Tickers discussed: SPY, QQQ, IWM, AMZN, LK, FISV, TWTR, 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 2020; Quiet the mind
Most like to imagine that Market Wizards have climbed to the top by “conquering markets”. While that may be true, in order to do that they had to first conquer their minds. After all, our minds are “unruly”. Unruly minds quietly ( or very loudly ) subvert our progress by constantly side-tracking our thoughts and actions. It really does not matter what your grand ambition is, it will be easier to have your mind working for you rather than against you. Once your mind is on your side, the rest is just a matter of getting to it. While we may have many goals for 2020, quieting our minds should be at the top of the list. Everything else is secondary. Make a plan to quiet your mind going forward. No, you won’t have a quiet mind a year from now, but you will be a lot closer than you are today. The best time to plant a tree was 25 years ago, the second best time is now. Let me know if you get stuck; here to help.
- President Trump is impeached; Market shrugs
- Quad Witching tomorrow plus major re-balancing day for ETF’s and indices switching out names. Be prepared for added volatility. Big names that have run like AAPL may get hit with forced selling as funds etc need to peel off a portion because weighting has become too large. I dont have all the details at my fingertips so you can research for more info. Just want you to be prepared for an unusual day.
- $MU up 3% on earnings. Watch this closely today. May be a tell on risk appetite. Do market participants build on gains or fade the pop?
- India bans public protest to quell rising anger over citizenship laws. ( I thought India was a democracy; Sounds like they’re kissin’ cousins of China )
$NKE after the bell.
Market Observations, Technical Developments, Outlook, and Strategy
Another day of tight, range-bound trading as the market digests a fast run up. This has resulted in both SPY and QQQ printing doji bars on consecutive days. These bars often foretell of a trend reversal, but we’ve seen multiple occasions of bearish candle set ups fail over the past few months. So while we could certainly stall here and roll over, I think the right play is to maintain a bullish bias. Your stops should be ratcheted up by now so that with any downturn you can safely exit while preserving the vast majority of gains.
Given we’ve been stuck in this narrow range for a couple days, the commentary below is from yesterday. Literally nothing has changed. Me including it here is for the benefit of new members who want to read in.
There are however new trade ideas in the lower section.
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.
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.
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
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 Set ups and Charts ********************
$AMZN Soggy day; needs to hold uptrend line or at worst 1778. Let’s see how it closes the week over next couple days.
$NFLX – Break above $315 working. With prices above $315 the door to $335 remains open and is T1. Below $315 and things get more iffy.
$LK Massive bull flag pennant projects a measured move target well into the mid $40’s. On a break above the pennant I like the idea of getting long out in time as a duration swing trade and let it grind higher in the background. With a big reward potential i think we can be a little more liberal with the stop. IMO $30 is the right location. Just below the tip of the flag.
$FISV After the break higher from its consolidation box, price is now pressing OH resistance. A move to $117.50 is a buy-able breakout with a stop just below.
Yesterday TWTR was in beast mode up 3.2% while the Q’s were up just pennies. Now, price is poised to make a move into a sizeable gap above. I plan on getting long when price clears the declining 50ema currently positioned at $32.37. My stop would be just below gap
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