Morning Es Trading

Friday's Market Review

If I had told you IBM (IBM) would drop more than 15 handles, that Apple (AAPL) would close near $390 and that General Electric (GE) would suffer a 4% haircut, you probably would have expected the broad market - or at least the technology sector -- to take a bit of hit. I know I sure would. But we would have been dead wrong.

Friday's market was supported by powerful buyers throughout the utilities and consumer staples. But that wasn't all. Technology investors chose to look past the weakness in shares of Apple and IBM, and to focus instead on the green arrows found in Microsoft (MSFT) and Google (GOOG). Even the banks -- sans Goldman Sachs (GS) -- managed to attract a handful of dip buyers.

The bottom line is this: The bulls were saved Friday by unbelievably persistent buyers in a few select sectors. I haven't a clue when the current buyers of utilities and staples will exhaust themselves. But I will suggest that they might chase traditionally lower-growth companies into nosebleed territory in their quest for companies with consistent dividend growth and earnings stability.

Regarding my ongoing trade thesis in the Utilities SPDR ETF (XLU) and Consumer Staples Select Sector SPDR ETF (XLP), I remain long puts on both names, though I continued to trade around the positions throughout Friday's session. I still view both sectors as being astonishingly overbought, but one mustn't ignore the stunning breakout they enjoyed Friday. Both the XLP and XLU will remain on my radar as opportunistic shorts from both an intraday and a swing-trade standpoint, but I will give the bulls their due respect until they exhibit some meaningful sign of exhaustion.

E-Mini S&P 500 -- Five-Minute Volume Profile

Source: eSignal

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Turning our attention to Friday's auction in the E-mini S&P 500, the contract gapped several handles higher from the prior session's close. As sellers stepped in to fade the green open, buyers responded by hitting every offer in sight as the contract tested 1536.75. As you'll recall, our primary area of interest for the session was 1536.75, and while supply was available at that level for a short while, time was of the essence.

Once buyers auctioned the contract back through 1540.75 and 1546.25, the remainder of the session turned into a slow crawl. But in the end, buyers had accomplished what they desperately needed to do. They had defended 1536.75 with an iron fist, and closed the Es back above 1546.25. I still believe recapturing 1550.50 would have put the bulls on even firmer footing -- but, given Thursday's headlines and how the Es closed the prior session, I suspect the bulls will take the win and count themselves lucky.

Monday's Es Trade

Our only economic report of interest Monday is the 10 a.m. EDT release of existing-homes-sales data, but those pining for additional data need only wait one more day. Tuesday's session brings along with it the purchasing managers index manufacturing index, Federal Housing Finance Agency house-price index, new-home sale and the Richmond Federal Reserve manufacturing index.

The coming week's earnings calendar is obviously jam-packed, but let's cut to the chase. All eyes are on Apple, and for those not already aware, the company is scheduled to report shortly after Tuesday's 4 p.m. close. This should go without saying, but if you plan on holding a trading position in Apple, please make sure you're prepared to take a hefty amount of risk and endure a potentially scary and volatile after-hours trading session.

E-Mini S&P 500 -- 15-Minute Volume Profile

Source: eSignal

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As for the Es, Monday's primary area of interest is expected to be 1545.50. Should Friday's buyer remain active above that level come Monday morning, our focus will shift up toward 1550.50. I'll likely view an initial test of 1550.50 with a healthy dose of skepticism, but acceptance above that level would be expected to result in continued buying. As the bulls begin to stampede above 1550.50, additional upside targets will become 1556.75, 1561.75 and 1568, with the 1571-to-1572 area being our next major upside target.

Failure to hold 1545.50 would keep the Es trapped within our thickening composite balance zone -- and, in my view, it would encourage sellers to auction the contract back down toward 1539.75 and 1536.75. Those pining for a more enduring downtrend must remain patient. You still need to see demand collapse between 1533.75 and 1536.75.

One final thought, as you review your own trade plans: Recognize and respect the rise in volatility. Even if you are biased toward a specific direction, do not fail to recognize that rising volatility will likely require a more flexible approach.

Current conversion formula: Es (June 2013 contract) value X .100264 = SPY Value

1571/1572 = 157.51/157.62***

1568 = 157.21*

1561.75 = 156.59**

1556.75 = 156.09*

1550.50 = 155.46***

1545.50 = 154.96*

1539.75 = 154.38*

1536.75 = 154.08**

1533.75 = 153.78*

1528.75 = 153.28*

At the time of publication, Byrne was long XLP May 17 $40 puts and XLU May 17 $40 puts.