Daily Profit Compass October 29

Tickers discussed:  SPY, QQQ, IWM, TLT, USO, CVNA, ITB, PPC, TSN, SAFM

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.

Morning Quote

Everyone gets what they want out of the markets”  Ed Seykota

If you’re not getting what you think you want from the markets, take a deep look in the mirror. You may find you want a hobby, chat room battles, or something besides money.  True, unvarnished self-examination is key.

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 and the market powered higher as MSFT gapped higher after it secured the $10B plus government cloud contract. Now that the camel has it’s nose under the tent, expect MSFT’s business to grow with the government.  It may be that MSFT / GOOGL, AMZN all end up sharing cloud computing business from government just as the top 3 defense contractors split up the Pentagon business.  There is no better customer than the US government.   And by the way, Amazon is challenging the MSFT contract award.

The BA CEO will be fighting for his job on Capitol Hill today as he faces tough questioning from Congress on the 737 Max.

Speaking of planes, the market may go into stall speed / drift higher mode ahead of the FOMC rate decision tomorrow at 2pm and with AAPL and FB earnings scheduled after the bell. Tough to see anything more than a pause today

Noticing FOMO extreme call buying creeping in as shown on my chart.  The indicator seems better at calling bottoms than tops but regardless, insert this factoid into your wall of worry chart.

 

Strategy Update:   Maintain bullish bias.  I’ve stated on the charts that nothing bad can happen above $298 on SPY.   I think you can move that up to $301 now on SPY and $194 on the Q’s. THose were the breakout levels.   I think its prudent to continue to ratchet up stops and not sit complacently by. If you’re in options, continue to roll up and out regularly harvesting profits and staying long.  I see pros do this all the time. It is one of the powerful features of options to be able to do this.  Take advantage of it.

The stock rally has whacked gold / silver and the miners. Powell could reverse everything tomorrow.  Ditto rates. Bond yield have been backing up and sending bond prices lower.

Sector ETF’s 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

Price needs to hold $136.50 or $133 comes into play. Hard to even see price on the chart. We closed at $137.26 yesterday. Falling below the big uptrend line would be bearish and open the door to $133.  FOMC on deck.

$USO  Price backtesting support at $11.60 and is down in the premarket. A break below that level and traders can be short against $11.60.

 

$SPY Daily

Swing Traders.  Above $301 and bulls remain in control. Swing traders can stay long and move stops up.  There is a gap below at $302.91 – $301.60.  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 $301, that would be your sell signal on the daily time frame.

$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 below $302.91 gap entry and then if price drops below $301. 

Bull Set up:   Stay long against $302.91 at the gap.  A back test of $301 that holds would  be a nice place to add to a long or start a new position.

$QQQ Daily -Breakout

Swing Traders.  Price gapped higher within a rising wedge creating a gap from $196.55 – $195.64.  The target move from the consolidation area has been achieved. A back test of $194 that holds would be a place to add to or start a new long position.  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

Bear Set up:   Short a price break below $196.55 for a gap fill and / or if price breaks back below $194.

Bull Set up:  Move your stops up to $196.55 and stay long.  Below $195.55 favors a gap back fill. A back test of $194 that holds would be a nice opportunity 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.

$IWM  Daily – Breakout

Price broke above $155 and moved toward key OH resistance at $157.50 – $158.50.  Clearing $158.50 would be a big technical event and quite possibly be the best opportunity of the indexes.  $170ish was the prior high from 2018. A breakout would open the door for a $12 catch up trade.  That said, $158.50 has held for over a year. Tough nut to crack.

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. 50

$IWM 60 minute –

Bear Set up:  Objective shorting locations would be a rejection at OH resistance or on a break back below $155; pile in on a break below $153.50

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

The Chicken Trade

Yesterday, China signaled the lifting of its self-imposed chicken buying ban from US suppliers.  Given the swine flu rages on in Asia and in China in particular causing massive depletion of the hog herd, China needs animal protein in a big way.  Major chicken producers are on the move. With China ramping, look for Chicken prices to rise.   THe Main players are TSN, PPC and SAFM

$KRE Breakout

$SMH Swiss Cheese Chart

Gaps riddled all through this chart makes it inherently unstable. Does not mean a pull back happens, but when it does, there is not a lot of structural support below.  Semis have been a risk on leader; when / if risk goes off, this will drop quickly.

$ITB – Homebuilders.

THis ETF took almost a 2% hit yesterday in a rising market. Alarm the TL for a potential break below which would put it on a sell signal.

 

$CVNA – Alarm $83 for a potential breakout

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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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