Global Markets flash a long-term BUY

Tickers discussed:  SPY, QQQ, IWM, DJW, DE, DLTR, MOV

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

Thought for the Day

 

 

 

Over the Holiday I had two powerful and moving experiences….both coincidentally, in the local grocery store parking lot.  In Michigan some heavy, cold, nasty weather rolled in over the holiday. On one trip to the store, with a stiff freezing wind howling, there was an older lady on a shopping cart scooter struggling to load her groceries into the car . When I offered to give her a hand, her reaction led me to believe I was one of God’s angels. Similarly, the next day, when I offered to put away the shopping car of a feeble woman you could see the relief and almost pure joy of not having to walk the 50ft to corral the cart.  

As I have known for sometime, but clearly reminded of over the weekend, in this world it does not take much effort to touch someone’s heart. As we roll into the Christmas season, take a look around for a place to demonstrate common courtesy. Look for a place to share the tenderness you have locked up inside you.  You’ll definitely lift up someone else and you’ll also lift yourself up.

 

Headlines

  •  Hong Kong business leaders suggest October retail sales will be a disaster; Macau casino revenue plunges 8.8% in Nov.
  • In a few tweets China media suggests the Presidential signing of the HK Protester Rights bill over the weekend poses a problem for the trade talks as protesters become even more emboldened. For now,  China’s retaliation and rhetoric has been muted.
  • Surprising data out of China lifts global markets and sinks bonds.
  • UPS employees busted in a massive drug scheme that exploited weaknesses in the UPS systems
  • Frozen 2 grabs Thanksgiving record.

Earnings Calendar

 Market Observations, Technical Developments, Outlook,  and Strategy

The World-wide equity rally has the Global Dow flashing a long-term BUY signal.  The monthly chart of the Dow Jones World index (  $DJW ) is flashing it’s first monthly PPO buy signal since mid 2016 as momentum goes positive.  Monthly charts offer broad , sweeping looks at markets with buy and sell signals coming few and far in between. We last had a sell-signal in March 2018 and now comes a buy signal. Given how hard it is to turn a monthly signal, I expect this buy signal to be in effect at least 4-6mo and quite possibly longer.

Back closer to home, our markets remain impervious to what you’d normally expect to be “negative news”.   Hong Kong turmoil and the perpetual China trade talk hype and fail cycle has been no match for Powell’s “not QE” program coupled with nightly liquidity injections. In fact this most recent move that started the week of “not QE” being announced is off to steeper start than the one at the end of 2017 that led us to the Jan 2018 high.  We have not have a 5ema touch on the weekly chart in 6 weeks.

We’ve long been discussing that the technical structure of the market is incredibly weak as evidenced by all the open gaps below and untested points of control. This all sets up for a massive  breakdown one day that will come out of the blue but at this point we have nothing close to a sell signal.

While I do suspect a pre-holiday pullback is coming, I also think it will be a dip to buy and that we will finish strong into year end. The near constant Fed QE liquidity should provide a constant bid in the market and mute bad news flow as it occurs. 

 

Strategy Update:  No changes.

Keep long exposure within reason and according to your overall risk tolerance.  While we have no sell signals, I suspect that when we get one it will be swift. Therefore risk exposure needs to remain within reason.  The goal is to participate on the upside but not to the extent that you’d be crippled on a swift downside move.

  • 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 DailyFor those long SPY from lower levels, consider raising stops to just below $312.  $312 marks the top of the gap and moves below would favor a gap fill to $311. From there $308 comes up fast. Regardless of the exact level you choose, IMO it’s time to raise whatever stops you have in place. Swing Traders.  No reason to close longs until you see daily closes below $312.  Bottom line, maintain a long bias and a short leash.

$SPY 60min chart

Bear Set up:  A break of $314 would likely open the door to test the gap at $312. If the gap at $312 to $311 fills, the bears may have a head of steam for a run at $308. Keep in mind this bull run has been exceptionally strong and calling tops has been a losing trade. Wait for a clear break of a level before implementing any bearish ideas. Know when you’re wrong and get out. 

Bull Set up:   Support zones are at  $314, $312, $309.55, 308, 307,  and $304.75. Traders can nibble on long positions with a tight stop below and play for bounces at well-defined levels. . 

$QQQ Daily

$204.50 is first support on the 60min chart. I think stops should be raised to somewhere between $202.67 and $203.5 depending on your risk tolerance. $202.67 is the gap entry.  Wouldnt take much to revisit $200.50. Dont see any reason to give up $4+.  You can re-load on any pullbacks to support.

Swing Traders  Bulls in full control but be aware of the bear PPO cross that triggered Friday. Likely signals either a pull back or general weakness. Pre-identify your exit points and stick to them on any weakness.  

QQQ 60 min

Bear Set up:  Breaks below $204.50, $203.50, $202.67, 201.83,  $200.50, $199.85, $199, and $197.63 are price support levels and objective places to either add to or initiate short positions.  Like SPY, QQQ is in an uptrend so keep it real on position-sizing. Bulls have been winning the micro battles at key levels. Wait for a clear break of support levels before initiating a position. 

Bull Set up: 

Reset your stops. The levels noted in the Bear section mark levels where price should bounce / be defended. Those are locations to try for longs.  Play level to level.

$IWM  Daily

Price holding its breakout above $160. That said we saw some weakness on Friday. I’d like to see $161.25 hold or a full back test of $160 would be favored. If we do get a back test of $160 it would be a great place for a second bite at the long IWM apple. 

 Swing Traders.   Stay long against $160 with an eye on the old high near $173 over time. A break back below and close beneath $160 would be a bearish event. 

$IWM 60 min Bear Set up: I suppose a break below $161.25 may be worth a shot at $160, but more motivated to look for a long entry than a short one. 

 Bull Set up: 

Stay long against $160 and look for pull backs to add.     

  **************************  TRADE Ideas   **********************************

$DE  Price set to open below last week’s low of $167.13 down around $166. If price remains below $167.13 a move to test the 200ema at $161.30 is favored. 

 $DLTR – Price is fast approaching the August low of $90 which is key support. At a minimum I think you’ll get a trade-able bounce, especially if the broad market remains constructive. A simple run of the mill 38% fib bounce would be $98.  If price breaks below $90 get short for a run to $84 as a first target.   

$MOV – Price gapped down last week and now sets up for a nice bracket trade. Alarm $20.25 for a move into a nice sized OH gap. Also alarm $19 for a move below key support where a breakdown may move quickly.

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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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