Tickers discussed: SPY, QQQ, IWM, AMZN, XLY, ALV, MGA, HD, NFLX
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 – Goal Setting for 2020
I want to spend a lot of time over the next few weeks discussing goal setting and the action plans we as traders can take to improve our trading next year. To start off Dr. Brett just published an article in Forbes discussing the importance of including vision in our goal setting. It’s probably a 5 – 7 min read; check it out at your convenience. Find it HERE
Headlines
- House set to vote on Impeachment today
- $FDX tanks again as it reports yet another disappointing report and says it cant see a light at the end of the tunnel yet
- Unlike Hong Kong, Macau chooses Xi over democracy.
- Oil inventories at 10.30am >>> Watch /CL , XOP and other energy plays for reactions
Earnings Calendar
$PAYX and $MU highlight today’s earnings report.
Market Observations, Technical Developments, Outlook, and Strategy
FedEx Fumble Fatigue
After the bell last night, $FDX reported yet another disappointing earnings call in what has been a long string of them. It’s baffling. $FDX is supposed to be the cream of the crop and a global bell-weather that has it’s finger on the pulse of global trade. But as $FDX struggles, $UPS continues to shine in relative terms as it rationalizes its resources with global demand. Not long ago I viewed $FDX as a canary in the coal mine for global growth. Now I am not so sure. It seems so disconnected with peers. On the chart below you’ll see the importance of the $150 level. Above keeps the chart open to possibilities, below and lower prices must be expected.
Broad Markets
SPY and QQQ indexes had a choppy, narrow range consolidation day while IWM managed to gain 0.50% and post a 52 week closing high. Precious metals and bonds didn’t do much either. At the individual stock level, the drug distributors ( $ABC, $CAH, $MCK ) and retailers ( $CVS and $WBA ) all saw selling as more opioid litigation headlines attack them. The energy complex continues to do well with lots of E&P names dotting the leader board. As long as Oil holds $60 the energy names should perform; below $60 it gets more iffy. Oil inventories hit the tape at 10.30 this morning. Not to be forgotten, $NFLX and $AMZN had nice days and both look motivated to go higher. Charts below.
Nothing changes on the strategy. Remain bullish until price informs us differently. Short term downside risk are the gaps below from the Monday open. 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
Note the bull flag measured move target of $322. A break above $320 gets the ball rolling.
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: Get long on a break above $320 and look for $322. 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
Note the bull flag measured move target of $211. 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: On a break above $209.50, get long / add to your long / roll higher / and look for $211. On the downside, 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 offered traders a very nice entry as gap support held at $164 and bounced higher from there to put in a decent 0.5% gain. These are the type of low-risk, objective trade locations you should be looking for and attuned to.
Shorter term traders can move up there stops to $164; moves below favor a gap fll to $162.73. 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 Beautiful move and take out of T1 leaves door open for move to $1820. If you’re in it move stops to $1785 and stay long. For others who decide to get in now, use $1785 as your stop. Although I do not show them, the indicators are supporting higher prices. Any back test of $1778 can be bought w/ a tight stop. Any price move back below $1770 would be bearish and signal a failed breakout. Obviously we dont want to see that.
$XLY A cheap way to play $AMZN which is 22% of the index. Anchor a long at $124 with a stop slightly below. If Amazon rips, you’ll see it in XLY. Above $124 is blue sky for $XLY so lots of technical traders will be motivated to be long as the breakout emerges.
$NFLX – Making a stealth comeback while everyone talks about $DIS. Price at a key spot. Above $315 I see $335 as a first target. While not completely out of the woods, the chart is looking much more productive. If getting long, the 200ema at $211 provides a simple location for a stop. Above ok, below and get out.
$HD The set up to get long on a break above $215 is working. I think this is still a viable long trade against $215. Strong option flow into name with Jan 220C and Jan 225 C seeing strong interest. My T1 = $223 and T2 = 230 out in time 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.
$ALV and $MGA Auto Parts suppliers continue to do well as a group. These 2 names are breaking out on the weekly charts. Both have similar upside potential. I think selecting one or the other if you like them is the way to go to get exposure to the group. If getting long, go well out in time 3mo or more and let these grind away in the background. They likely wont be rocket ships but steady performers. Set a stop just below the breakout level. Both are low-risk objective set ups with stops very close by.
$FDX.
The recent run up off the lows appears to be a head fake in hindsight. Now $150 is the rubicon. Above and the stock remains technically alive. Below $150 and the prior low of $137.50 becomes the first target. Keep in mind, this is within a back drop of a raging bull market. Broad market corrections will only add to FDX pain below $150.
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