Wednesday's E-Mini S&P 500 futures (Es) auction was notably calmer than Tuesday's, though volume remained about the same, at 1.2 million regular-session contracts. The intraday range, however, did contract to 14.75-handles from Tuesday's 21-handle performance.
We entered Wednesday's auction looking for a probe of the lower end of the recent range, and as you can see on the four-hour chart below, that's about what we got.
Given that buyers responded to prices advertised in the low 2460s, which also amounted to a test of levels beneath the 20-day moving average (MA), we'll continue to look for reasons to be bullish (despite the increased tension between the U.S. and North Koreans). The next test, especially for intermediate timeframe swing traders, will be whether the current bounce results in a lower high (beneath 2480) and subsequent close beneath 2460, or multisession value migration above 2480.
Those trading over a short or intermediate timeframe should note the obvious reversal from beneath the 10-day and 20-day MAs. Reversals such as these suggest responsive buyers are still active in the marketplace. As we've discussed, don't try to outsmart the current trend by trading as though a bear market is already in place. Price will break both a 20-day and 50-day MA, suggesting a break in the short and intermediate trend, long before lower lows begin to form beneath a 200-day MA.
Several readers emailed regarding Wednesday's decline in the iShares Russell 2000 Index ETF (IWM) , and like them, I too am beginning to believe a test of the 200-day MA is right around the corner. The two areas I'd be watching for a short-term trade would be an intraday reversal off the 200-day MA, as well as an intraday reversal from between $133 to $134. While both areas are worth stalking for a trade (long), we mustn't ignore the technical damage should price begin to gain acceptance in the low to mid-$130s.
Another stock I've received a couple of questions about is Freeport-McMoRan (FCX) , and this is definitely a name I believe is worth keeping an eye on.
I see three potential plays when it comes to FCX, and all are on the long side. The first would be to buy a break above the late-July highs. This is a fairly obvious play, and one I'd be willing to take using either the 10-day or 20-day MA as my trailing stop.
The second play would be to get long near levels, using a close under the 20-day MA as your stop. This is exactly the sort of play that would suit a trader who likes to buy recently strong stocks that are stuck in consolidation. If the stock breaks to a new swing high, you've already secured great trade location. And if the consolidation takes a bearish turn, your stop is only about 5% away.
The third setup isn't one I'd expect to see unfold any time in the next few days, but it's a very real possibility if you take a longer-term approach. If the stock breaks the short-term trend and backtests the 200-day MA, one could look to get long, using a 1x or 2x average true range (ATR) close beneath the 200-day MA as the protective stop. This sort of approach is generally not suited for the short-term trader, as it tends to appeal to traders taking a longer-term approach.
Moving on to Thursday's Es auction, we'll begin the day by using 2468.75 as our day timeframe pivot. As long as any initial dip attracts buyers around that level, continued buying toward 2475 would amount to the path of least resistance. As value migrates above the mid-2470s, we can resume our push toward 2483 and Tuesday's intraday highs.
A failed trade from 2468.75 attracts sellers back to the auction, and shines the spotlight on 2461.50. As demand wanes in the low 2460s, expect a notable increase in supply and an immediate push toward 2452.25. As pointed out in Wednesday's note, our next area of major support doesn't come in until closer to the mid-2440s.
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
