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Wednesday's session, while not horrendously bearish, was quite a bit more negative than the minor loss in the E-Mini S&P 500 futures (Es) would lead you to believe. As far as the stats are concerned, Es regular session trading volume came in just shy of one million contracts, which is the heaviest volume we've seen since the August 15 swoon. Intraday travel (high to low range) totaled roughly 12 points, which is a bit beneath the 20-day average.
Let's move on to some of Wednesday's more concerning developments.
To begin, several leading areas of the market were under pressure all day. Both theTechnology Select SPDR Fund (XLK) - Get Technology Select Sector SPDR Fund Report and Powershares QQQ Trust (QQQ) - Get Invesco QQQ Trust Report opened Wednesday's session at their highest respective levels since late-2000, but sellers were ready and drove each ETF lower for the remainder of the session. Recent outperformers Twitter (TWTR) - Get Twitter, Inc. Report , Apple (AAPL) - Get Apple Inc. (AAPL) Report and FireEye (FEYE) - Get FireEye, Inc. Report were also taken out back and shot.
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Another outperforming sector that weakened on Wednesday is retail, specifically discretionary retail. Whether you prefer to use the SPDR S&P Retail ETF (XRT) - Get SPDR S&P Retail ETF Report or theConsumer Discretionary Select Sector ETF (XLY) - Get Consumer Discretionary Select Sector SPDR Fund Report , the end result was the same. Buyers finally pulled their bids and prices dropped.
The worst performing group were the home builders. Toll Brothers (TOL) - Get Toll Brothers, Inc. Report led the group lower, but Pulte (PHM) - Get PulteGroup, Inc. Report , Meritage (MTH) - Get Meritage Homes Corporation Report and DR Horton (DHI) - Get D.R. Horton, Inc. Report weren't far behind. Whether you're looking at technology, retail or home builders, the bottom line is the market appeared quite a bit weaker than the barely negative advance/decline line, or marginally negative Es close would lead one to believe.
Now that I've got everyone champing at the bit to sell anything not nailed to the floor, let's take stock of where the Es closed the session.
In Wednesday's Trader Daily I made a point of discussing the relatively flat migration of value over the past five or six sessions. That didn't change at all on Wednesday. In fact, if we only look at those past three regular Es trading sessions, we see that value has migrated from 2000.50 on August 29, to 2000 on September 2 and 1999.25 September 3 (yesterday). So despite Wednesday's selling in technology, retail and housing, the agreed upon level of value on the E-Mini S&P 500 futures contract has hardly changed during the past few days.
My take on all this is that while several areas of the market have begun to attract increased supply, the broad market (as represented by the Es futures contract) is still trapped within balance. As such, day timeframe index traders should continue to adhere to strategies that benefit from a balanced auction. We'll continue to fade the extremes toward 2004 and 1991, until we see value shift (and close a session) outside that 13-point area.
As far as Thursday's Es auction is concerned, we'll want to begin the session by recognizing Tuesday's lack of downside excess/symmetry. Using 2000 as our intraday pivot (which also happens to be the most actively traded price point for the past three regular sessions), our baseline expectation will be for continued selling toward 1991.25/1992.25. Assuming supply continues to run thin toward 1991.25, the logical assumption will be for buyers to bid prices back up toward 1998.25 -- 2000.
Any shift in value beneath 1991.25 that carries through to the end of the trading session would immediately have me shifting my sights down toward 1978 and 1967.
As far as the bulls are concerned, all trading above 2000 shifts our day timeframe focus toward 2003.25 -- 2004.25. A shift in value above 2004.25 would find me backing away from any short selling, but until such a shift is seen, my inclination is to fade the topside of composite balance (2004.25).
The bear market in corn, wheat and soybean futures worsened on Wednesday, with all contracts breaking down to new multi-year lows. I know I'm not alone in monitoring these markets for a tradable low, but for now at least, such a low doesn't appear to be in place. Whether you're trading the actual futures contracts, or sticking with the Teucrium ETF Funds, the bottom line is the trend remains undeniably bearish.
After being stomped for more than three dollars on Tuesday, crude oil futures recovered nearly the entire loss on Wednesday. I continue to believe a lack of action by the European Central Bank at their Thursday's policy meeting will send the euro higher, the dollar lower, and put crude back on track for a bounce toward $98.50.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at email@example.com or posted to my twitter feed @ByrneRWS
At the time of publication, Bob Byrne was long TWTR.