The bears entered Wednesday's session with a slight advantage, but after failing to break definitively beneath 1983.50 (using 30-min closing bars), they were quickly run over. Buyers auctioned the E-Mini S&P 500 futures (Es) contract through the session's volume-weighted moving average price (VWAP) shortly after 11:10 a.m. And from that point on, the bulls carried the session.
As far as volume and intra-session volatility are concerned, roughly 1.15 million contracts traded hands over nearly 15 points of intraday travel. All in all, I'd label both volume and intraday travel as about average.
Bearish chatter surrounding the iShares Russell 2000 ETF (IWM) became pretty loud early in the session on Wednesday. But I continue to think anyone trading the IWM should be more actively focused on buying the dip than selling into the current weakness. With the 50-day, 150-day and 200 day simple moving averages all lining up between $114.80 and $114.30, I simply can't see selling this ETF into those dynamic and widely used reference levels.
As far as the short-term IWM profile (shown above) is concerned, I think the composite balance spells things out beautifully. Generally, two-way trading is expected between $114.50 and $117.25, with a close above $118 or beneath $113.70 being required to trigger a more directional trading strategy.
Moving on to Thursday's Es auction, we must begin our analysis by recognizing Wednesday's lack of bullish excess (thereby suggesting buyers enjoy a near-term advantage), and observing that the composite balance low has essentially shifted from 1991.50 down to roughly 1981.50. Rather than view the build-out in volume near 1991.50 as bearish, I would encourage you to recognize the symmetry of the composite profile, and accept that trading practices constructed around balanced markets are likely to outperform breakout-like (or intermediate timeframe directional) strategies.
Day timeframe swing traders should consider entering Thursday's session with an eye on Es 1988.25/1989.25. In my view, as long as any early selling is absorbed within that one point zone, the path of least resistance is likely to be up toward 1998.25/1999.25. A sustained trade above 1999.25 (defined as a thirty-minute bar close) would put the top of balance, or 2006.50-2007.25, back on the radar.
Failure to hold the line near 1988.25 gives sellers another shot a breaking the market lower in a more meaningful way. Immediate support comes in at the composite balance lower (roughly 1981.50), with slightly strong support coming in a few points lower at 1978. Any sort of sustained weakness would have us looking past 1973.50 and targeting stronger support near 1967-1968.
- For those still carrying some Achillion Pharmaceuticals (ACHN) exposure, I'd consider one of two trailing stop options. The first would be a close beneath the 10-day exponential moving average. And the second, which allows for a bit more wiggle room, would be a close beneath $11.15. The reason for using $11.15 is that it would be beneath the late-August swing low, beneath the 20-day simple moving average and beneath a major resistance (now support) area from mid-October 2012. Given the cushion we currently enjoy in this position, I'm inclined to use profit-stop option number two.
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