With decent volume figures and wide intraday range, Thursday's E-Mini S&P 500 futures (Es) auction was another good one for day timeframe traders. And this time, even those holding out hope for a break from our horizontal range found something to smile about.
The Es opened Thursday's auction above 2141, impressive given that the contract closed the prior session only slightly above the midpoint of trading for the day. Unfortunately for bulls, opening bids evaporated within seconds of the bell and price immediately began to drop. Within 35 minutes, the contract had closed the opening gap. Also, the contract wouldn't close a single one-minute bar above the session's volume weighted average price (VWAP) until nearly 2½ hours into the regular session. That is the furthest thing from a bullish showing.
The tape continued to soften as the afternoon's session wore on. And when the closing bell rang, bulls were left staring at a close under 2125, a bearish close made worse by the fact that the contract opened above the prior session's intraday high.
Away from the Es, the price action in the iShares Russell 2000 Index ETF (IWM) was simply atrocious. And the bears finally got what they wanted -- an undeniable shattering of support around $120. My baseline assumption, especially given that the IWM has declined around 3.5% this week, is a slap in the face is coming for momentum-chasing short-sellers. Unless you're dedicated to day timeframe trading strategies, this is probably a good time to avoid selling short in the hole, and instead start stalking a bounce toward the five-day or eight-day exponential moving average to sell into. An intermediate timeframe target of $114 does not seem like an overly aggressive assumption for those looking short.
I was asked for an update on my Vale (VALE) comments from Oct. 19, when I suggested a weekly close above $6 might provide an interesting setup for swing traders. Setting aside the fact that VALE posted a solid earnings report on Thursday, the stock closed above $6 last week, and while a bit overbought, looks perfectly healthy. On a short-term basis, I probably wouldn't be chasing VALE into $7. But over a higher timeframe, the chart looks great and should be at the top of any long-focused swing trader's playbook. I'd expect a dip in price toward $6.50 to begin attracting a bit of attention.
Moving on to Friday's Es auction, we'll end the week with a heavy focus on 2128 to 2129.25. Traders positioned for bearish price extension and a break from this ridiculously tedious horizontal range will want to see any test of levels in and around 2129.25 quickly rejected. As price is rejected from that level, we can begin our decline toward 2116.50 to 2117.50 and 2108.
A trade above 2129.25 that isn't quickly rejected would be expected to squeeze anyone who sold the market short (in the hole) toward the end of Thursday's session. All trading above that level opens the door to buying toward 2136, with any additional price extension targeting 2144.
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