Tuesday's dip buyer was obviously disappointed with Wednesday's E-Mini S&P 500 futures (Es) auction, but there is a very small silver lining. While Wednesday's decline did retrace roughly 50% of Tuesday's overall advance, the bullish gap is still in place. If buyers manage to sharply and immediately reject any test of 2430 over the next two days, the bulls might have another shot at recapturing the 20-day and 50-day moving averages (MA).
Speaking of the 20-day and 50-day MAs, longtime readers know I tend to get bearish once the shorter timeframe 20-day MA crosses beneath the intermediate timeframe 50-day MA. Because I tend to operate between those two timeframes, I'm far more concerned with that cross than the more popular 50-day MA and 200-day MA golden/death cross.
As you can see on the chart above, while the 10-day MA has begun to slide beneath the 50-day MA, the 20-day still has further to fall. We'll no doubt revisit this idea if and when the cross triggers.
And for those interested, we saw the 20-day move beneath the 50-day MA for a few days in mid-April, but price found support against the year-to-date (YTD) volume weighted average price (VWAP). Prior to mid-April, we hadn't seen the 20-day MA fall beneath the 50-day MA since the mid-September to mid-November consolidation in 2016.
Several readers asked if I had any interest in light crude oil given its recent bounce from the 50-day MA, and while it doesn't quite fit my parameters, I wouldn't write it off either. Let's take a look at the chart.
The resistance on crude is easy to see. You've got trendline resistance, the YTD VWAP and the 200-day MA all very close to each other. And even if price pushes past that area, you've got a prior swing high at $52 to contend with. On the plus side, the recent bounce from the 50-day MA does give buyers a logical area to buy against. As long as price remains above that level (roughly $46.90), there's no reason price can chip away at the $49.80 to $51 area.
My own preference would be to stay out of the crude market until price has recaptured the 200-day MA over multiple sessions. That said, if you'd rather try your luck at buying the dip, consider using a -1 Average True Range (ATR) beneath the 50-day MA as your hard stop (highlighted in white on the chart above).
Moving on to Thursday's Es auction, we'll begin the day focused on 2439.50 and 2447.50. As long as we're trading within that eight-handle range, choppy and directionless trading is to be expected. Only once price gains acceptance outside that range should directionally oriented traders move into action.
A bullish gap above 2447.50 would likely be jumped on by day timeframe scalpers (on the short side), but keep in mind a successful backtest of that figure, followed by a push back above the opening print, could result in an immediate drive toward 2454 and 2461.50 to 2463.50. A session close above the low 2460s shifts our attention away from 2400 and up toward 2480 and new contract highs.
On the flip side, a bearish gap beneath 2439.50 that doesn't immediately recapture that level would be expected to slide toward 2429.75 before dip buyers consider re-entering the pit. Assuming buyers find value around 2429.75, two-way rotation between it and the upper 2430s would be our expectation. Failure to find buyers between 2429.75 and Monday's 2427.50 volume point of control (VPOC/Value) shifts our attention toward 2421.50, 2415.75 and bearish continuation toward 2400 to 2402.
As a reminder, the Jackson Hole Economic Policy Symposium begins on Thursday, though Fed Chair Janet Yellen isn't scheduled to speak until 10 a.m. ET Friday.
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