Tickers discussed: SPY, QQQ, IWM, BYND, WBA, XHB
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
Pre-earning periods are typically bullish
- Risk on returns as Iran fears fade
- $DAX knocks on door on it’s f All-time High; I thought they were in a recession?
- Oil back below $60
- OXY begins aggressive layoffs
- $COST Dec sales shine
Market Observations & Technical Developments
Risk on returns
After a series of scares, the fears of US – Iran escalation dissipate, risk-on returns to the market. Traditional measures of risk-off assets, like TLT, Gold, and YEN, are all backing off.
I suspect that the tone of the market will be bullish through January op-ex on the 17th as earnings season begins to kick in. From there earnings will need to carry the load and the FED needs to keep pumping liquidity like mad as they have been. FYI – the next FOMC meeting is Jan 28 – 29. Until the meeting, keep your finger on the pulse of the FED’s repo operations / balance sheet expansion. If you see it go flat or down, be very afraid. FUN FACT: Since inception on Oct 3, the FED’s balance sheet has risen in all but one week. The one week it didn’t the SPY was red on the week. Every other week was green. It’s hard for markets to go down with FREE money being supplied to the tune of $425B so far. Also, early January positive fund flows should continue until the 15th.
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.
- Pre-earnings season is typically bullish; FED liquidity is bullish; Next week’s OP-ex 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; 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.
Consider raising stops to $322.50. That is the mid-point of the recent trading range. Below $322.50 would favor a move to $320.50 and if that fails, then prices are rolling downhill as the gap fills to $319. Keep in mind this stop is for shorter term traders that don’t want to hold through pull backs. For longer term traders, the 20ema is at $320. If price cant hold the gap fill at $319 then lower prices are favored. So, to my eye, $319 is a good stop for longer-time frame swing traders
Swing Traders. Keep $317.50 highlighted; the Tuesday night low. It’s a natural target that will at some point be re-visited. 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. On the upside, the break above the $4 wide trading range implies a measured move to $328 – $328.50. For this to happen price must hold above $324.50 or else price falls back into the trading range.
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.
Swing Traders Keep $211.41 highlighted for a re-visit in the future. Short term traders should consider raising stops to $214, $215, or even $216 depending on time frame and your risk tolerance. If any of the above levels break, odds favor a move to the next level lower.
Longer-term traders can use the nice price channel on the daily chart. If price breaks below the channel, odds greatly favor a bigger move lower. Alternately use the rising 20ema for a stop.
Sell signal triggers on a break of the channel.
Bear Set up: Breaks of $216, $215, and $214 are minor support levels where shorts can be initiated or added to. Keep tight stops. The trend is up and bulls are in control.
Bull Set up: Use the minor uptrend line on the 60min as a guide. Pull backs to the uptrend line can be bought with a tight stop below.
Highlight the Tuesday night low of $161.64.
The gap entry at $163.80 continues to hold. A move above $165.50 opens up room for price to run.
Bear Set up: A break of $165 likely leads to another test at $163.80 but the ride maybe choppy. For me, I’d wait for $163.80 to fail, then hit it. Target would be $162.50
Bull Set up:
A long above $166 has $1 of upside until OH resistance at $167. Above $167 and the prior highs above $170 come into focus.
Trade Set ups and Charts
Much better set up this morning than yesterday. Nice back test of the downtrend line offering a tighter stop. I like the idea of getting long against $80 with a stop just below. With earnings Jan 27 there should be bullish sentiment ahead of the print.
Set up a bracket trade with the levels shown on the chart. Although the true bracket trade set up does not have a bias higher or lower, in this case with the 200ema and lots of other OH resistance above, I’d lean more to the bearish side on this one.
Home builder ETF has a tight consolidation range working and is poised to breakout. Alarm the levels shown. FYI – When I visit a chart and set an alarm, I always alarm the downside because I will never remember if the market or a stock rolls over. In this case, although I favor an upside move, if price drops below $45 I want to be all over it. Also note $ITB is also poised for a breakout. You may also want to check out that home builder ETF
Do something different in 2020
Join our Trading Tribe!!
While I can’t promise that joining our group will change your life, I’d like to think joining our tribe will help your trading.
Our group of aspiring traders are into active swing trading using technical analysis to find objective, high-probability, low-risk trades. Using these processes we’ve been fortunate to be winning; not perfect but winning. If that is appealing to you, join us! I’d like to think you’d benefit from the work. You’ll get premium content 6 times a week including a copy of my Daily Profit Compass, Weekend Profit Navigator, and Trades about to Happen along with other actionable content delivered directly to your mailbox. Registration is simple and FREE Visit our homepage HERE