Daily Profit Compass December 20

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Tickers discussed:  SPY, QQQ, IWM, AMZN, LK, LEA, 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 –    Take one step at a time

 

 

 

Most things in life are marathons.  Meditation, fitness, raising kids, relationships, trading……  The axiom “Rome wasn’t built in a day”  is a reminder of it.  Take each day’s activities one step at a time and simply do the best you can in that moment. Take yourself off cruise control where we often sleep-walk through our daily routine and work on putting one foot in front of the other in a fully-conscious manner.  You’ll be amazed at how interesting and rewarding your life is when you pay attention.

 

Headlines

  • Impeachment proceedings proceed but no one I know is paying attention. Seems like a politician / media thing.
  • Quad Witching options expiration and Re-balance today. Be prepared for added vol.
  • The House approves USMCA and also passes measure to raise the age to purchase tobacco to 21
  • $SPY goes ex-div today
  • GDP at 8.30am ; Consumer Sentiment at 10am

Earnings Calendar

Market Observations, Technical Developments, Outlook,  and Strategy

Quad Witching

They’ll probably be some added vol today so keep your wits about you. There is also a re-balance happening today so there will likely be some forced / mechanical selling and buying in certain names.  Nothing to really plan for, just be aware.  For those not familiar with Quad Witching, you can find out more HERE

Broad Markets

The indexes broke higher from a 2 day tight consolidation to rise between 0.4% to 0.5%.  The action could be be described as a “relentless nibble” by the algos. Teeny tiny candles endlessly higher for most of the day with rogue red candles and mini-fades gobbled up faster than you going after Thanksgiving leftovers.

The sector summary is below. Financials and Energy slipped a little but all the other sectors were green.

 

Yesterday I published a “Sector Relative Performance Deep Dive” showing all of the sector’s relative performance vs. SPY.   These studies are very revealing. They point you in the right direction so that you can hunt for specific names within the sectors that have performance tail winds. If you missed it, you can find it HERE    

Currently, this is a FOMC – induced, liquidity driven rally / market environment with seasonal tailwinds.  Since the FED started “not QE” in early October, the market has been on a moonshot.  Now the Fed has told us they are pumping in some $500B over the next few weeks. In the absence of bad news, the market should grind higher through the end of the year.   Could there be liquidation breaks?  Sure.  Could we see a sharp 2 day pull-back?  Sure.   Has this recent rally been built on wobbly technical structure? Yes.   Even with all the possible caveats in place, I think we’ve still got to lean bullish through the new year, then reassess.

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 – Price above all ema’s which are bullishly stacked. As long as price remains above the bottom of the rising wedge, remain bullish.  If price drops below, watch the gap entry at $319.22. A price move into the gap favors a move $2 lower to fill the gap.

Swing Traders.   Stay long against the breakout at $315.50 ( 20 ema ) 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

Price broke above the consolidation range and moved toward the $322 target.

Bear Set up: A break below the rising wedge would be the first sell signal with a move to the top of the gap favored. If gap support fails at  $319.22 a move to  fill the gap at $317.32 would be favored.  View this as a tactical trade. The charts are bullish.

Bull Set up: Getting long above $320 worked. Stay long against your entry.  If price fills the gap, to $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

Price achieved the $211 target but the path of least resistance remains higher. Move stops up to  $209.50 ( new level ).

Swing Traders  Longs are ok as long as price remains within the wedge above 209.50. A break below the wedge would trigger a sell signal.

QQQ 60 min

Bear Set up: There is a strong bid under the market and sell signals have been foiled so be careful shorting. A break of the wedge is your first chance to try a short . A break below 209.50 would be a place to add.

Bull Set up: Stay long while continuing to raise stops and rolling strikes higher. Book profits as you have them. Liquidation breaks remain possible and can come out of nowhere.

 

$IWM  Daily 

Move stops to $164. Above $165.60 is a place traders can add or start a new long with a tight stop below. The posture remains bullish and IWM may outperform SPY / QQQ on a catch up trade as price remains below the 2018 highs of $173ish. .

 

$IWM 60 min

Bear Set up: First sell signal is on a break of the 60min rising wedge. A place to add to the position would be upon the gap entry.

 

Bull Set up: 

Stay long within the rising wedge. Short term tactical traders who are long should probably step aside if the wedge breaks. The likelihood of a deeper pullback is more likely when price is below the wedge. 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  Bull set up still in tact. A break above $1795 opens path to $1820.  I keep posting this because some folks are in it but also because AMZN is key to XLY. 

$NFLX –  A break above $335 opens the door to $360 on a gap fill.  Getting long against $315 has worked well. For those that got long, if price breaks above $335, roll strikes higher and use $335 to shoot against w/ a stop just below.

 

 

$LK   We got the breakout of the pennant yesterday. I like it long against $31 / $30 depending on your risk tolerance.

I took a cheap shot with Jan 3 $34 Calls. Small position. Hoping for follow through. If that happens I will roll higher and out in time.

$LEA  Parts supplier Lear is consolidating above support in a massive flag pattern that projects a big move if it breaks higher. Although reaching that target may be a lot to ask, I like the fact that price is consolidating above support than just below resistance. A long against $139 / $140 would position you well for a move higher.

 

 

$TWTR.

Price was rejected by the 50ema. On a break above, get long against $32 with T1 = 200ema and T2 = Gap fill.

 

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Notes:

The charts are and levels are provided as well-informed guidelines. That said, please be aware that exogenous events like surprise tariffs or other events can easily move price through support / resistance zones.

Also, set you stops according to your own risk tolerance. The ones I have provided are to be used only as a guide. The most important aspect of your stop is to honor them. Some trades work, some don’t. Honoring your stop will ensure your loss on a failed trade will be minimal.

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