Tickers discussed:  SPY, QQQ, IWM, ALGT, YUM, BC, LW, SAVE

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

 

Inspiration

Teaching someone the technical tools used in trading is a simple task and probably comprises only 15-20% of what it takes to be consistently profitable. The other 80-85% is identifying, understanding, then conquering the negative emotions and psychologies that undercut us and our performance on a daily basis. Overcoming these negative tendencies is hard work and thus forms the intersection between spirituality and trading.  

 

Headlines

  •  Merger Monday:  Merger announcements top $70B yesterday.  The money is FREE! Why not?
  • $BABA raises $11B on Hong Kong listing as trading goes well.
  • Meanwhile no one seems to mind HK posted it’s 12th straight month of export declines.
  • Case – Shiller 9am; Home prices / Homes sales / consumer confidence all due out this morning.
  • FOMC Lael Brainerd speaks at 1pm

Earnings Calendar Holiday shortened week and earnings are winding down but several names of interest.  BBY, MOMO, DLTR, BURL, ANF, VEEV, DE to name a few. NTNX ( up 20% ) and PANW ( down 10% )  will open with sizable gaps this morning which may offer intra-day trading ops. Both set up for bracket trades tomorrow for those just wanting to let today’s price action play out.

Market Observations, Technical Developments, Outlook,  and Strategy

IWM Breaks Out

The gap, camp, then ramp price action rolled on during Monday’s trading with all the index gapping up, then consolidating until a final ramp into the close.  THe price action was typical except in one major way…. the Russell.  IWM blew out of the hole with an impulsive burst that took out the $160 level that has been stubborn resistance for a year.  That massive 2% burst is exactly what you want to see on a breakout. A strong impulsive move; not limping over a line drawn on a chart.  Makes me think this breakout sticks.  Quite possibly IWM sets up for a catch-up trade with the prior highs near $173 in its sights.

Still lots of yellow flags as we’ve discussed but the most important thing to realize is that these yellow flags are NOT sell signals. They simply set the stage / conditions for a pull back. Only price dropping below support and / or violating trend lines constitute a sell signal.  So IMO if you’ve been rigorous raising stops along the way there is no tangible reason to exit long positions.  FYI – Thanksgiving Week is one of the most consistently bullish weeks we have on the calendar.  So, bottom line, keep your head on a swivel and your stops tight.  Furthermore, when / if we do get a correction it could potentially be fast and deep. This rally has been built on overnight gaps and poor technical structure. All that weak technical structure will get repaired at some point.  first stop on a real pull back will be to back test the breakout at SPY $301 and QQQ $194.

Strategy Update: 

No changes. Keep long exposure within reason and according to your overall risk tolerance.  While there are no sell signals and therefore no reason to close out whatever long positions you may have, that also does not mean to add meaningful new longs.

  • 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 volatility, excessive bull sentiment, excessive call buying ) collectively they simply mean to be careful.
  • Nothing truly bad can happen unless SPY $301 fails or QQQ $194 fails
  • 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 – Price gapped higher toward the mid-point of the up-channel.  $312 is now support at the intersection of the lower channel line and gap support.  New positions can stay long against $312 and look for a move to the channel high near $316. A close below $309.55 favors a 20ema test at $308.

Swing Traders.  $309.55 has proven to be a good place for tight stops. While probed intra-day, we’ve had no closes below that level.  No reason to close longs until you see daily closes below $309.55.  Bottom line, have a long bias and a short leash.

$SPY 60min chart

Bear Set up: 

Limit bear ideas to a gap fill trade on a break of $312. If it morphs into something more, you’ll already be in.  Calling tops in this market has been a losing trade. Keep that in mind.

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

$QQQ Daily

Gap, camp and ramp to a new high. Note the new gap locations marked on the 60m chart.  Stay long, no reason to sell. 

Swing Traders.    Bulls in full control so your bias should be to look for entry points if / when you see a pull back to a marked level. Place stops just below in case the pull back morphs into something more. With price above the rising 8ema not a lot to worry about on the downside. Sit taller in your chair if price closes below its 8ema.

QQQ 60 min Bear Set up:  Breaks below $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 may decide to defend any of the levels listed above so be ready for bounces.

Bull Set up:  Honor what ever stops you have in place. I think a break below $200.50 would signal a deeper pullback. Watch price action at / near support levels for signs of buying.  Play level to level.

$IWM  Daily

Big Breakout. Anything above $160 is bullish. If you are long from lower levels move stop up to just below $160. IMO any back test of $160 that holds is a place to either add to or initiate a new long.

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: 

No short set ups unless price closes below $160.

Bull Set up:  Stay long against $160 and look for pull backs to add.     

**************************  TRADE Ideas  and updates on other charts   **********************************

$BC  Beautiful bull flag breakout.

$SAVE  While we did not catch the low, price recently touched massive support on the weekly and is poised for a continued advance. PPO bull cross and RSI breakout are supportive of a continued advance

$YUM – Bears out of gas with price at key support. Sets up for a low risk long with a tight stop available just below.

$LW – Lamb Westin is a name we havent covered before. Price breaking above prior high. Would like to see a more impulsive move, but technically speaking its a long above $81 with nothing but Blue sky over head. 

$ALGT – Price at the top of a 4 year range on the weekly.  Watch for a bear PPO cross to confirm the sell signal. With 4 weeks of tiny doji candles, the chart suggests the end of the road for this one. A tight stop is available for those wanting to take the trade now. This is the type of trade where you’d get short out in time and simply stay short while it hopefully grinds lower. Great trade location.  On the flipside, if it truly can break out you’re looking at $230++

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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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