Tickers discussed: SPY, QQQ, IWM, AMZN, SLB, XOP, HAL, NOV
The Daily Profit Compass provides the stock market outlook for the day. Key levels and trading locations for the indexes are provided, along with trading plans and timely commentary to keep you on the right side of the trade
Trader’s Couch – Prep time vs Time Trading; Dealing with Impulsiveness
I never cease to be amazed at how some speculators will risk half his fortune in the stock market with less reflection that he devotes to the selection of a medium-priced automobile. Jesse Livermore, Market Wizard
“Perhaps the single best predictor of trading success is the ratio of time spent in preparation to the time spent trading” Dr. Brett Steenbarger Psychologist and Trading Coach
Impulsiveness is a psychological characteristic that is present in us all but seems to affect some more than others. It also manifests itself in different ways and at different times. A person who is described as “methodical” sometimes becomes “impulsive” when trading. You’ve probably experienced that either from time to time or a lot. If you already know you take a goodly number of impulsive trades, the first thing to do is recognize it as a problem, then work to confront it. One way to confront it is to have a lengthy pre-trade checklist to slow you down. Another idea is to require yourself a certain period of time after completing the checklist before allowing yourself to put on a trade. It’s a way to let the impulsivity dissipate. So let’s say you come up with a bright idea in the morning for a trade. Make yourself a rule that you can’t do anything with that idea until 2pm. Often times just that 2-3 hour delay will reveal that the idea wasn’t so hot. If it was a good idea, it will still be a good idea 3 hours from now. One last technique I will offer is to back off on your time frame. This is especially powerful for day traders. Back off that 5 min or 15min chart and trade the 1 hour chart. That will eliminate a lot of half-cocked trades simply by slowing down.
Headlines
- $BA to halt production of its troubled 737 Max program beginning in January
- $AMZN says $FDX is just too slow for Amazon Prime; $FDX reports after the bell
- USMCA trade agreement set for House vote on Thursday
- $WTIC Oil clears $60 as Commodities, in general, firm and advance
- ROKU CFO quits; shares off 4%. Possible day trade op if sell off is viewed as overdone.
Earnings Calendar
FDX and $CTAS after the bell; $PAYX and $MU tomorrow.
Market Observations, Technical Developments, Outlook, and Strategy
Boeing Grounded
Boeing confirmed late Monday that it will be halting it’s production line for the 737 Max in January as the inventory of completed but undelivered planes piles up. Shares are testing the lower levels of support down around $320. Also put key suppliers $SPR and $TGI on your radar. They will have less financial wherewithal to withstand a prolonged production holdup than $BA.
In the broader markets yesterday, we returned to the gap n camp market profile. Overnight gap up followed by tight trading. We did see softness into the close with IWM fading more than SPY / QQQ. 10 of 11 SPDR sectors were green led by energy up 1.34%. XLI was the laggard held down by high weighting in $BA.
Futures are flat this morning. Top of mind for traders this morning are the gaps left by yesterday’s gap up. The gaps are sizable so any gap entry may lead to a quick pullback towards Friday’s closing levels. The technical posture of the market remains bullish both from a technical and seasonal perspective.
Strategy Update: No Changes. Ratchet up stops; maintain a bullish bias ; Hunt for objective, low-risk trade locations on stocks where you can get in with a clear stop in place in case things don’t work exactly as planned. Avoid full FOMO of buying everything in sight. Dont sacrifice set -up quality because of FOMO. There is plenty of time to make money.
- Maintain bullish bias while keeping your head on a swivel.
- Set tight stops depending on your time frame; trim n trail
- Keep long exposure in balance with your risk tolerance.
- Keep some dry powder ready; to take advantage of any one n done pull backs.
- Be aware of the yellow flags; ( low volume climb, ultra low vol, poor market structure loaded with gaps ) collectively they simply mean to be careful.
- Nothing truly bad can happen unless SPY $301 fails or QQQ $194 fails. That said, those key support levels are getting farther and farther away.
- Nimble, active traders can hunt for momentum plays intra-day with the plan to close at the bell.
Market Participant Positioning. As we move forward, keep in mind that as we moved into thin air over the past couple weeks, it has been on low volume with most of the shorts either being dead or squeezed out. Having shorts in the market provide a buffer on the way down as they cover to take profits. With short exposure lower than normal, that buffer wont be there so faster downside moves can happen. Additionally, there may be weak-handed longs out there that were happy to milk every last cent of the rally but may hit the exits quickly at the first sign of trouble. These are not predictions, just a heads up that if sell-side activity ramps, prices may fall further and faster than what you’d normally expect.
$SPY Daily – Watch the gap entry at $319.22. A price move into the gap favors a move $2 lower to fill the gap.
Swing Traders. The chart is bullishly configured with the ema’s bullishly stacked and price above everything. Stay long against the breakout at $315.50 although if price breaks below $319.22 you may want to get short with a tactical hedge and play for the gap fill.
$SPY 60min chart
Bear Set up: Get short on a break of $319.22 and cover on a gap fill to $317.32 View this as a tactical trade. The charts are bullish.
Bull Set up: If price fills the gap, $317.32 would be a place to try a long w/ a tight stop below. I’d expect dip buyers to come in at that level.
$QQQ Daily
Move stops up to $206 ( new level ). This is the pivot point on the 60min chart.
Swing Traders Stay long against $206 regardless of where you entered on this cycle. A mover below $206 would likely open door to further downside.
QQQ 60 min
Bear Set up: Get short below $208.50 and look for a gap fill to $207.20. I’d be looking to cover there, but if it does not hold, a price move to $206 is favored.
Bull Set up: If the gap fills to $207.20 it would be an objective place to try a long with a tight stop. I expect buyers to come in at that level
$IWM Daily
Price really needs to hold $164 or odds favor a gap fill to $162.73. That said, big picture the chart remains constructive as long as price holds $160. Traders can add to or initiate long positions all the way back to $160 if price decides to back test those locations again. Prices below $160 would begin to tilt the chart bearish.
$IWM 60 min
Bear Set up: Short below $164 and look for a quick back fill to $162.73. I’d cover at least half there, especially if SPY / QQQ has filled their gaps.
Bull Set up:
Stay long against $164 but if the gap fills to 162.73, that would be a location to either add to or start a new long position w/ a tight stop below. Prices below $162.50 would favor a gap fill to $161 so any long positions should be exited and then look to buy back at lower prices at either $161 or $160.
************************** TRADE Updates and positioning ************
Long $KL Jan 40Cat $2.01
Long GDX long Jan 27C
Dec 15 SJM Jan 100 P at $1.70
************************ Trade Set ups and Charts ********************
$AMZN Amazon has been soggy for a while, but now price is testing $1770 which is a key level. A break and hold above $1770 opens the door to the targets shown below. The indicators are supportive of a breakout but dont front run it. Set a stop just below $1770 if you get the breakout.
$XOP – Energy is looking more and more productive. XOP is breaking above the downtrend line and is a long against $22. Technically the door is open to $24.50. Doesnt sound like a lot, but that is a 10% move.
$SLB Premier oil services name at resistance. Alarm $40. If we get a break out I like the name long with a stop just below. Very objective trade location in a sector that is perking up.
$HAL Halliburton has already broken above resistance and the 200ema. Although not as tight a set up as $SLB, notice the volume / price void above price. I still like this long against $23.50
$NOV Nice trade location here as well. A break above $24.50 would clear the 200ema and lateral resistance. First target is $26, then $27.50. Alarm $24.50 – 24.75 then get long against $24.50 or the 200ema depending on your risk tolerance.
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