Equity index volume, volatility and liquidity almost always run at anemic levels during the last two weeks of August and first two weeks of September. So as we trudge through the final days of August, it shouldn't come as any great surprise that aside from a handful of stocks on the move, there is absolutely nothing going on in the market. The bottom line is that this is not a favorable environment for index traders to be forcing a trade.
Could something change and trigger a more exciting, and opportunity-rich intraday trading environment? Absolutely. But why waste mental energy guessing or creating scenarios where that might occur?
As far as the Es goes, I see no reason to consider a change in posture (from bullish to bearish) until upside excess is identified on a daily, or ideally, a weekly timeframe. Those operating from a shorter, more day timeframe-oriented perspective, might consider drawing a thick line near 1980. Because in my view, even a neutral, or two-way rotational posture, doesn't make much sense until we close back beneath 1980.
I want to step away from the S&P 500, and focus instead on the Russell 2000. In the August 22 Trader Daily I posted a chart of the iShares Russell 2000 ETF (IWM) and suggested the ETF might finally be ready to make a run toward channel highs. The reason for last week's shift in bias was that the IWM both successfully back tested its 200-day simple moving average, and held above a couple trend lines during that downside test. Those two factors, along with the obvious improvement in the RSI, warranted a more bullish posture.
After Tuesday's noteworthy outperformance in small-cap land, I suspect we'll see an even more pronounced shift among traders away from the S&P500 and Nasdaq, and over to the Russell 2000. But that's OK. For now, I want to stick to what we discussed last week. As long as the IWM remains above roughly $114, the odds favor a continued drive toward $120/$121.
As discussed above, the less volatile and increasingly quiet index trading has encouraged traders such as myself to spend a bit more time focused on individual stocks. And if the action in names like Achillion Pharmaceuticals (ACHN), Twitter (TWTR) and J.C. Penney (JCP) is any indication, there's still plenty of opportunity to keep us busy.
Despite the numerous selling tails visible on the daily chart of MOBI, my trade plan is incredibly simple. I like the stock long on a close above $8.50. Assuming I get long the stock, I'd expect to run an initial stop based on two specific factors. The first would be the prior session's intraday low, and the second would be the five-day exponential moving average (EMA). My baseline view is that a decent close above $8.50 has the potential to propel the stock toward $11.50-$12.50.
The second stock on my list is Vale. Just so there's no confusion, this stock has performed horribly for literally years. That said, I've been watching VALE's chart closely over the past few weeks. And I think the recent improvement in the overall price action of the iShares MSCI Brazil Capped ETF (EWZ) might give VALE the boost it needs to catch a more enduring bid.
This idea is geared toward those with a higher timeframe and ideally willing to hold a stock for a weeks, if not months. However, I wouldn't blame more aggressive traders for getting long near current levels against a $13.25 -- $13.30 (closing basis) stop. My plan is more closely aligned with my higher timeframe perspective. I want to see a close above $14 -- $14.15 -- on a weekly basis would be ideal -- before getting long. Assuming this trade sets up the way I've outlined, I'd expect to move forward with a stop back under $13.25 -- $13.30.
The bottom line is that I want to see some obvious improvement in the stock's price action before committing my capital.
- Twitter has finally begun to work for us, and while I'm a bit concerned by the enormous following the stock has attracted over the past two days, the fact remains that the chart is incredibly bullish. From a longer timeframe perspective, the stock is now trading above its 200-day simple moving average. And from a shorter timeframe perspective, I think traders can proceed with a bullish bias as long as the stock remains above its five-day exponential moving average, and 20-day simple moving average.
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 @ByrneRW