With the E-Mini S&P futures (Es) closing above its five-day exponential moving average (EMA) for the nineteenth session in a row, I think we can all agree the bears are suffering a death of a thousand not-so-shallow paper cuts. The bottom line is many traders, me included, expected the bears to put up a fight against the 50-day and 100-day simple moving averages. But not only did they not put up a fight -- they flat out disappeared.
The saving grace for those that expected a bit more ebb and flow in the Es contract is that the day-to-day structure (as reviewed in the daily trade plans) never actually flipped bearish. The current rally may appear long in the tooth, but without an actual breakdown in the market's structure there's little (i.e. no) reason to begin positioning oneself net short.
I want to move away from the S&P 500 for a moment, and shift our focus to the Russell 2000 and the NASDAQ 100. As discussed in Wednesday's Trader Daily, the recent consolidation in the iShares Russell 2000 (IWM) and Powershares QQQ Trust (QQQ) made them both appear a bit more attractive than either the SPDR S&P 500 Trust (SPY), or SPDR Dow Jones Industrial Average (DIA). While I remain nervous chasing this market long on anything greater than the day timeframe, Wednesday's upside break in both the IWM and QQQ make those ETFs look like the most logical go-to names for those seeking broad market exposure.
The greatest risk to Wednesday's tech and small buyer is an outside reversal that results in either ETF closing beneath its five-day and/or 10-day exponential moving averages. Barring any such development, both ETFs appear to be headed higher.
Given the relatively benign movements in the major indices over the past few days, I thought I'd highlight a few stocks with favorable patterns to break higher. For reference purposes, please note that all the names below are current members of the Investors Business Daily 50 (IBD 50).
Thanks to Wednesday's upside break in SolarWinds (SWI), we'll use that stock as our bullish template.
As you can see on the chart above, after breaking to new year-to-date swing highs in late October, SWI consolidated long enough for our short-term moving averages to catch up. Whether one opts to remain long a stock like SWI after Wednesday's mammoth advance is largely a question of timeframe. For traders uncomfortable remaining long beyond the day timeframe (like me), such set-ups near year-to-date highs offer fantastic day-timeframe trading opportunities.
The three charts below share the identical set-up. Each stock is trading in a relatively narrow range. And all are either at, or very near to their year-to-date price highs. All I'm looking for out of each name is an upside break from their respective consolidation box (highlighted in green).
- Please check columnist conversation prior to Thursday's open for an updated Es volume profile and trade plan.
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.