Wednesday's E-Mini S&P 500 futures (Es) auction wasn't nearly as rotational as I was anticipating, but it also didn't fall apart the way bears thought it might following the FOMC meeting announcement. In a nutshell, we saw another day of decent day timeframe volatility with better-than-average trade volume that provided numerous opportunities for the day timeframe scalper.
The bearish technicals we've been discussing since mid-September on the Es are obviously still in place. Add to that uncertainty surrounding Friday's jobs report, Tuesday's presidential election and the bearish charts of stocks like Amazon (AMZN) , Facebook (FB) and Alphabet (GOOG) , all names momentum traders fawned over until very recently, and one is left to wonder whether the wheels are about to fall off the bus. (Amazon is part of TheStreet's Growth Seeker portfolio. Facebook and Alphabet are part of the Action Alerts PLUS portfolio.)
Everyone take a step back from the ledge, and a second look at the Es daily chart above. Believe it or not, an opportunity may be right around the corner for short-term traders looking for a tradable low.
Traders looking out over a timeframe measured in days to a couple of weeks should pay close attention to where the Relative Strength Index (RSI) is currently printing. Over the past five or six years, adopting a bearish posture as the RSI began to print 30 or below has been a losing bet. Even when the Es declined from near 1040 to 840 during mid-2010, selling short as the RSI broke 30 was a losing proposition, at least over the short term.
Am I still focused on the location of the eight-day and 21-day exponential moving averages (EMA) relative to the 50-day simple moving average (SMA)? Absolutely. As long as our shorter timeframe EMAs are holding beneath the 50-day SMA, I will maintain a generally bearish bias. However, as price declines, short-term rallies are bound to materialize. And with the RSI printing near 30, I believe a tradable low is right around the corner.
My plan over the short term is pretty simple. While I am bearish over an intermediate timeframe, I'll be looking more aggressively for reasons to fade weakness beneath each prior session's intraday lows. Put another way, I'll be looking for bearish continuation attempts to be rejected. Using the past five or six years as a road map, I believe it's logical to expect intraday volatility to increase as a tradable low is hammered out. As fear (in the marketplace) subsides, a bounce-back toward the declining 50-day SMA seems like a reasonable expectation. And that's where I'd expect to again adopt a more bearish posture.
Thursday's Es auction is likely to be heavily influenced by where the regular session opens for trading. If the contract opens beneath Wednesday's 2087.25 intraday low, but then recaptures that level on a five-minute to 15-minute timeframe, I'd expect traders to bid prices up toward 2098 and 2106. An open above 2087.25 but beneath 2098 would likely be less exciting, and far more rotational.
An open beneath 2087.25 that fails to recapture Wednesday's intraday low would have the potential to extend toward 2076, or even 2060, before buyers step back in. A decline such as this would be expected to push the RSI further beneath 30, and increase the odds of near-term volatility and a snap-back rally that catches short-sellers deeply offsides.
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