Trader's Daily Notebook: One Way Has Become the Only Way

 | Jun 01, 2017 | 7:00 AM EDT
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Stock quotes in this article:

gs

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gs

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kre

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KBE

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XLF

Wednesday's E-Mini S&P 500 futures (Es) auction opened with the contract gapping 3.5 handles above Tuesday's 2411 regular-session close. A nice bump for anyone who bought Tuesday's close, but a far cry from the 2417 level we wanted to fade.

Nonetheless, aggressive sellers moved in and immediately hammered the contract through Tuesday's intraday range and through the 2404 to 2406 gap left from the May 25 bullish opening gap. Selling was cut off five ticks beneath 2404, at 2402.75, and the carnage was over. 

Daily S&P 500 Futures Volume Profile

Describing Wednesday's selling as carnage is obviously pretty silly. A quick glance at the daily Es chart above shows quite clearly the contract only traded a few handles beneath an eight-day exponential moving average (EMA). The bottom line is we've become accustomed to moving in only one direction, and generally on extremely light volume. As a result, any countermove on increased volume seems downright shocking. 

Several readers submitted questions regarding the banking ETFs in light of Goldman Sachs (GS) breaking its 200-day simple moving average (SMA) on Wednesday, but setting Goldman aside for the time being, I believe it's still a bit premature to write off bank stocks. While I wouldn't be in a hurry to buy any of them, the fact that the SPDR S&P Regional Banking ETF (KRE) , SPDR S&P Bank ETF (KBE) and Financial Select Sector SPDR (XLF) are all still above their 200-day SMAs is, in my view, as good an indication as any that the primary bull trend is still intact. 

Moving on to Thursday's Es auction, we're likely to see the regular-session open heavily impacted by the pre-market reaction to the monthly ADP employment report. And as a reminder, we have the monthly employment situation report scheduled for release at 8:30 a.m. ET Friday. 

Our two primary areas of interest are expected to be 2417 and 2408.25 to 2409.25. With Wednesday's auction closing at 2414, we'll look for responsive dip buyers to move back into action as the contract tests 2408.25 to 2409.25. As long as value is above that one-handle area, we'll look for traders to auction the contract back toward 2417. 

15-Minute S&P 500 Futures Volume Profile

A sustained trade above 2417 to 2418 would be expected to grind higher, creating a slow-motion train wreck for day timeframe traders continually trying to sell new highs. That said, if the contract gaps above 2417 to start the regular session, we'll remain open to the idea of fading the gap once price breaks the opening print. 

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

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