Tickers discussed:  SPY, QQQ, IWM, GLD, GDX

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

Holiday Cheer

Dear Subscribers, Friends, and Visitors –

With the holiday’s upon us and with the year coming to a close, I wish you happy holidays and much good fortune in 2020.  I want to thank you for being here and part of our growing community.  I hope you’ve benefited from the content as much as I have creating it. I’m a better trader when I’m writing. It helps me organize my thoughts and work harder. In 2020 I look forward to offering you new functionalities on the site as well as more sophisticated content.  The market will be as challenging as ever and I look forward to working with you to understand what’s going on and how we can best participate.  I am looking forward to seeing how it all unfolds.

With that, I wish you safe travels and much holiday cheer!

Chris

Headlines

  • Reminder: Half day Session today. Markets close at 1pm.
  • Saudi Arabia and Kuwait make a development agreement for an oil field in the “neutral zone”.  The field is said to be a 500,000 barrel a day producer.
  • Gold hits 6 week high; Gold miners shine.  Charts below
  • $DIS latest Star Wars movie has disappointing box office.  Theater stocks AMC, IMAX and CNK all falling about 3%

Earnings Calendar –  No earnings this week.

Market Observations, Technical Developments, Outlook,  and Strategy

Yesterday was a pretty slow session on the index level with SPY, QQQ, and IWM little changed.  The DOW and XLI got a pop after $BA announced a CEO change.

Here is how the sector averages fared.

 

 

Holiday Week Trading

Even when things appear slow on the surface, there are always things happening under the surface. $AMD continues to rip, $LK was up 11% as some of the 48% short interest got squeezed, $KMX triggered a short entry.  So there are things to do.  Even doing nothing is working as prices continue on a relentless grind higher. So if you’re camped out in your favorite names long, you should be seeing some steady gains.  Nothing to do but watch and continuously raise stops or roll to higher strikes.  Prices are extended and a nasty liquidation break can happen at any moment for any reason or no reason. You’ll know it when you see it. Just keep risk in check and harvest profits along the way.

 

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.

Note: With the near microscopic move yesterday, the commentary for SPY / QQQ / IWM, remains unchanged from yesterday. No changes to the technical picture

$SPY Daily – Price above all ema’s which are bullishly stacked. As long as price remains above the bottom of the rising wedge, remain bullish.  If price drops below, watch the gap entry at $319.22. A price move into the gap favors a move $2 lower to fill the gap.

Swing Traders.   Stay long against the breakout at $319 just below the first gap. Getting extended as the 8ema is only at $317.50.  We’ll be coming back to the 8ema at some point so tactically you could exit short term longs and look to re-buy on pull back to either 8ema or 20ema.

$SPY 60min chart

Price achieved the $322 target ( SPY went ex-div Friday ). No sell signals until bottom of wedge breaks.

Bear Set up: A break below $320.37 favors a gap fill to $319.33.  This would be the first opportunity to  sell. Expect buyers to step in there.

 

Bull Set up: Getting long above $320 worked. Stay long against your entry.  level.

 

$QQQ Daily

Price achieved the $211 target but the path of least resistance remains higher. Move stops up to  $209.50 ( new level ).

Swing Traders  Longs are ok as long as price remains within the wedge above 209.50. A break below the wedge would trigger a sell signal.

QQQ 60 min

Bear Set up: There is a strong bid under the market and sell signals have been foiled so be careful shorting. A break of 211.27 gap entry is your first chance to short ; a break of 210.86 would be a place to add.

Bull Set up: Stay long while continuing to raise stops and rolling strikes higher. Book profits as you have them. Liquidation breaks remain possible and can come out of nowhere.

 

$IWM  Daily 

Short term traders can stay long against 165.60. Longer term can stay long against  $164.  The posture remains bullish and IWM may outperform SPY / QQQ on a catch up trade as price remains below the 2018 highs of $173ish. .

 

$IWM 60 min

Bear Set up: First sell signal is on a break of the 60min rising wedge around 166.

 

Bull Set up: 

Stay long within the rising wedge. Short term tactical traders who are long should probably step aside if the wedge breaks. The likelihood of a deeper pullback is more likely when price is below the wedge. If the gap fills to 162.73, that would be a location to either add to or start a new long position w/ a tight stop below.  Prices below $162.50 would favor a gap fill to $161 so any long positions should be exited and then look to buy back at lower prices at either $161 or $160.

 

 

 

 

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

$GLD has been on a steady creep higher and $GDX had its best day in a while yesterday.  Interesting given the climb in equities. Both are near breakout levels so its time to pay attention to these 2.  I am long GDX and $KL with Jan expiration so I am hoping for follow through here.

I’ve clearly annotated the key levels on the charts below.  No need to front run the signals. Set yourself a few alarms and wait for the trigger to get long.  Also remember, GDX will usually outperform the metal but that beta cuts both ways.

 

 

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