concerned. I don't anticipate selling the XLP short in the immediate future, but of the various defensive sectors on my watch list, this is the one I am monitoring most closely for a contrarian bet.
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