Tickers discussed: SPY, QQQ, IWM, XBI, XHB, AMBA, XLE
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
Consistent, profitable traders don’t master markets, they master themselves. Part of that is calming the raging forces and emotions within the mind which leads to inner fortitude and quiet confidence. Many accomplished traders employ meditation as part of this process. I encourage you to explore ways to quiet your mind because without a quiet mind, you’ll have a tough time navigating the wild waters of the market.
- Stocks advance on yet more trade optimism; Tariff Day Dec. 15 is 10 days away
- Amazon facing broader US anti-trust scrutiny
- Saudi Aramco set to announce IPO pricing
- OPEC Ministers meeting in Vienna as we speak with a world awash in oil
- $BA’s top engineer, deeply involved with the 737 MAX, retiring as $UAL places $7B in orders with Airbus
- Jobs Report Tomorrow
Earnings Calendar $FIVE set to open $5 higher and $ESTC set to open $10 lower after earnings. Nimble active traders may find trading ops here along with $DG $KR $DLTH reporting before the bell. $ULTA $OKTA $ZM $DOCU headline AMC earnings.
Market Observations, Technical Developments, Outlook, and Strategy
The market had a relatively strong bounce after 3 days of declines. Near term support has been established at $307 on SPY and $199.50 on QQQ. Any breaks below those levels opens the door to lower prices. You can label these levels as first support on your daily charts. Yesterday, the bounce was stopped on both SPY and QQQ at key levels we had identified and marked Wednesday morning. The market profile of overnight gap, daytime camp, and closing ramp seems close to returning..especially considering we’re set to gap up again this morning. I was of the belief that the pull back was not over but if prices drive much higher, that thesis will be significantly weakened. I will identify the key levels below.
XRT – up 0.71% KRE – up 1.36% IWM – up 0.69% SMH – up 1.47% TLT / Gold – both backed off IYT – up 0.66% IBB – up 1.05%
This morning we will have another gap below to contend with off the open. Although the pullback on Monday and Tuesday repaired some open gaps below, yesterday’s action and now this mornings probable gap open higher, the price action is simply creating more open gaps at new locations. Said another way the pull back really hasn’t repaired anything. It will matter at some point but probably not today. Just file the info away; we’ll dust it off if it looks like the downside will be explored further.
Strategy Update: The bounce is at a key spot. Much higher and it would look like the pull back was a “one n done” affair. Market believes a trade deal will get done by next Friday, or at the least the new tariffs will be delayed.
- 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; a back test of the breakout levels that holds would be a great place to anchor new longs.
- 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 – SPY recaptured the 20ema which is bullish. A move above $312.50 and the 61.8% fib retracement zone greatly diminishes the possibilities of another downward push. That said, gaps below will naturally act as magnets if any downside corrective activity resumes.
$SPY 60min chart Bear Set up: $312.50 is the last line in the sand for bears. Anything above can only be bullish. I’d cut losses and look to re-group if price moves above $312.50 and appears stable.
Bull Set up: No Changes. Recapturing and holding $311.64 would be a place to add or initiate a long. Also, a move above $312.50 would be a place to add. Lastly, if we get a move down to $307 that holds it would be a second chance to enter a long at a great trade location.
$QQQ Daily Here too price closed below the 8 and 20emas. The 50ema lies at $197.64 where a gap is also located. Might be a logical target if more selling resumes, but for now focus on the potential gap fill and reversal zones.
QQQ 60 min Bear Set up: A rejection at $203 looks like the first objective location for a short. There will also be resistance at $203.50 if it makes it that far. The 50ema sits at 197.64 and is the first target if downtrend resumes.
$IWM Daily Simple set up here. Above $160 is bullish, below $160 is short term bearish. Keep it visual. A move and hold above $161.25 is a place to add or initiate a long position. If you bought the dip, move your stop up to at least $160.
$IWM 60 min Bear Set up: No bear set ups above $161.25.
Bull Set up: Bulls can add or initiate longs with a move and hold above $161.25 with a tight stop below.
$KL long Jan 40C / GDX long Jan 27C / XRT short w/ Dec 44P no action; holding all for now.
PANW Dec 6 227.5 / 230 / $232.50 call butterfly. Short term lotto w/ 6 to 1 payout with pin at $230 on Friday. Was intrigued because PANW showed relative strength in a bad tape. Price is just on the edge of the pay window. Keep in mind, this is a lotto. I bought 3x contracts at 39c. Less than $120 in the trade.
**************************** Trade Set ups and Charts ********************
$XLE – THe weekly downtrend line has contained all the advances. If you’re interested in energy, IMO you’ve got to see weekly prices close above the downtrend line before initiating longs. THere is of course lots of stocks within energy that may have bullish chart set ups, but for now, at least on a high-level look, the chart remains Bearish. Notice how the weekly PPO and RSI have been under their centerlines for over a year. Bearish postures for both.
$XBI Not crazy about buying with an RSI of 85 but price is breaking out. Set a stop just below $94. This may very well simply keep on going. RSI’s can stay overbought for months…..
$XHB Not crazy about the momentum profile, but with price near the trendline, this is a low-risk buy if you set your stop just below trend. Resistance is at $46.50. If you’re bullish housing and you think we’ll be bullish into the new year, its a good location to buy and hope for a breakout.
$AMBA With price sitting on 2 layers of support, this is a near perfect trade location for a try at a long. Hard seeing both layers of support fail without a major catalyst like a broad market selloff or some company specific news. I’d set a stop around $52 – 51.50 or so….just below the intersecting support lines.
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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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