Tickers discussed:  SPY, QQQ, IWM, AMBA, QURE

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

Trader’s Couch –    Change requires effort and action

Many of us wish for change.  Those desired changes cut across a wide swath of most people’s lives.  From wanting to drop a few pounds, to having a better relationship with our significant other, to even yes, becoming better traders.  But for many people those well-intended desires are nothing more than day dreams.  The divide between day dreams and real change is effort and action.

It takes real effort to change behavior. It’s hard work to get on the treadmill or to cut down on the things we like to eat. It’s also hard work developing a better relationship with our partners. There may be a recognition that we do not have the communication skill set to make it possible. That recognition may lead to attending a communication workshop or many therapy sessions.  Those endeavors require real work and effort, but that is what it takes to realize real change in our lives.

When the topic turns to trading, many of the same pitfalls that torpedo our “real lives” are also present in our “trading lives”.  There is not a trader alive who does not say “I want to become a more consistent and profitable trader”.   The divide however between those that are actively working on and changing their daily routines and those that are not is very wide indeed.  To put it bluntly, you won’t get better as a trader unless you start doing something different.  That may require learning new skills or actually using the skills you already have.  It may mean seeking out and working with a mentor.  It may mean that you have to stop the impulsive nature of your trading or getting out of the 5 trading chat rooms that you bounce around during the day.  The idea of change is very appealing and even romantic at times, but the reality of change is rooted in max effort and sweat on the brow.  If you are bound and determined to improve your life and your trading, start small and be very specific.  Work on a single aspect and get a success under your belt. That will encourage you to push further and harder.

Headlines

  • Asian and US Markets turn jittery ahead of macro catalysts
  • VIX up 5% already this morning after popping 16% plus in yesterday’s session on a 0.3% decline in SPY
  • FOMC meetings start today
  • UK vote and Tariff decisions on deck.

Earnings Calendar

 

Market Observations, Technical Developments, Outlook,  and Strategy

The market turned tentative during the Monday session. What started out as a “run out the clock” day ended on a weak note as some late day selling entered the picture. Although the selling ended up just a little over 0.3%, the VIX popped over 16% which was an out-sized move compared to the market move.  Now this morning futures are off and the VIX is up another 5%.

Price ended yesterday just inside of price gaps left behind in last weeks ramp. This was true of SPY / QQQ / IWM.  In the premarket, price is testing the bottom side of those gaps. So all in all it is setting up for a weak open. A true change in character would come if the lows of last week are taken out.

As you’d expect, treasuries and gold have a bid this morning as risk-off / defensive asset classes move to the front of the class.

 

Strategy Update:  Watch for a fill of the first gap below price; then how price behaves from there.  A break below the bottom of the gaps would indicate more selling pressure coming in but unless new bearish information comes in I doubt that happens. Looking for price to stabilize ahead of the FOMC.

  • 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 – Price set to open in the middle of the gap which will make the open tricky. Could break low or flash higher to fill the OH gap first. Use the top of the gap and the bottom of the gap as key locations for higher or lower prices. Within the gap is no man’s land.

Swing Traders.  A recovery of $314.11 would be bullish while prices below $312 would be bearish and would open the door to $310.

$SPY 60min chart

Bear Set up:  A break below $312 would open the door to the next gap entry at $310.50.

 

Bull Set up:   Bulls need to hold $312. That would be a location to try a long with a tight stop. A place to add would be on a recovery above $314.11.  

$QQQ Daily

Price closed below $204.15 and in the gap which now favors a move to $202.83 to fill the gap.

 

Swing Traders  Stay long against $204 regardless of where you entered on this cycle. A drop below $204 signals a move lower. A move below last weeks low around $199.85 would likely mean a trend change is underway. 

QQQ 60 min

Bear Set up:  Stay short against $204.15 and look for 202.83. A break below the bottom of the gap would be a place to add to the position and look for $202.

Bull Set up:  A recovery above $204 would be bullish. If price moves to the bottom of the gap and finds support, that would be a good place to try a long w/ a tight stop below.

$IWM  Daily 

Price closed at the top of its $1.50 wide gap but is set to open in the middle of it if futures hold where they are.  If prices were to fall all the way back to $160 I’d again be a motivated buyer there with a tight stop below.  Also, if price recovers $162.50 it is a bullish location for an add or initiate a new long position.

 

$IWM 60 min

Bear Set up: Get short on a break below $162.50 and be looking to cover at least 1/2 at $161. A break below 161 favors a move to $160

Bull Set up: 

Bulls can look for either $161 or $160 to hold. $160 should offer solid support for a try at a long. Also, a recovery above $162.50 would be an objective location to try a long or add to one from lower levels.

VIX

Here is the daily chart of the VIX.  You can see downtrend resistance around 17 and lateral resistance at $18.  A move above $18 would really get this going and would open the door to at least the low $20’s

 

**************************  TRADE Updates   ******************************

$KL long Jan 40C / GDX long Jan 27C / XRT short w/  Dec 44P no action; holding all for now.

Added GTT FEB 15 C at $1.15 on Friday.

Went short SPY / QQQ / and IWM with weekly at the money puts on the gap entries per our game plan yesterday morning. Will likely be closed today unless gap support fails.

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

$AMBA  Had this one as a potential long but it had a bad day at the office yesterday being down some 4% ++ and slammed to support. A move below the TL and $51 put this on a sell signal with a move below the 200ema at $50 really getting it going. Although not marked, notice the open gap to $47.50 ish.

$QURE – Nice example of a fast move from a false move. False breakout led to a sharp decline. Now price at the bottom of the bracket with a $5 gap below. If price moves into the gap it would favor a gap fill to $56ish.

 

 

 

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