Tickers discussed: SPY, QQQ, IWM, ABMD, ANSS, IGV, RUN, PPC
The Daily Profit Compass provides the stock market outlook 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.
Quote of the Day
In addition to being beneficial to our health, calm minds bring inner strength and confidence to our trading and trading life. Turbulent and ever-changing market conditions require a calm mind to counter-balance the force. The result of a turbulent market met with a chaotic mind isnt pretty. Whatever you can do to calm your mind whether it be through meditation or some other process will benefit you in many ways across your entire life experience including trading.
Market Observations, Technical Developments, Outlook, and Strategy
Is the balloon deflating?
Although when given in real-time, Trump’s Talk was greeted with a collective shrug from the markets yesterday, now with the markets flashing mildly red, the narrative morphs into “markets confused on trade” It is amazing to me how these narratives change. Could the red be simply a case of too much too fast and a market in dire need of burning off some over-bought conditions?
We’ve been strung along on trade for months and months and months. It will be what it will be and will unfold on its own timeline. It is not tradable. What is tradable is price, so stay focused on trend lines, indicators and your stops.
Yesterday the DJIA was unchanged for only the 3rd time in 25 years. The other market indexes were mostly unchanged so to has the technical picture remained mostly unchanged. SPY / QQQ have broken out and printed a series of divergent highs as price has moved higher and indicators lower. IWM has been capped by long-standing resistance at $160. The balloon isn’t deflating yet, but we need to watch it closely here.
The Hong Kong situation continues to deteriorate as pro-government citizens are now clashing with protesters. Lists are floating around labeling companies as pro-government or anti-government sentiments. Worth watching closely. The Hang Seng is starting to flag under the relentless protests.
This morning CPI data comes out at 8.30am and Chair Powell speaks at 11am. Also, the impeachment hearings go public today.
Strategy Update: No changes. In my opinion, now isnt the time to mash the gas pedal. While there are no sell signals and therefore no reason to close out whatever long positions you may have, that also does not mean to add meaningful new longs. The near-term upside seems very limited given where we are both in terms of price and sentiment. I think the upside is limited. Therefore…
- Maintain bullish bias while keeping your head on a swivel.
- Set tight stops depending on your time frame.
- Keep some dry powder ready; a back test that holds would be a great place to anchor new longs.
- Be aware of the yellow flags; ( low volume climb, ultra low volatility, excessive bull sentiment, excessive call buying ) collectively they simply mean to be careful.
- Nothing truly bad can happen unless SPY $301 fails or QQQ $194 fails
- 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 is set to open around $308. As price moves, keep an eye on price in relation to the 8ema which is currently positioned at $308. The first signs of a pullback is when price begins to close below the 8ema.
Swing Traders. Above $301 and bulls remain in control. Swing traders can stay long but move stops up to $307.66. Below $307 you’ll probably see added selling pressure. A back test of the break out is a common technical move so no one should be surprised if we pull back to $301 where the breakout happened. If the rally is for real, there should be a boatload of buyers at that level ready to BTD. Bottom line, have a long bias and a short leash.
$SPY 60 minute chart
Bear Set up: Price breaks of $307 and $304.75 would be places to initiate or add to short positions. Trade level to level and don’t get too far out over your skis. The Bulls remain in control with no significant sell signals in place so at this point, any corrective action is within the context of an uptrend
Bull Set up: Support zones are at $307 and $304.75. Traders can nibble on long positions with a tight stop below and play for a bounce. A smarter play may be to wait for a gap fill to $303.33 before trying for a meaningful long try.
$QQQ Daily – Price set to open around $200.50 with the first meaningful support level at $199.85
Swing Traders. Watch price and its relation to the 8ema currently at $200. So breaks of $199.85 would probably bring in sellers. Hard to tell how many weak-handed longs there are in the market but dont be surprised with a quick downside move if the snowball begins to go downhill. Honor your stops. The big re-grouping level will be $194 on the back test of the break out.
QQQ 60 min – . Bear Set up: $199.85, $199, and $197.63 are price support levels and objective places to either add to or initiate short positions. Like SPY, QQQ is in an uptrend so keep it real on position-sizing. Bulls may decide to defend any of the levels listed above so be ready for bounces.
Bull Set up: Honor what ever stops you have in place. Watch price action at / near support levels for signs of buying. No need to be a hero here. Let the selling play itself out and look to re-position long on a pull back. The lowest risk entry will be $194 on a back test of the breakout if we go down that far. Way to early to tell. Play level to level.
$IWM Daily –
Price set to open near $157.50. This is the last minor level of support before falling back into the trading range.
Simple Simon set up. Long against $157.50 and short against $157.50 with a break below. Notice the posture of the PPO as it flattens and begins to roll over. If you do see a break below $157.50 and decide to get short, buy some time on your puts. This is a perfect low-risk objective trade location for a longer term short position. Place your stop just above
$IWM 60 minute Key off the commentary above. $157.50 is a key location. Below would mark yet another failed breakout and thus could open door to much lower prices. A move back above $158 would keep hopes alive for the bulls.
Bear Set up: Short below $157.50 w/ stop just above.
Bull Set up:
Above $158 and bulls are ok. A break above $160 breathes new life into IWM with a chance to make a run at old highs.
************************** TRADES **********************************
Trade set ups
$PPC – The chicken trade is back on! Alarm this one for a breakout above $32.25 – 32.50 which would open the door to a blue sky move. Please also look at $TSN and $SAFM, the other 2 main chicken producers. They too are making moves.
$ABMD – Huge gap above price. Alarm the gap entry for a possible move to fill the gap. Targets are shown.
$IGV This is the software ETF which is a great way to play a basket of names. It has been consolidating in a $17.50 wide trading range and is now at the top end of the range at a key spot. A break above $222.50 would target $240; a rejection here would favor a move back to the bottom of the box. Alarm for a breakout, but watch closely for a rejection, especially if the market decides to meaningfully pull back.
$ANSS Emerging breakout in this software name.
Please note…..keep in mind my commentary from above. We dont have any broad market sell signals but we dont have the marginal new buyer either. Stay nimble and flexible. Maintain whatever long exposure you’re comfortable with but with a tight leash / stop. Since I have no idea what you have, I am offering ideas and set ups that look promising to me. Be selective and take what looks good to you and in the context of your existing positions.
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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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