Tickers discussed: SPY, QQQ, IWM. TLT, GDX, GLD, WTIC, USD, UUP SHAK, BSX, TGT
The post provides key levels to watch and trading locations for the indexes along with a multi asset review. Timely commentary to keep you on the right side of the trade
Headlines
- US- China Trade Deal signing ceremony today at 11.30pm
- Big Banks $JPM & $CITI perform; $WFC not so much; $BAC on deck
- $BYND signs deal with key supplier for pea protein
- JUUL halts fruit-flavored pods in Canada
- Stocks soft ahead of deal signing
- $TGT Holiday sales miss; down $13 premarket
About the big, beautiful China Phase 1 Trade deal
At 86 pages in length, trade negotiation experts characterize this as a memo compared to a typical trade deal. Have you heard about the “classified annex”? That’s the list of products China promises to buy, but you won’t be allowed to see. I am not going to spend much time on this. My opinions don’t count for much in Washington. My main concern, like with all news flow, it to watch and react to the subsequent price action. The signing of the deal could just as easily be a “sell the news” event, as a “buy the news” event. The key levels are below. By watching levels instead of listening to commentary, we’ll have a much better chance of getting the trade right if there is a trade to make at all.
Key Levels to Watch
60min sell signals will trigger at the following levels
- SPY – 60m close below $327
- QQQ – 60m close below $119.75
- To view the charts and dig deeper into the levels, please refer to the post written last night. Find it HERE
Market Risk Event Horizon
In recent editions of the Daily Profit Compass I’ve discussed the bubble we find ourselves operating in and what protocols we can take to both participate in the upside while protecting ourselves from catastrophic downside risk. Find the discussion HERE
Within that framework here are the upcoming events the could trip up the market along with the forces at work to keep the bubble inflated
Potential Market Top Event Horizon
- January 13 :Earnings Season ramp – Added pressure on earnings because multiples have expanded; Misses will be brutally punished ( $FIVE for example )
- January 15: Phase 1 Trade Deal Ceremony – How come no one knows what is in this deal; Where is Xi?
- January 17: January Op-Ex – Op-Ex weeks are typically bullish. Op-Ex also often act like market pivot points
- Impeachment headlines coming
- January 28-29 FOMC Rate Decision – Rates stable; policy shift regarding REPO liquidity injections would be a game changer. Powell always has the potential for an unintended gaff.
- February 3: Iowa Caucuses – Politics will be a destabilizing factor in all of 2020.
- Geo-Politics: Iran isn’t going away.
- Round Numbers: Markets love round numbers. NASDAQ 9000 check Dow 30,000 close. Ring the Bell, pull the rug?
Bullish Counter-balances
- AAII Sentiment: Bearish sentiment is at a 6 week high. Markets usually peak on euphoria, not pessimism
- Village Idiot Gauge: Every village idiot knows we’re over-bought and extended. Lots and lots of bears; When your UBER driver give you a stock tip, be afraid
- FED Liquidity: If the FOMC is hell-bent on blowing a SPX 4000 monster bubble, they have the money to do it.
- Too many spectators: Tons of cash remain on the sidelines; The Black hole needs to suck this money in before it implodes.
Multi Asset Class Review
The $USD – $UUP
Price is up against downtrend resistance. A breakout here would foil many a pundit’s call for a weakening $USD in 2020. In the annotations you can see a rising Dollar’s impact on various asset classes. Obviously a falling Dollar would be bullish those asset classes. So back to the chart. A break below $26.05 and especially the 200ema at 25.93 put the Dollar on a solid sell signal. A breakout above 26.30 put plans for a weaker Dollar on hold. Above 26.6 and the Dollar breaks out to new relative highs
$WTIC Oil
Over the past 4-5 months, oil has seen 2 spikes due to geo-political events. Both moves were aggressively faded. Fundamentally, oil is in an over supply condition as global demand remains relatively weak. Now, from the chart, price couldn’t be at a more critical spot at the intersection between uptrend support and the 200ema. If oil breaks below price could fall as far as the low $50’s although not in a straight line. Good trading proxies are $XOP, $USO, $XES, $OIH and of course individual oil names.
Gold and Gold Miners
After an impulsive breakout from the long consolidation, gold peaked on Iran fears. That move was faded and now gold is again consolidating. I’d love to see a 20ema test before getting in again. I think gold is in an emerging bull market. That said, it is known as a widow-maker and heartbreaker. Accumulate on pull backs and look farther out in time vs a normal stock. Ride the longer trend instead of trying to game every little move.
For the miners ( $GDX ) they just had a successful 50ema test. A nice place to get long against the 50ema as your stop. Miners are a good trading proxy for gold. They usually outperform the metal.
Bonds
Thus far, Bonds are not really buying into the equity rally as they have either held firm or slightly risen as equities have advanced. The support and resistance levels on the 60min chart have worked well for tactical trading. Regard $135.50 as key support. Below this level and prices would favor a further pull back. Trader’s loaded with equity longs might want to consider tactically building a long position on dips. As long as $135.50 holds, you’ll sleep better at night knowing you have this hedge in place against your longs.
Trade Ideas and Set ups
$SHAK – Add Shake Shak to your active watch list. After a hard rug pull, price has put in a saucer bottom and yesterday had a wide-range igniting bar. The igniting bar tells us something is changing. We saw the same thing in BYND and other beaten down IPO names. There is a big OH gap to fill and a relatively close stop is available if you want to take a shot long on it
$BSX The gap down yesterday sets up a bracket trade today. Follow price on a break of yesterday range.
$TGT – Down $10 – $15 premarket on holiday sales miss. Nimble active traders my find a trade here if the premarket move is either faded or bought. Although I missed it, $FIVE had a similar set up on Monday. Price is up $18 off the opening low Monday morning
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