Index traders remained largely uninterested in doing any business on Thursday, just like in the past two trading sessions. The S&P 500 E-Mini futures contract (Es) traded roughly 950,000 contracts over an incredibly narrow range of only 6.25 points. Suffice it to say, this is not the sort of range active traders want to see.
Away from the lackluster action in the major indices, the session's real opportunity was being found in home builders, containerboard stocks and a few select tech stocks. The home builders, as a group, were crushed on the back of June's atrocious new homes sales figure. Economists were expecting a print around 475,000, but the actual figure came in at 406,000. To make matters worse, May's stronger-than-expected figure was revised measurably lower to 442,000 from 504,000. These numbers, to be clear, were terrible.
The abrupt downturn in new home sales seems a bit odd, almost as though some data failed to be compiled. That said, the Commerce Department failed to offer any explanation. So, for the time being, we're forced to assume the housing sector has hit a bit of a rough patch.
Of the iShares U.S. Home Construction ETF's (ITB) major components, D.R. Horton (DHI) and Toll Brothers (TOL) were hit the hardest. Between the crummy housing-related data and the sector's weakening charts, I have little interest in picking a bottom in any of the major home builders. However, given the general lack of follow-through we've seen on shorts in recent months, I also don't want to devote too much time to studying this group for short sale opportunities. Until the broader markets show some sign of weakness, and from the context of a higher timeframe, I'd prefer to simply avoid the sector altogether.
Few traders ever pay attention to the containerboard stocks, but after Thursday upside explosion I expect this to change. Big-name stocks in the sector like International Paper (IP), KapStone Paper and Packaging (KS) and Rock-Tenn (RKT) all exploded high on a report from Perry Capital (a well known hedge fund) that that industry might be able to request Master Limited Partnership (MLP) status. I haven't got a clue how likely it is that any of the major containerboard companies could secure MLP status from the IRS. But given the investment opportunity that would accompany the adoption of such a tax status, I definitely want to keep my eye on the stocks listed above.
As far as tech stocks are concerned, I think we all know Facebook (FB) was Thursday's big winner. The stock finished well off its pre-market high of 78.44, but let's face it, the company is firing on all cylinders. While I've no interest in chasing the momentum at current levels, this is not a name I'd be interested in fading (read: shorting).
Friday's biggest movers are likely to be Amazon (AMZN) and Baidu (BIDU). Traders sold AMZN aggressively lower in Thursday's after-hours session, and while we're still a long way away from the monthly uptrend line (dating back to late 2008), I'd be interested in stalking the name on the long side closer to $280-$285.
BIDU is at the complete opposite end of the spectrum. Traders embraced this stock after it reported its earnings, and proceeded to bid the name to new all-time highs. Barring a collapse back beneath $180, and assuming you're not chasing the stock for a few points on an intraday basis, I can't think of a reason to stalk this stock on the short side. The bulls own this name.
The last sector we need to discuss is one, like containerboards, that few pay any attention to these days. The group is coal. As a whole, the sector has been decimated in recent years by the Environmental Protection Agency's (EPA) mission to greatly diminish this country's use of coal as a source of fuel (for obvious pollution concerns). Many of the coal stocks traders traditionally think of, like Peabody Energy (BTU), Walter Energy (WLT) and Alpha Natural Resources (ANR) still look horrid. The Market Vectors Coal ETF (KOL), however, lists Consol Energy (CNX), Joy Global (JOY), Alliance Resource Partners LP (ARLP) and Alliance Holdings GP LP (AHGP) among its top ten holdings. And all of these stocks sport relatively bullish charts.
If you pull a chart of KOL, you'll see the ETF is actively trying to break higher from a multi-month base. In my view, a continued high volume break of $19 would attract the attention of short-term traders. However, if you're looking to attract the attention of the higher timeframe trend trader, I believe you'll need to wait for a break above $20.50.
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