We entered Wednesday's E-Mini S&P 500 futures (Es) auction with a focus on 2183.50 to 2184.50, and a generally bearish posture over the day timeframe as long as value fell beneath that one-handle zone. And as luck would have it, the Es opened the regular session within our zone of interest, and encountered consistent supply each time buyers tried to auction prices toward 2184.50. As price was consistently rejected from near 2184.50, the most logical path for price to travel was toward the opposite end of multisession balance, or in this case, the low 2170s.
While short-sellers no doubt enjoyed seeing the Es decline throughout Wednesday's regular session, let's not ignore where the contract bounced. Price tested the lower end of multisession balance (identified in Wednesday's morning report), and found a buyer as soon as the 21-day exponential moving average (EMA) was broken. However, unlike when price tested the 21-day EMA on Aug. 2 and 17, we didn't see a persistent bid enter the market and push price appreciably higher into Wednesday's close.
The bottom line is I continue to view the current bull trend as weakening. And as we've discussed on numerous occasions over the past few weeks, the market may still be trying to auction higher, but it's sure not doing a good job at achieving its objective.
Before we get to Thursday's Es trade plan, I'd like to address a few reader questions.
I wasn't surprised to see the questions regarding gold futures and the VanEck Vectors Gold Miners ETF (GDX) start rolling in, especially after the beating the sector took on Wednesday. As far as the weakness GDX has experienced throughout August, I'd remind you the ETF has more than doubled since the end of the January. While a huge gain alone doesn't suggest we should ignore the recent weakness, it's worth keeping in mind when we examine the recent bout of selling.
The short-term trader in me generally abandons a stock or index once it's broken the eight-day and 21-day EMA. Add to that a break beneath the 50-day simple moving average (SMA) and I'm really inclined to retreat to the sidelines. Given the powerful selling in GDX on Wednesday, I'd like to see how things shape up toward $24.50 to $25.50. While I don't see evidence the bull market in gold and miners has come to an end, the recent price action makes me think a deeper (in terms of price and time) correction may be in the works. Don't write the miners off, but give them time to find a tradeable low.
Another question revolved around the iPath S&P 500 VIX ST Futures (VXX) and whether it might be worth getting long volatility given price is trading at/near historic lows. I generally advise against buying or selling something short solely because of its price. In this case, however, rolling the dice on some long volatility plays might make sense given the potential for increased volatility over the next few days while the Kansas City bank's monetary policy symposium is unfolding. If you do get long volatility, don't ignore the fact the Fed has a pesky habit of sweet-talking the market any time price softens.
Another trader favorite, Freeport-McMoRan (FCX) , took it on the chin Tuesday, falling beneath the 50-day and 100-day SMAs. Whether this is company-specific or related to the horrible price action in copper futures, the chart of FCX is pretty ugly. I'll revisit the name as it trades down toward the 200-day SMA and $9.
Moving on to Thursday's Es auction, we'll enter the session with an eye toward fading a bullish open near 2177.50 to 2179, and a general expectation for an increasingly aggressive seller to assume control as value drops beneath 2172. As discussed previously, a close beneath the low 2170s begins the process of auctioning down toward 2159.50 and the 50-day SMA.
Traders expecting Wednesday's decline to be quickly reversed want to see value migrate above 2179. As that occurs, we can begin looking for a quick trade toward 2183.25, and then potentially back toward 2190.
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