The Trader Daily: Bearish Pressure Eases as China Takes a Holiday

 | Sep 03, 2015 | 7:00 AM EDT
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Just as U.S. traders begin to focus on Friday's monthly employment situation report, the Shanghai stock market is set to close on Thursday and Friday as China celebrates the 70th anniversary of the end of World War II. The Shanghai market closing for two days may not seem like a big deal. But if you believe Chinese volatility has been an ongoing catalyst for U.S. market volatility, it's not much of a stretch to expect bearish pressure to ease over the next couple of days.

My own, slightly higher time-frame perspective of the E-Mini S&P 500 futures (Es) remains unchanged from what it's been for the past week. I'm still expecting the market to rotate in a wide, generally volatile 200-handle channel between roughly 1800 and 2000 (perhaps a little higher). This market needs time to heal. And while there are plenty of traders unwilling to believe the market could ever trend lower for any sustained period of time, I will remind you that we suffered a major technical breakdown roughly 10 days ago.

Daily S&P 500 Futures Volume profile

As you can see on the daily Es volume profile above, the contract is trading right in the middle of a mid-1880s to roughly 2010 balance area. Again, if you believe China being closed will help calm U.S. volatility, consider trading for a test of the upper end of our current balance area (above 2000). Should such a move materialize, however, I'd be inclined to sell into and fade it.

As far as Thursday's Es auction is concerned, there's no question Wednesday's session ended with the bulls in the driver's seat. Assuming any initial back-test of 1936 is quickly bought, my baseline expectation is for bullish extension to and through 1950. As value migrates back above 1950, buyers would be expected to begin focusing on 1962.25 and 1978.75. The bottom line is buyers have an open door to auction prices higher as long as they can force value back above 1950.

5-Minute S&P 500 Futures Volume profile

Any bear scenario likely begins with the immediate rejection of 1950, and a prompt decline beneath both 1936 and 1927.50. I'm not expecting such a slide to occur ahead of Friday's employment data, but should it occur, it would leave bears in a strong position to challenge recent swing lows.

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

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