Tuesday was another rough one for the bulls. Most sectors, and all four of our major market ETFs, finished lower on the day. On the plus side, the dramatic increase in intraday volatility has made short-term trading a heck of a lot more fun.
Before we map out Wednesday's E-Mini S&P 500 futures (Es) trade plan, let's revisit a down-and-out stock, along with two of its brethren beginning to show some signs of life.
First on our list is Walter Energy (WLT).
As I first noted in the July 28 Trader Daily, WLT is by far and away the worst performing component of the Market Vectors Coal ETF (KOL), having currently lost more than 60% of its value on a year-to-day basis. However, the stock is now on its way to closing above the 50-day moving average (SMA), on a weekly basis, for the sixth week in a row. This sustained trading above the 50-day SMA can only be viewed as a bullish development.
In addition to Walter's improved trading above the 50-day SMA, we've also seen the 14 period Relative Strength Index (RSI) consolidate above the 50-center line for the better part of the last seven weeks. Again, this can only be viewed as a favorable development for short-term speculators trying to time a turn in the stock.
In order to nail down some upside targets on WLT, as well as identify what could reverse Tuesday's bullish price action, let's study the stock's daily volume profile.
The first thing to note on the chart above is that WLT has two distinct volume distributions. If the stock can push through the low volume area between $6.45 and $6.80 (highlighted in yellow), I believe the odds will favor upside continuation toward $8.30/$8.50. And at the risk of putting the cart significantly ahead of the horse, I would expect a sustained trade above $8.50 to propel the stock toward $10-$10.30.
As far as what kills Walter's current momentum, I'd expect short-term scalpers to abandon the name on any close beneath $6-$6.10. Higher timeframe swing traders are still expected to be keying off the 50-day SMA.
ANR deals in both thermal and metallurgical coal (met), but because its fortunes are more closely tied to met coal, it tends to follow the path of fellow met coal miner WLT. Now, while ANR hasn't put in any meaningful time above its 50-day SMA the way WLT has, I believe continued momentum in WLT could migrate over into this laggard. A close above Alpha's 50-day SMA (roughly $3.47 --$3.57) would have me targeting an advance toward the top of its lower balance area, or approximately $3.95 -- $4.15.
Any close beneath $3.22 - $3.27 would likely result in ANR trading straight down to new year-to-day lows. Suffice it to say this is a high-risk stock in a high-risk sector. Do not fall in love with any of these names.
The last coal stock on my list is BTU. And as you can see from the volume profile below, BTU has a very different look to either WLT or ANR.
In this case, initiative sellers have been trying to hold BTU beneath the lower end of its massive, year-long balance area, and break the stock to new swing lows. However, if sellers lose their grip and the stock trades back through $16--$16.10, I believe we could see a quick move toward $17.05--$17.20. Assuming demand remains strong, the ultimate target would be the upper end of composite balance, or roughly $18.90 -- $19.10.
Shifting gears back to Wednesday's E-Mini S&P 500 futures trade plan, my intraday bias will be determined by whether we're trading above 1920.50, or beneath 1917. Simply put, all trading above 1920.50 begins to reverse Tuesday's bearish double distribution trend day, and encourages buyers to auction prices up toward 1931 -- 1932.25. To be clear, I have very little (i.e. no) interest in shorting the Es as value is re-established above 1920.50.
On the flip side, another failed trade from above 1917 would keep pressure on buyers and likely result in a slide through Tuesday's intraday low. Downside support is expected to come in near 1904.50 -- 1906.75, 1900 and 1895.
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