Tickers discussed: SPY, QQQ, IWM,
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- When Trader’s implode
Several traders within our Trading Room had rough weeks. This quote was posted yesterday. We’ve all experienced what this trader describes. Trading disappointment leads to frustration which leads to instability. The instability leads to anger or actions inconsistent with our stable nature. This condition leads to a revenge trade. We try to fix a bad day or recover losses with one fell swoop, in this case with an earnings trade which is, at best, a dart throw. The interesting part of most revenge trades ( in my experience ) is that the trader take a big swing on a low probability trade. So in other words, the chance of compounding the losses greatly increase. What should I do? First off, when you’re trading, be aware of your emotions. Are you confident or scared? Are you stable or unstable? When you feel those primal emotions of anger, revenge, frustration or in general things not going that well, have the courage and inner fortitude to simply close out and walk away. Stay away until you re-center yourself. That could be 10 minutes or 10 days. Come back when you’re ready.
While I have your ear, there was also an example this week of a trader doing exactly what should have been done in real-time. We have a new trader in the room that I don’t know well. He has only been with us a few weeks. On Monday this trader posted his trades and strategy early in the day. As the day unfolded it became clear that the trading strategy wasnt going to work. As price went against our new friend, he publicly acknowledged the pain. Rather than add to a loser or otherwise try to compensate for the losses, he posted that he was exiting the trade at a painful yet manageable loss and that he was done for the day. That is real maturity. I was proud of him and told him so. Admit you’re wrong, take the loss, stop trading, and live fight another day.
The above is 2 sides of the same coin. But unlike a coin flip where fate and chance are involved, we can control outcomes based on controlling our own emotions. The next time you’re overcome with base emotions, close the trade and step away. It will make all the difference.
- November Jobs this morning
- OPEC cant agree on production cuts.
- MSFT set to release consumer bundles of 365 this spring.
Pre-market Winners: DOCU, ULTA, CRWD
Premarket Losers: YEXT, ZM, PD, PLUG
Market Observations, Technical Developments, Outlook, and Strategy
The market had a relatively dull, mixed session as the “gap, camp, and ramp” market profile begins to re-emerge after the Thanksgiving turbulence subsides.
As trade talks proceed, the WSJ reports the main sticking point is the amount of farm goods the US wants China to purchase. I hope you realize that this Phase 1 deal is the most basic deal imaginable. Its a purchase order for soybeans and live hogs. It’s on items we need to sell and China needs to buy or are already are buying from other suppliers. The fact that it has taken so long speaks to the problem with the relationship, not the complexity of the deal. Besides, in 3 years when China doesnt buy what they agreed to buy, what are we exactly going to do about it?
Next week we have the vote in the UK and the Dec 15 new tariff implementation date over the weekend. Might be a good time to clean up loose positions heading into the binary event unless clarity is provided before hand.
The sector leader was was the lightly-weighted S&P 500 Materials sector. Conversely, the Energy sector succumbed to broad-based selling while the Consumer Staples sector was pressured by earnings-driven losses primarily in Kroger (KR -3.0%) There was no bias among S&P sectors. This morning there was a slight yield sensitivity effecting defensive sectors and financials, but that faded as the day wore on and yields backed down from the morning’s more optimistic start.
All in all, yesterday prices did more consolidation and failed to take out the 61.8Fib bounce retracement levels from the recent sell off. As long as price continues to close below these key levels, the door is technically open for a move down to either close the gap or probe below the recent lows. Futures are up, but with the Jobs report at 8.30, those can change in a hurry. Closes above the 61.8 Fib level today would greatly diminish chances of follow up selling.
Strategy Update: The bounce remains 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. Market may go into suspended animation waiting for UK election and trade news to unfold.
- 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 both the 8 and 20emas 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.
Swing Traders. With a Price move and hold above $312.50, it would be an objective place to add or initiate a long.
$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.
$QQQ Daily No changes. Price just below the 8ema and 61.8% fib level. A break above $203.50 would be bullish and diminish chances for a re-test of the recent lows.
QQQ 60 min
Bear Set up: There is resistance at $203.50. Prices above $203.50 favors bulls. The 50ema sits at 197.64 and is the first target if downtrend resumes.
Price is above the 8ema and is therefore a bullish set up. Anything above $160 is bullish, below $160 is short term bearish. Keep it visual. A move and hold above $161.25 and / or $163 are places 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. Prices above $163 would be a place to add to the position
$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. Will be closed today
**************************** Trade Set ups and Charts ********************
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