Tickers discussed: SPY, QQQ, IWM, USO GDX,
The Daily Profit Compass provides the stock market analysis 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 – Upgrading friends and Social Circles
Famed inspirational author Jim Rohm states “You’re the average of the 5 people you spend the most time with”. I have no reason to doubt him. After all, we’ve heard for years “Birds of a feather flock together” and “You are the company you keep”. The point is that our community of friends and the social media circles where we hang out greatly influence us. In 2020, set out to upgrade them. That is not an indictment of anyone’s friends, its just that in order to grow individually we’ve got to upgrade the people we hang out with. It will take some effort. Seek out those that inspire you, that challenge you, that you can learn from, and that you truly like and admire. I’ve been asked “What am I supposed to tell my old friends?” To that I say absolutely nothing. If you decide to leave behind a trading chat room that you’ve concluded has not helped you, you simply disappear. No one will come looking for you. For those you’re leaving behind in the “real world” , they’ll just organically drift away. Maintaining relationships takes energy and commitment. Once your energy and commitment wane toward a group or individual, they’ll naturally fade off. In this whole process, don’t forget that your friendship with someone quite possibly will be an upgrade for THEM. Don’t underestimate how you much you can help others!
January Earnings Snapshot
Headlines
- Most Euro Markets are closed today; expect thin trading.
- Here Equities have a full session; Bond Markets close at 2pm.
- The $USD remains soggy while Gold / Silver and miners rock.
- Escape from Japan: Carlos Ghosn flees to Lebanon
Market Observations, Technical Developments, Outlook, and Strategy
Chances we could snowball.
Yesterday we saw some corrective activity for the first time in about a month, and even then wasn’t much of a sell off. Since Powell announced “not QE” the market has been a rocket. On SPY we’ve gone from roughly 285 to 324 in a straight line. We’re over-bought and extended. The Fib retracement levels for that move on SPY are $308 ( Fib 38.2% ) $304 ( Fib 50% ) and $300 ( Fib 61.8% ). That $300 level is key because that would be a back test of the breakout which would be an important technical move.
I think there is a better than 50/50 chance we see a decent correction, possibly as far as $300 on SPY where I’d think there would be motivated buyers. I think some market participants will re-position early in January and take some chips off the table. The kicker is that as long as the Fed is committed to expanding it’s balance sheet, it’s likely that the flood of liquidity finds its way to equities. I mean, this whole leg of the rally started when Powell began intervening in the Repo market. If that becomes more or less permanent it bodes well for the market at least into the Spring. As always, I will be watching the charts; they’ll guide us on positioning.To sum it up, tactically looking for a pull back. Strategically looking for a cheaper place to buy.
New Strategy Commentary
Strategy Update: I am becoming more defensive and am tactically positioned for more short-term downside; longer term, there is nothing bearish in the charts. No major levels have been violated. If you’ve got long positions, simply respect your stops and don’t be married to anything. If we get a decent pull back, you can re-buy at lower levels. I’d take a pause from piling into new longs until this light volume holiday week plays out. We will know more the week of Jan 6 when everybody is back in the chair and the new year begins in earnest.
- Tactically bearish and looking for a technical pull back. Strategically bullish. Fed balance sheet expansion should be bullish markets.
- 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
Although price has dropped below the rising wedge, price remains above the 8ema. If price falls below the 8ema at $320.65, I’d pencil in a 20ema test at $317.25. At a bare minimum I think the first gap gets filled to $319.
Swing Traders. Swing longs should be prepared to close positions if price enters the gap at $320.50 in anticipation of that gap filling to $319. Depending on your trading style a gap entry at $320.50 would be an objective location to anchor a short. On your other stock positions, respect whatever stops you have in place. itions, be aware of it.
$SPY 60min chart
The 60 min chart is on a sell signal. Moves below $320.37 would likely bring in a few more sellers to close the gap down to $319. Be aware that the light holiday volume makes the averages more susceptible to oversized moves.
Bear Set up: A gap entry would be a place to either add to an existing short or to initiate one. A move below $319 brings $317.50 into play.
Bull Set up:
Places to look for support are at $320.50, $319, $317.50 to try a long. If you’re looking to buy a dip vs trying to play the downside, I think a better short-term move is to simply let this pull back play out to see where support is established to initiate a fresh long.
$QQQ Daily
Anticipate a move to the bottom of the channel. A break below the channel would favor a deeper pull back.
Swing Traders Longs should make a tactical shift to anticipate a move to test the bottom of the rising channel at around $210. A break below will bring in new sellers.
QQQ 60 min
Bear Set up: A move below $212 will likely lead to a test of yesterdays low near $211. A break of $211 and a move into the gap favors a gap fill and lower prices. If gap support fails, look for a move to $209.50.
Bull Set up: Tactically step aside and wait for price to find support before taking a stab at a long. I think $209.50 would be an objective place to try a long. To me, locations above are more likely to fail.If we reach $209.50 and it breaks, $208 is the next level of support.
$IWM Daily
Friday’s big bearish engulfing candle was confirmed with a lower close yesterday. Price also closed below the 8ema. Breaks of yesterdays low likely brings in more sellers.
$IWM 60 min
Bear Set up: A break of $164.57 likely brings in sellers to test $163.80 to test the top of the gap. A break below favors a move to fill the gap to 162.50
Bull Set up:
Step aside for now. Look for support at 162.50 to see how price behaves. A break below 162.50 sends it down into the 161.50 area or lower.
Trade Set ups and Charts
$WTIC oil.
In premarket trading, oil is off over 1%. If you go to your oil / $USO charts, you’ll see the 60min uptrend line has broken so more downside is favored. Be mindful of any energy longs you have on. Keep those stops tight and respect them. Consider taking profits on them.
New Longs
Given the market weakness and thin holiday trading, hold off on new longs. Let this week play out and lets pick it up next week. I dont think we’ll be missing much. IMO downside breaks of support offer more opportunity short term than piling into longs on stocks that have not appreciably corrected yet.
$GDX
GDX was up 2.15% yesterday and closed on the highs. This morning it is up another 25 cents or so. For those swinging this long, I’d move stops up to $29. No reason for this to go below now. Also, if we get a nice move today, harvesting profits by rolling to a higher strike might be smart to de-risk the position and bank so coin. I like the Feb or Mar 30 calls. January exp is really only 2 weeks away so if you’re going to roll higher, i’d at least look out to February options expiration.
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