Daily Profit Compass October 22

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Tickers discussed:  SPY, QQQ, IWM, TLT, USO,  UUP,  DOV, EEM, MCD, XRT

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

Market Observations, Technical Developments, Outlook,  and Strategy

Holding pattern

Expect almost suspended animation / holding pattern in the broad markets in front of earnings reports from BA, MSFT, TSLA, PYPL, and AMZN in the back half of the week. As we’ve been saying for quite a while, tech holds the key to new highs. While important, MCD / UPS / BA / CAT wont individually move the needle compared to the big 5 FAAMG names.
While SPY and QQQ have made grinding advances  while up against tough and stubborn OH resistance, IWM has quietly outperformed in the last several sessions.  It maybe part of a “catch up Trade” or simply the fact that it does not have the psychological overhang of new all-time highs in front of it or as much overhead resistance.
This is a BIG if, but if SPY and QQQ break to new highs AND IWM can clear the $158-$160 wall, I very much like the idea of being over-weight IWM and looking for a fast move to the low $170’s.  A lot has to happen between  before those pieces fall into place, but it’s something to watch for.
money bounce.

Strategy Update:   While sensations of FOMO are beginning to tug at me, I remain light on positions. If the Titans of Tech earnings are well received and traders blow the roof off OH resistance, I will probably succumb and get longer with selected names.  If we are really breaking out, and we are really going to take the next leg higher after what amounts to a 2 year consolidation, there will be plenty of time to buy.

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.

S&P Leaders

 

 

 

 

 

S & P Laggards

 

 

 

 

 

Hong Kong News:  20 weeks of protests that are getting more violent

China News:   Tweet bound……

Currency News:  British Pound getting whipped around by BREXIT; $USD on watch for possible roll over which would have big implications

Bonds.  Continuing to fade but now approaching a key support zone.  Time to start thinking about starting a long in case the global synchronized breakout fails to pan out.   The zone around $137.25 and $137.50  would be a good spot to nibble. If that area fails to hold, could be a gravy train short with a lot of thin air below.

$USO  Choppy action..  Alarm the upper and lower bounds of the consolidation box and “go with price” on a break.

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 still consolidating as equities push higher.  Key levels on gold futures ( /GC ) are $1492 and $1500.

$UUP  Price dropped below the falling wedge and key support.  Lower prices are now favored.  Falling $USD is supportive of precious metals and commodities.  

$SPY Daily

We are at the top of the range. A central premise of TA is that resistance is resistance unless or until broken.  Until price can break to new highs a gentle pullback is favored. That view may be proven wrong ( that is what stops are for ) but upside seems limited near turn.  If price breaks out, we will have a beautiful line to shoot against to the long side.  Trim and trail long positions.

Swing Traders.  No technical changes as we play the waiting game. Traders can remain long against the gap opening. What is needed now is a breakout for longs above $301.  Lots of bears will be wanting to fade $301 so expect a war there. I doubt it will waltz through unless a major news event pops it.

$SPY 60 minute chart

No changes. The levels remain in place as we bide time.

Bear Set up:   Sell set up comes on break of up trend line. Other 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 the uptrend line and hope for a breakout. A move to all-time highs would be a place to add or initiate a new long position.  A move below the up trend channel  is more iffy for bulls as it would likely initiate and motivate more sellers.

$QQQ Daily

Price is grinding higher into an ascending triangle pressing against the highs.  I do not expect this to resolve until MSFT, AMZN and other FAAMG names report earnings later this week.

Swing Traders. If you’ve been long from lower prices, maintain that position and hope for a breakout.  I’d be concerned if price breaks below the uptrend line off the June low as it would indicate a technical breakdown.  We are supposed to breakout here, so anything less than that becomes a sell signal.

QQQ 60 min

Price is walking up the backside of the up channel. Recapturing the channel would be bullish while falling away would be bearish.

Bear Set up:   Shorting locations.  1. A rejection of new highs near $194. – $194.50    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 $192.60 traders can stay long ( depending on your entry ) 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. Become cautious on a break below 192.60 and especially concerned with a break below $190.80

$IWM  Daily –

The game plan here has been producing nice gains as IWM has less OH resistance than does SPY / QQQ.   Continue to trade level to level while moving up stops.

Swing Traders.   On the daily time frame, Bulls are ok above $152.  If price can hold $154 bulls can look for $156.50 area as a next target.  The indicators favor a further advance.  Bearish swing traders get a confirmed sell signal below $150.

$IWM 60 minute

Bear Set up:  On a break of $153.90, get short and look for a gap fill to $152.61.  I would be prepared to cover at $152.50 where a bounce would be favored; then flip long with a tight stop.

Bull Set up:  Bulls ok as long as $153.90 holds and can keep $156.50 in their sights as a target.  Close long positions with a break below $153.90 as a gap fill is favored.  Look to re-position long at $152.50 with a tight stop below.

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

Trade set ups

$DOV  Daily Objective long against $102. Follow up to chart first posted last week.

$MCD Weekly  Weeks ago we thought MCD had further to fall. Today on earnings the stock is down $7 to around $200.  Price now at trend on the weekly chart and represents a value buy at trend.

Let price close the week and see where it stands. If it closes above trend, it would be an objective long against the TL w/ a stop below.  If price closes below trend, it would be an objective sell w/ a stop just above the TL.  Lets re-evaluate on Friday afternoon.

$EEM Weekly  –  Emerging breakout on the weekly to monitor carefully. If the $USD rolls over and / or the China trade path smooths out could be upside catalysts.

$XRT  Daily   Baby breakout working.  XRT is a nice trading vehicle to use during retail earnings season. Very liquid, equal weight, good option chain etc.

 

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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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