"Fear? That's the other guy's problem." -- Dan Aykroyd (as Louis Winthorpe III) in Trading Places
After Tuesday's bullish reversal, and another session where most participants entered the day expecting some level of increased bearishness to stick, I suspect bears are ready to call it a week. Not only did the E-Mini S&P 500 futures (Es) recapture the opening print during the second one-minute bar, but it also failed to close even a single five-minute bar beneath the session's volume weighted average price (VWAP). To make matters worse for short-sellers, the Es finished Tuesday's session at its highest level in a week. Fear? What fear?
For those who don't track or trade the Es during the overnight Globex session, you may be interested to know the contract did trade as low as 2421 during the overnight session. Intrasession (during the overnight hours) volatility remained relatively calm, with 70% of Globex trading taking place between 2432 and 2426. For the most part, the overnight auction displayed a very range-bound, or rotational, pattern.
As far as the day session is concerned, roughly 1.2 million contracts changed hands over a 22.25-handle range, with fewer than 25,000 contracts, or approximately 2% of the session's volume, occurring beneath the 2428.25 opening print. And as mentioned above, the contract never broke its developing session's VWAP on a five-minute closing basis, and only did so four times on a one-minute closing basis.
Value migrated back above 2436.25 to 2437.75 (our lower channel boundary discussed in Tuesday's Trader's Daily Notebook) approximately two hours after the open. That migration trapped opening sellers, along with anyone else who tried to fade the move back toward the mid-2430s. Shortly before the close, value shifted higher again, this time to 2446.
On a daily timeframe, the rejection of levels in the low 2420s is pretty easy to see. That said, continued rejection from the 50-day and 20-day moving averages (MA) over the next few days, followed by signs of acceptance (in the form of closing prices and value migration) beneath 2441, would be a worrisome sign for folks who either bought Tuesday's bearish gap or chased the rebound into the mid-2440s.
Over the next few days, and provided value remains above 2441, our baseline expectation will be for an upside probe of 2455.50, and potential bullish price extension toward 2462.50. The next big test for short and intermediate bulls, aside from price gaining acceptance above the mid-2450s, will be how aggressive momentum (and dip) buyers remain if and when the 20-day MA begins to close beneath the 50-day MA.
Moving on to Wednesday's Es auction, we'll begin the day with a focus on 2449.75 and 2441 to 2442. As long as value remains above the low 2440s, our focus will be on buying a dip with an eye toward 2449.75 and continuation of Tuesday's rally. As price gains acceptance above 2449.75, we'll want to hang on for the ride toward 2455.50. An extended upside target, should momentum return in force, would be 2462.50. Stalling price momentum or (initial) outright rejection would be expected from the low 2460s.
At a minimum, a failed trade from the low 2440s is likely to trigger a quick flush into the mid- to lower 2430s. As value builds beneath 2441, however, the odds of another bearish push toward 2424.50 begin to climb. The bottom line is if you want to buy a dip, stay engaged as long as price and value are above the low 2440s.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at email@example.com or posted to my Twitter feed @ByrneRWS