Given Thursday evening's horrific terrorist attack in Nice, France, I can't imagine too many traders were expecting the E-Mini S&P 500 futures (Es) to gap higher. But they did. And for the seventh session in row, to boot.
But Friday's modestly weak tape from the session's open should serve as further proof bulls need the market to consolidate its recent gains.
The last line in Friday's morning prep highlighted my ongoing inclination to fade any early strength above our highest resistance line, but not because I am bearish. I believe it's increasingly evident the market has gotten too far ahead of itself. And let's face it, anytime a market gaps higher for a week straight (let alone seven days), suggesting a bit of sideways consolidation is desperately needed shouldn't come as a surprise.
The bottom line is that the Es hasn't done anything wrong. The bullish trend remains strong, unbroken and based on current evidence, likely to continue. But even the most resilient of bull trends are going to correct from time to time. So, while day and generally shorter-timeframe participants may want to consider short-sided scalps over the immediate term, those operating on a higher time frame should continue to error on the bullish side of things.
A number of you have been focused on the iShares Russell 2000 Index ETF (IWM) over the past few days and as long price remains beneath $120 to $121 on a weekly basis I believe that attention is warranted. That said, take a look at how narrow the trading range has become over the past few sessions.
The narrowing consolidation pattern is easy to see on a daily chart, but even more clear on an intraday 15-minute chart. And while the initial break from the consolidation is sure to attract a bit of attention, those wanting to limit their susceptibility to choppy price action (a fake breakout) should consider waiting for a close above $120.50 to $121 or beneath $119.
Two additional instruments on our active watch list are Freeport-McMoran (FCX) and copper futures. We last reviewed charts of both instruments on July 7 and while copper is still trying to break higher from the multi-month channel we discussed back then, Freeport has finally broken through the top end of its 10 to 12 price channel. Those trading FCX on either a short or intermediate time frame should now consider trading against the 8-day and 21-day exponential moving averages (EMA). As long as price is closing above those two reference points, the bulls get the benefit of the doubt. And just so there's no confusion, while increased strength in copper would be nice, we'll trade Freeport from the long side as long as its trend remains bullish. Put another way, our decisions in regards to FCX will not hinge on what is occurring in the copper pits.
Moving on to Monday's Es auction, we'll begin the week with a focus on 2151.25 and 2160.50. All trading within that roughly 9-handle area is expected to remain choppy and rotational. Everything outside of it, however, has the potential to accelerate.
Now, keeping in mind traders hammered the Es shortly after Friday's close when news broke of the attempted Turkish coup, we'll look toward the 2143.75 to 2145.75 area to act as our initial support zone. As long as any bounce from that area doesn't extend above the low-2150s, the odds will ultimately favor continued selling toward 2133.75.
A sustained trade above the low-2150s likely results in very choppy two-way trading toward 2157, ultimately sending the Es back through 2160.50 and on to Friday's early morning 2164.25 regular-session opening swing high. But just to be clear, like the past few sessions, any opening strength toward 2160.50 will likely find me stalking a day-timeframe short.
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