Tickers discussed: SPY, QQQ, IWM, BYND, WBA
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 – Use sleep to create an EDGE
With news flow popping and equity futures cratering, its easy to get engrossed in the detail. Fantasies of grandeur for those holding PUTS or terrifying thoughts of a death spiral for those loaded with CALLS can easily dominate trader’s thoughts. I realize it can be difficult, but the right approach is to think “I will see how it looks in the morning”. Then go to bed, get 8+ hours of sleep, and wake up refreshed and alert to manage your positions with clarity, focus and inner fortitude regardless of what is on the screen. While others are bleary -eyed from being up all night chatting and simulating 100 scenarios, you’ll be fresh and alert!
One thing is certain. Since Friday, there have been 3 overnight scares that have recovered by the open. If you’ve been mortified each and every time, you are not learning the lesson that is being taught which is “Reduce overnight risk to the level you can sleep at night”. Little sympathy is warranted for those who insist on being loaded to the gills with risk when the market, at some point, decides to dive and keep on going. As I’ve been saying for weeks. Keep risk at a manageable level and don’t get too far out over your skis.
Earnings Snapshot
Pre-earning periods are typically bullish
Headlines
- Iran retaliates with missile strikes but no US casualties reported.
- Global Markets nose dive but recover
- A $BA 737 crashes in Iran killing everyone
- $TSLA Market cap tops highest ever recorded for US Automaker at $80B
Market Observations & Technical Developments
Mr. Toad’s Wild Ride
At Disney’s Mr. Toad’s Ride, its touted as a ride to nowhere. That again is exactly what happened over night as futures plunged nearly 50 handles on ES only to recover and go green as I write this. It’s the 3rd such overnight dip that has been bought up pre-market.
As I mention above in the Trader’s Couch section, please don’t become / remain complacent. One day, sooner rather than later, we will revisit those pre-market lows in the regular session. As a reminder, there are some 12 locations of interest below price that have never been tested. These are mostly unfilled gaps. So the bottom line is, participate in the upside using defined and manageable risk while knowing the technical structure is very weak. 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, despite the overnight nose dives.
Strategic Posture
Nothing has changed since yesterday. Not the levels, not the commentary. Mark the over night lows on your chart and make a note that they will likely be revisited.
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.
Strategically bullish. Fed balance sheet expansion should be bullish markets.
- Pre-earnings season is typically bullish
- 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.
$SPY Daily
Swing Traders. Over night low was $317.50 which coincides with the top of the 2nd gap below. Reminder: Gaps fills only count during the regular session. No such thing as an overnight gap fill. Prices above $322.50 remain bullish. The next level of support below is at $320.50 at the gap. If prices lose $320.50 then a move to $319 and a gap fill would be favored.
$SPY 60min chart
Bear Set up: Prices below $322.50 would be a place to try a short, but be careful because bear set ups are failing. A move below $320.50 would be a more secure place to try on the gap entry.
Bull Set up:
Stay long above $322.50. Its as simple as that. If prices break below look for support at $320.50 and then $319.
$QQQ Daily
Swing Traders The overnight low was $211.09. Most likely a momentum overshoot of $211.41 which was last week’s low.
Use the lower side of the channel on the daily chart as a toggle point for swing trading. A sell signal on the daily comes with a close below the trend channel. From the chart, that level is $211.50
QQQ 60 min
Bear Set up: Prices below $214 favor moves to $211.50 at the channel low on the daily. A break of 211.50 sends price lower.
Bull Set up: Stay long against $214. Be more cautious if price breaks below that level.
$IWM Daily
Over night low was $161.64.
The gap entry at $163.80 continues to hold. A move above $165.50 opens up room for price to run.
$IWM 60 min
Bear Set up: I’d wait for a break of $163.80 and try for a gap fill. While you could short from higher levels, I think you’d see a lot of chop. The gap fill trade is cleaner and has a higher likelihood of success.
Bull Set up:
Getting long when 163.80 held was money yesterday. If you got long, congrats. You can add to your position above $165.50 and tighten up your stops.
Trade Set ups and Charts
$BYND
Yesterday, BYND put in a nice wide-range igniting bar on big volume after a long basing period. I like it long against the downtrend line around $79. Note the big OH gap that has yet to be filled. Earnings are set for Jan 27. If you take a position, decide early if you plan to hold thru ER or exit before hand. Given the big igniting bar, there’s a good chance for upside follow thru into earnings. I like it long.
$WBA
Walgreen’s missed earnings this morning and is down about $2.50 – $3. From the chart I’ve boxed in the anticipated area where the stock is set to open.
3 potential plays.
- Let today play out, then set up a bracket trade to follow price on a break of today’s trading range in the days ahead.
- Day trade if you see followup selling or buying outside the opening range.
- Take a swing short. If price remains weak today, it will be below all the moving averages and below the trend line. You could shoot against the 200ema at $57.41. Any close above that and kill the trade. T1 = $54-$53 area. T2 = $51 T3 = prior low near $49
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