Daily Profit Compass October 16

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Tickers discussed:  SPY, QQQ, IWM, TLT, USO,  JPM, XLF

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.

Earnings Calendar

More banks report this morning.  This afternoon NFLX and IBM headline tech sector earnings.  URI / CSX / AA should give us read-throughs to the economy with rail traffic and general economic activity.

Market Observations, Technical Developments, Outlook,  and Strategy

Bank Blastoff:

Markets spoke in a big way as prices across all of the indexes popped over 1%. Even IWM was up 1.22% although OH resistance blocked further advances in the afternoon trade.  Traditional safe havens were down as you’d expect with XLU / XLP / TLT / GLD / SLV all posting red figures. TLT took the worst hit down $1.71 / 1.21%. Bonds are up however in this morning’s premarket. The price action has fully negated the gravestone doji set up from Friday. A reminder that a confirmation candle triggers the set up and even then set ups can fail.   So now we have big gaps remaining below on the indexes that will have to be dealt with in the future.
Big banks led the market higher with $JPM leading the way up 3% on the back of a very nice earnings report. I was interested to learn that this was the first time in 7 years that JPM trading higher after reporting October numbers.  A nice streak to break.  If JPM’s result and market reaction are a sign of things to come for financials it would be hugely supportive of higher prices in the broader market.  At 14% of SPY, financials can move the needle if it gets going.  Before we all pencil in 3300 by Christmas, lets see how the other banks do.  We are just getting started.
From a charting perspective, looking at the XLF weekly chart, price still has work to do.  First is downtrend resistance off the 2018 high, then job 1 becomes to take out the old high at $29. Still early in the week. Let’s see if XLF can take out that down trend line.
 

Strategy Update:   The environment remains choppy within a wide range and not very conducive to multi -week swing trades.   Remain nimble and flexible in both your thinking and positioning.  If active, short -term trading is not your thing, wait for solid long-term buy or sell signals to emerge and / or trade small if at all.

ETF Mode for Earnings Season

If you have a sector you are particularly interested in or have an opinion on, seek out a liquid ETF if you want to play during earnings season. Much better than dart throws at specific companies where you will often lose.  Look to trade a basket.  In your search, make sure you understand if the ETF is cap weighted or equal weight.  For instance, $XRT is equal weighted retail, while $XLY is cap weighted and therefore dominated by AMZN and a couple other names being 50% on the index.

Risk off trades :   Soggy and consolidating

S&P Leaders

S & P Laggards

Hong Kong News:  Island Governor Carrie Lam forced to give key speech via video conference for fear of heckling and other disturbances which may have been caused by protesters.

China News:   Just waiting for tweets…….

Currency News:  Quiet

 SAFE HAVENS

Bonds.   Prices fell back. Refer to chart annotations for levels and likely reaction zones

$USO  Price lost the up channel. Traders can be short against $11.10 and look for $10.71 at the prior low.Traders becoming more wary of demand as IMF cuts growth forecast and supply keeps on coming.

On the $WTIC chart  I have the following levels as support.  $54.80 / 54.15 / $53.50 / 52.90 / 50.90  ( from the 60m chart )  

$GLD   and $SLV   No technical developments or actionable trade locations.

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$SPY Daily

Swing Traders.   Move stops up on any existing longs to the Friday high at $298.75.  The next target is $301 which may be stiff resistance. Should price get through, go ahead and move your stop up to that level as a line to shoot against.   For now, $298.75 is your bull / bear pivot.

$SPY 60 minute chart

Bear Set up:   Objective, low-risk shorting locations are as follows. 1. A rejection near $301.  2. A break below Friday’s high at $298.75   3. A gap entry at  $297.10.  4. A gap entry at $296.25 5. A break of the 60min uptrend line.  Set a stop just above your entry when and if price heads lower.

Bull Set up:  Stay long against $298.75.  A pull back to that level that holds is a place to add to or open a new long.  A breakout above $301 is a place to add or open new longs.  Once price clears a level, that is your new stop. Moves back below to prior trading ranges are bearish.

$QQQ Daily

Swing Traders.  Stay long against the Friday high and / or the downtrend line near $192.60 and look for a breakout above $194.  Should you get the breakout, move your stop up to $194.

Please note that any new high will come with bearish divergence. This is because the indicators are at lower levels than at the prior highs.  On past occurrences, this has resulted in pull backs. These divergences are NOT sell signals as they can persist or get burned through. They are simply yellow flags

QQQ 60 min

Bear Set up:   Shorting locations.  1. A rejection of new highs near $194. 2. A drop below $192.60  3. A gap entry at $191.65 4. A gap entry at $190.80

Bull Set up:  As long as price holds Friday’s high at $192.60 traders can stay long and look for a breakout above $194..  A break above $194 with a hold would be a place to add or start a new long position.

$IWM  Daily

Swing Traders: The advance halted at $152.  Traders can stay long against $150 and look for a breakout above $152 which would open door to $152.50 and $154.  Shorties need to wait for a break below the major uptrend line off the December lows or until there is a rejection at OH resistance levels.

$IWM 60 minute

Bear Set up:  If you got short at $152, hold your position w/ your stop just above in place. You can add on a break of 149.79 and 147.72.

Bull Set up:  If you are long, 149.779 is your line in the sand.  Above $152 and 152.50 you can add with an eye toward a target of $154.

**************************  TRADES **********************************

As mentioned yesterday, I am flat on swing positions.  I am actively working the levels shown above on a short -term basis.   I will present you swing ideas as they come and apprise you of official trades as well.

So I closed KRE / XOP / XLE / VIX yesterday for manageable losses.

When any new trades are taken, I will present within a tracking system to follow open / closed positions and winners and losers.

If you’ve been actively following along, there have been quite a number of winning trades from the trade set up names presented both here and on the blog.  I hope you have booked a few winners from those lists.

 Open 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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