Daily Profit Compass Oct 27

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Tickers discussed: SPY QQQ IWM FATMAAN All SPDR Sectors

The Daily Profit Compass provides stock market technical analysis for the indexes and other market moving names. Key levels and trading locations are provided, along with trading plans and timely commentary to keep you on the right side of the trade.

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The companion video covers  the indexes, FATMAAN names and all the SPDR Sectors. Key Trading levels and trading plans along with timely commentary to keep you on the right side of the trade.

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90% Down Day

Monday saw broad based selling across all sectors and industry groups. The 90% down volume day is a sell signal in and of itself. Typically what people look for is either a 90% up day or back-to-back 80% up days to negate the sell signal.

Advance – Decline Percent Buy Signals Negated

In the Weekend Profit Navigator I showed this graph and highlighted that all of the market sub-segments except for NDX remained on AD-Percent BUY signals. That is no longer the case as  all the segments have broken well below the trip wires. What is required to re-initiate a bull signal is in the chart annotations.

Finally some PUT Buying

For the first time since May, the PUT / CALL ratio moved below the green line on the extreme-o-meter showing extreme PUT buying. Before getting too excited, lets see if this morphed into a spike low where we can mark a durable / tradeable bottom.  If you look back, this indicator has been great at nailing the spike lows in the index .  The only time in recent years that it failed was at the September 2020 low where there was no put buying.

INDEX CHARTS

All the indexes impulsively dropped into their prior wide trading ranges. This calls into question the recent breakout ( especially SPY / QQQ ) and technically makes them appear as fake breakouts / head fakes.  Now the challenge for price is to recapture those lost levels and jump back above the breakout levels. Normally after a 90% down day you’d expect some further downside follow through but this is 2020 after all and we’ve seen plenty of whipsaw signals and fake moves. Its a very headline / news flow driven market and the election isnt helping matters any. The biggest catalyst between now and the election is big cap tech earnings. I expect the numbers to be good, but guessing if the market buys the news or sells the news is above my paygrade. We will have to wait and see.

Positioning

Prior to yesterday I was willing to give the bulls the benefit of the doubt and had a modest number of long positions. Yesterday changed that. With all the indexes moving impulsively lower and below their breakout levels, I closed all my longs in the morning. That decision looked right as most declined further in the afternoon. I plan to take advantage of the short term elevated vol to work intra-day set ups while waiting for solid sell sets ups to trigger or for big cap earnings and the election to pass and for a buy trigger to re-initiate longs.  So, to make a long story short, I’ve largely stepped aside.  Have of making money is to not participate when the chances of losing money are elevated.

SPY 4 hour

Nice clean down channel to watch. A buy signal would be triggered on a break above the channel.  THe area I am focused on is the green shaded ellipse at $332.50.  THat area is the 61.8 fib retracement of the move and at a well defined support level. THat would be a nice place to bounce. If price cant hold that level there’s a good chance price finds the bottom of the box near $322 which is the technical target with price re-entering the prior trading zone.

SPY 30 min

The $3 gap was not completely filled. The $341.50 level then the downtrend line of the channel are overhead resistance.  Note the open gap above left behind by yesterday’s gap down open.

QQQ 4 hour

Nice 4 hr channel contains the recent price action. The green ellipses mark areas where I am looking for support / bounce. Any break below $270 would target $260 at the bottom of the box. A break above the downtrend channel would trigger a technical buy.

QQQ 30min

Lots of OH resistance comes in at $282-284.  A break below yesterdays lows at $277.50 puts price in a gap and would target $275.

IWM 2 hour

Despite the hit yesterday the posture of IWM is better than SPY / QQQ.  IWM tested the lower gap but did not fill it. Recapturing $160 would put price on better footing.

IWM 30 min

I dropped in the fibs to gauge the bounce. Note the gap between 163-161 that will eventually need to be filled.

 

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