FED Liquidity in Control

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Tickers discussed:  SPY, QQQ, IWM, AMZN, LK, AZO FDX,  NFLX GDX GLD

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

Trader’s Couch –    Goal Setting 2020; Kill 2 birds with one stone.

 

 

 

 

 

In recent days, I’ve tossed out a few ideas on how you can improve your trading in 2020 along with a simple 10 step framework to accomplish those goals.  As you begin to consider the possibilities for yourself notice that most revolve around conquering some aspect of yourself vs some outside force.  Whether it be giving up financial media or upgrading your social media friends, they are acts of personal discipline or choice.  If you choose to go down that path, your personal growth will have a profound impact on those around you and quite possibly without you ever knowing it.  Your family will notice a positive change, so will your workmates, and even acquaintances.   The people in your sphere of influence will feel your determination, resolve, and inner fortitude as you work on yourself. You’ll be inspiring to them. So as you work hard in 2020, you’ll also be helping others. There is great leverage and power in that.

Headlines

  • Stocks at record levels
  • Global banking job losses for 2019 stands at 77K.  Most are in Europe.
  • Gold has best week since August.

Fear / Greed Index

 

Market Observations, Technical Developments, Outlook,  and Strategy

Fed Liquidity in Control

Another day of light holiday trading that followed the Gap-Camp-Ramp market profile. One stock that did not follow the market was Amazon which was up a staggering 4.5% / 80 points.  Just glancing at its chart, the candle on this bad boy was the biggest of the year. Its an igniting bar fo’sho! Look for Amazon to follow through in the weeks ahead.

In this thinly traded holiday market, there are many forces at work that want to see this market keep going higher.  First off, the financial industry’s bonuses are linked to performance. I doubt many are lining up to sell into year end. Retail isn’t selling. Media is still pumping hard. And the most important market participant is the FED who told you 3 weeks ago they’d be using a super-sized fire hose ( $500 Billion ) to quash any repo sparks or other liquidity issues heading into the new year. All that liquidity is finding it’s way into the market. I think its why we are seeing all the gains over night and in the last 15min of the regular session.

Long story short, yes it will end badly, but enjoy the ride at least through January 2.  Given that I make mistakes, continue to raise stops and keep risk at a comfortable level.  This isnt going to end with a lazy rounded top.  I think we’ll see a sharp liquidation break one random afternoon that snowballs quickly into something more. So have all your trip wires set up ahead of time and know where the exits doors are in the crowded theater.

Sector Performance:   $AMZN powering XLY

 

Strategy Update:  No Changes. Ratchet up stops; maintain a bullish bias ; Hunt for objective, low-risk trade locations on stocks where you can get in with a clear stop in place in case things don’t work exactly as planned.   Avoid full FOMO of buying everything in sight. Dont sacrifice set -up quality because of FOMO.  There is plenty of time to make money.

  • Maintain bullish bias while keeping your head on a swivel.
  • Set tight stops depending on your time frame; trim n trail
  • Keep long exposure in balance with your risk tolerance.
  • Keep some dry powder ready; to take advantage of any one n done pull backs.
  • Be aware of the yellow flags; ( low volume climb, ultra low vol, poor market structure loaded with gaps ) collectively they simply mean to be careful.
  • Nothing truly bad can happen unless SPY $301 fails or QQQ $194 fails. That said, those key support levels are getting farther and farther away.
  • Nimble, active traders can hunt for momentum plays intra-day with the plan to close at the bell.

 Market Participant Positioning.  As we move forward, keep in mind that as we moved into thin air over the past couple weeks, it has been on low volume with most of the shorts either being dead or squeezed out.  Having shorts in the market provide a buffer on the way down as they cover to take profits.  With short exposure lower than normal, that buffer wont be there so faster downside moves can happen.  Additionally, there may be weak-handed longs out there that were happy to milk every last cent of the rally but may hit the exits quickly at the first sign of trouble.  These are not predictions, just a heads up that if sell-side activity ramps, prices may fall further and faster than what you’d normally expect.

$SPY Daily – Key off the uptrend line. Hard for bad things to happen as long as price stays above. Breaks below and things get more iffy.

Swing Traders.  The chart is bullishly configured with the ema’s bullishly stacked and price above everything. Consider moving stops up to at least $317.50 which is the daily pivot. For those that are more conservative, raise stops to $320.25 which is just inside the first sizable gap.

$SPY 60min chart

Note the bull flag measured move target of $322. A break above $320 gets the ball rolling.

Bear Set up:  The first actionable sell signal would be on a break of the 60min uptrend line.  If you’ve been trying to call a top on this market the whole time, please stop. It’s been a losing trade.  Wait for an objective signal then fire away.

Bull Set up: Stay long. Try to buy random dips in either SPY or your favorite stocks. Keep stops snug.

 

 

$QQQ Daily

I re-drew the price action as an up channel. We may see some resistance around $216.  Consider raising your stop to the 209 – 210 area.

Swing Traders  Stay long with price inside the channel. Dips back to the low side of the channel can be viewed as value buys as long as the channel holds.  You can also use the low side of the rising channel as your stop.

 

QQQ 60 min

Bear Set up: A break of the rising channel would be your first objective sell signal.

Bull Set up: Stay long. Keep rolling strikes higher and out in time to keep pace with the advance. Although it may seem scary, stay long against a rising stop.

 

$IWM  Daily 

Price continues to advance but the pace has slowed. Depending on your time frame you can be long against $165.5, $164, $162.50, or $160. For me, I’d like to see you use $165.5 as your stop. No real reason to hold while a larger pull back forms. You can re-buy at lower levels once storm has passed.

$IWM 60 min

Bear Set up: Price has already moved below the TL so technically it is vulnerable. I think a short below $165.50 is objective. Try to get confirmation from QQQ / SPY.

Bull Set up: 

Stay long against $165.5  but if price drops below that level I think we’ll see a deeper pull back.

 

 

 

 

************************ Trade Set ups and Charts ********************

$AMZN  Wide range igniting bar now favors more upside. Above $1875 opens door to $1950. 

$NFLX –  A move above $336 opens door to a nice gap fill opportunity.

 

 

$LK   A move above $36 gets this one going again after an explosive move out of the bull pennant. I still think it finds the low 40’s.

$FDX  Instead of going down, price is threatening to fill the upper gap. A move above $152.50 moves price into the gap.

 

$AZO.

Gap is filling and a price move to $1185 is favored.

 

$GDX

A move above $29.25 with a hold opens the door to the next level higher. Dont get frustrated if it hesitates here. We’ve had a fast, impulsive move that may need to be digested.

 

$GLD

Clearing $142.50 is the next hurdle. Like GDX, dont be surprised with a baby consolidation here. I think we are going higher.

 

 

 

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