Daily Profit Compass October 28

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

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.

Earnings Calendar

Another big week ahead. Google tonight, FB and AAPL Wednesday after the bell, as well as the FOMC rate decision Wednesday at 2pm.

Market Observations, Technical Developments, Outlook,  and Strategy

Breakout!!

The Q’s hit an all-time closing high on Friday While the SPY fell a little shy. THe action was led by a stunning reversal in AMZN where the bulls erased more than $100 of losses in the name. We said on Friday morning that the reaction to AMZN earnings would be a tell for the market and it really was as the Q’s and broad market trended higher all day.

For the week, the beaten down energy shares popped on the back of higher oil prices spurred on by a larger than expected inventory draw reported Wednesday.  XLK, XLI and XLF also put in good weeks while  XLC, XLY, and XLRE lagged the market.

As I pointed out over the weekend, there is a lot of emerging strength around the globe.  The ACWI All country world index is breaking out while the German and Japanese markets are in up trends. While EEM is also breaking out on the weekly chart.  The China market still lags and needs to prove it too can get in sync with the other leading markets around the world.

Strategy Update:   Continue to pick off intra-day moves but the tight ranges on the indexes have made it harder. I migrated to some of the faster moving names intra-day.  I think gold / silver / and miners are setting up for a nice swing trade.

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.

$TLT Bonds

Bonds have been on the soggy side. Price periodically popping but then falling back to resistance. TLT has been a tougher trade over the past few weeks as the trend has morphed into sideways action within a fairly defined trading range.  FOMC rate decision this week will move the needle.

$USO  Price continues with a bias to the upside as price begins to break higher from a bull flag.  $12 and $12.10 are your upside targets.  A move back below $11.62 would be a bearish development.

SPY / SPX Broadening top

As we grind higher, keep in mind the broadening top price has carved out over the past 2 years.  Although this is a bearish chart pattern the near term charts are bullish and until we see bearish developments on the shorter time frames ( daily , and 60min ) I think we can plow ahead as long as we keep our heads on a swivel and continue to move stops up on whatever longs we do have.

In my experience, traders get in trouble when they fall into “dont worry, it will bounce back “.   Let’s rely on the technicals for the signals and exit longs when we need to, then buy them back when the coast is clear.

$SPY Daily

Swing Traders.  Above $301 and bulls remain in control. Swing traders can stay long and move stops up.  Like in August, and other times when stocks break from consolidation ranges, the breakout itself is bullish. What you dont want to see is price breaking back below into the old trading range as it signals a false breakout.  THe bear divergences pointed out are not sell signals but warning flags. On a breakout you want and expect more momentum, not less.  If PPO were to put in a bear cross and price drops back below $310, that would be your sell signal on the daily time frame. Nothing truly bad can happen above $298.  If price drops below $298 more red flags appear.

$SPY 60 minute chart

Bear Set up:  Bulls are in control and breakouts are bullish not bearish. Realistically the first objective shorting op would be if price falls back below $301.

Bull Set up:   Stay long against $301.  A back test of $301 from above that holds would  be a nice place to add to a long or start a new position.

$QQQ Daily -Breakout

Swing Traders.  Price broke out to new highs within a rising wedge. Stay long against $194 and look for a move to $197-$198 area.  Note this is a divergent high as PPO is lower when price is higher.  THat said, no sell signals exist. Nothing bad can happen if price remains above $194.

QQQ 60 min

Price broke above a consolidation area and now points to a measured move north of $197 and probably closer to $198. Note the bull flag on price. A move above Friday’s high would most likely signal a move higher.

Bear Set up:   There is no bear set up unless price falls back below $194 and / or the PPO puts in a bear cross.

Bull Set up:  Move your stops up to $194 and stay long.  A back test of $194 that holds would be a nice opporrtunity for those missing the first move to establish a long position against $194.  Anybody wanting to add to an existing long could do so at that time as well.  Expecting a move to push toward  $197 – $198.50

$IWM  Daily – Look above and fail

Price broke above $155 and the top of the range, only to return to $155 at the close of the day.  Disappointing considering the moves of SPY and QQQ which held most of their gains.   Any move below $155 would be bearish. Moves above would be constructive.

Swing Traders.   $155 is the daily pivot.  Anything above is constructive and prices below, not so much.   Prices below $153.50 are outright bearish.  The over head target is  $157.

$IWM 60 minute –

Bear Set up:   If price falls back below $155, traders can short against that level on the failed breakout.  Otherwise your next objective location will be at resistance in the $157 / $158 area.

Bull Set up:  Stay or get long against $155 and look for $157 for starters, maybe as high as $158.50.  $153.50 is the line in the sand for longs. You dont want to see price drop below this level.

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

Trade set ups

I put together a few set ups yesterday. 

If you missed the post, the link is HERE

I will send more ideas along as I complete them.  Dont forget though all the range break trade set ups created last week on all the earnings gaps. Lots of possibilities.

Need More Trade Ideas?

Each week, I sift through hundreds of charts looking for compelling, objective trading opportunities and send them to members of our group. Why not join us?  It’s FREE.  Registration takes less than 1 minute HERE

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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