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The Trader Daily

Bob Byrne

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Bullish-trend traders live for higher highs and higher lows. For them, the past 10 sessions in the E-mini S&P 500 futures have been a pure joy. The same can't be said for auction-based, range traders. The range trader is far more comfortable in a balancing market, as such conditions reward participants who are willing to fade both swing highs and lows. Neither strategy is necessarily better than the other. But failing to recognize when market conditions favor one strategy over the other can cost a trader dearly.

Trend trading is great, except when you fail to recognize a tiring market and ultimately overstay your welcome. Along the same lines, range trading can be phenomenally profitable as long as you're quick to recognize when a market is exiting a balanced condition and transitioning into a trending one. The key, as you can probably tell, is to remain open-minded, flexible and willing to change strategies at a moment's notice.  

In dealing with the current market, we must be prepared to react and change course when the imbalanced bull trend starts shooting off warning signs. To do this, the simplest way I know of is to wait for a prior session's intraday low to be taken out.

The bottom line is this: As long as the prior session's lows remain untested and unbroken, it generally makes very little sense to pursue an aggressively bearish strategy.

E-Mini S&P 500 -- Daily Volume Profile
Source: eSignal

As of Friday's close, the imbalanced/trending auction remains intact in the SPDR S&P 500 SPY and, as a result, our intraday trading strategy remains largely same. Day time frame participants are expected to maintain their bullish bias as long as demand remains strong against $195.05. Upside breaks above $195.40 are expected to be bought.

A sustained break (defined as a 15-to-30-minute-bar close) beneath $195.05 wouldn't doom Friday's buyer, but it would give our bloodied bear a small window of opportunity. All trading beneath $195.05 would encourage day time frame scalpers to sell the SPY back down toward Friday's $194.78 intraday low, with additional downside continuation targeting $194.45.

SPY -- 5-Minute Volume Profile
Source: eSignal

Additional Notes:

1. Freeport-McMoRan FCX has tested our patience for more than a month now. But, because it continues to hold above its 50-day simple moving average and prior swing low, we continue to hold on to our long position. For those struggling with stop placement, I'd consider either a close beneath $32.56 (swing low from April 11) or beneath $33.50 (the close from April 23, just before the strong upside gap).

2. Baxter BAX is another stock that's been taking its sweet time moving in our desired direction. Because I expected this stock to behave a bit better over the past four weeks, I'm inclined to nail down a closer stop and cut bait if it fails to perform. For now, anything under $71.98 (the April 11 closing low) would likely be sufficient to kick us out of this name.

Any trading- or volume-profile-related questions can be posted in the comments section below, emailed to me at parkcityyeti@gmail.com or posted to my twitter feed @ByrneRWS