Daily Profit Compass January 17

Tickers discussed:  SPY, QQQ, IWM,

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 –    Will Return

Earnings Snapshot

Pre-earning periods are typically bullish

Headlines

  • January Op-Ex is today; potential hi-volatility day
  • Impeachment trial set to begin
  • CSX 2020 guidance is flat to down 2% ( this economy just keeps humming along )

Market Observations & Technical Developments

Enjoy the Ride

I was met by computer problems early this morning that have really put me behind the 8 ball, so i will keep my remarks to a minimum.

As the market continues it’s torrid advance, the volume of those asking why or those twisting themselves in knots to justify current valuations is ever increasing.

Jerome Powell knows why because he saw it very clearly in 2012 and discussed it in specific terms at FOMC meetings.  Sven over at the Northman Trader did a nice write up on it. It you want to take a deeper dive, find his post HERE.   But the quote I have been harping on for quite some time comes from Jesse Livermore which is “what the dickens does it matter” .    A philosophy that worked great 100 years ago works even better now.   Until further notice, keep your seat belt fastened, enjoy the ride, and know it will most likely end in a fiery crash.  You only other options are 1. try to call a top ( been a losing game )  2. Go to cash and wait. ( there is opportunity cost, but perfectly fine )  For me, this is what I am doing.

Stay Long / Continuously raise stops / Harvest profits along the way / Keep risk manageable knowing a massive rug pull could come at any time

 

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
  • Week of January 20:  Impeachment Trial to begin
  • 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 –  Bernie surges in Iowa; 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.   SPY 3300              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.

Remain vigilant.  The recent vol expansion is a sign things are changing. Liquidation and overnight risk remains elevated. The trap door can open at anytime for no reason.  Take risk down to a level you’re comfortable knowing that if another overnight episode occurs, no lasting, catastrophic damage will happen to either your account or your trading psychology.   If you’ve been waiting for a market top, remain patient and wait for a sell signal confirmation. If you’ve been front running the sell signal, you’ve been losing. Trade small if at all. Bulls remain in control.

Strategy Update:   The daily time frame charts are still bullish; 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.

 Stay tactically Bullish.

  • RAISE stops to Yesterday’s LOW on the indexes. GAPS Below this level across the board.
  • Pre-earnings season is typically bullish; FED liquidity is bullish;
  • Op-Ex can often be pivot points for the market. Next week will be really important. If you are loaded to the gills long, make sure you at lease roll higher and / or lighten positioning.
  • 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; bearish divergences; 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.

$SPY Daily

Consider raising stops to $329.50 unless you are ok with price filling gap and dropping to $328 – $324 range as a first move lower.  

Swing Traders. Keep $327 in focus. Above ok for bulls, below more iffy with a move to $325.50 favored. 

 $SPY 60min chart

Bear Set up:  THe gap below is at $328.45. Sharp, nimble traders can try to be short for a gap fill to $328.19. Keep in mind, most bear set ups have been failing.

Bull Set up: Stay long above $328.45.

$QQQ Daily

Swing Traders  Price is at the top of the channel. Typically you’d expect price to tag the top rail and react, but this market is so strong. it may simply blow through.  Stay long against $220.80 which is the top of the gap.

 

QQQ 60 min

Bear Set up:  Break of $220.80 would open door for a likely gap fill to $220.17.  A breakdown below $219.75 would likely bring in some sellers

Bull Set up: Stay long against $220.80.

$IWM  Daily 

Stay long against $168.43 unless you’re fine with a pull back to $167. Below $167 favors even lower prices. Price needs to punch through $170. Above $170 is an objective place to either add or establish a new long position.

 

$IWM 60 min

Bear Set up: $168.43 is the gap opening for a potential gap fill to $167. 37

Bull Set up: 

Stay long against $168.43 and look for $170 to be taken out with conviction..

 Trade Set ups and Charts

For the sake of time now, I will put together some added set ups and send to you under separate cover.

A few names you can look at on your own are

$HON and $OKE testing  breakouts

$UNH broke out yesterday.

 

 

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