Tickers discussed: SPY, QQQ, IWM, BBY, BURL, KRE, XRT, AMZN, RVLV
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.
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Reporting from sunny Florida this week! Spent the weekend with my Son and his new wife who both came up from Miami to visit with my Mom and Dad near Ocala. Great to see them all. I will be here for the better part of this week before heading back to Michigan.
Earnings Calendar Retail earnings pick up this week. HD / KSS / URBN / LOW / TGT / LB / M / JWN XRT is the way to play if you have a directional bias on the group.
Market Observations, Technical Developments, Outlook, and Strategy
Relentless part 2
The gap, camp and ramp market just keeps on going. Early gap up followed by price “camping out” for the balance of the day until the final 30 min ramp into the close. Take a look back at the last 5 or 6 Fridays. They’ve all been nearly identical with that ramp into the weekend close. Friday’s have been where all the gains have come for the most past.
Take a look at the VIX. IF SPY is hitting record new highs, you’d expect the $VIX to be hitting lows, or at lest going down. It’s not. It has found a base at a similar level as the prior lows. Therefore there is a divergence between the VIX and equity prices. Not a sell signal, just another yellow flag.
The following slide shows the record number of net-short VIX contracts. Another yellow flag.
In the Sector summary for the week, the top 4 of 5 were defensive sectors.
We could be entering a phase of the market where literally none of the conventional warning flags are predictive of future prices ( blow off top ). For reference you can look at the price action of Jan 2018. A parabolic ramp followed by a quick crash.
In this environment I think you can be long but with tight leashes on everything. Try to strike the balance between participating to the upside but not getting over your skis. Continually rolling strikes higher to book profits when you can knowing there will be a day when all your calls go to zero very quickly.
Strategy Update: No changes. In my opinion, now isnt the time to mash the gas pedal. 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.
- 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 – We got the morning gap up and final ramp into the close. Most of the weekly gain came from Friday’s action. Price remains well above the 8ema and all the ema’s remain bullishly stacked, so from a price perspective it couldnt be more bullish. The first signs of a pullback is when price begins to close below the 8ema.
Swing Traders. Above $301 and bulls remain in control. Swing traders who are long from lower levels may want to consider raising stops from $307.66 to $309.55. This level would allow for a pull back to fill the gap but would get you out if gap support did not hold. Feel free to set your stops according to your risk tolerance but I do think you need to be raising your stops methodically through this bull phase. Bottom line, have a long bias and a short leash. 
$SPY 60 minute chart
Bear Set up: Trying to call tops is a losing game. THe first level that is objective is the gap opening at $310.26. If price falls below you can try for a gap fill and add to the position if price falls below 309.55. Other than that, I dont see much worth shooting at.
Bull Set up: Support zones are at $310.26, $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 – No changes to technical picture.
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: 202., 201.43, $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. Watch price action at / near support levels for signs of buying. Play level to level. 
$IWM Daily
No changes to the technical picture as price remains trapped between $157.50 and $160.
Swing Traders. Stay long against $157.50 and short against $157.50 with a break below. A break above $160 that holds will be a great place to anchor a long for those that have been on the sidelines waiting for a decisive move.
$IWM 60 min
You can see the well defined trading range between $157.50 – $160. Price action between the range is choppy but wide enough to trade if you’re sharp and nimble.
Bear Set up: Short below $157.50 w/ stop just above.
Bull Set up:
Above $157.50 and bulls are ok. A break above $160 breathes new life into IWM with a chance to make a run at old highs. 
************************** TRADES **********************************
$KRE: – I have $55.50 alarmed for a potential intra-day gap fill at some point.
$XRT Weekly Lots of retail earnings coming out this week. A break above $47.50 opens door to $49.50 then $51
$AMZN 60m Something is not right with Amazon. $1752 is the daily pivot. If you see a back test into resistance between 1745 – 1752, it would be a good place to anchor a short. Door is open for a test of the earnings day low. Prices above $1755 and I would kill the trade.
$BBY Threatening a breakout but potential for a double top. Watch price closely for how it reacts
$BURL Price at the top of the box. Resistance is resistance until broken. Price at a key spot
$CSCO Weekly Price closed below a key level last week and now favors a move to $40 over time. See annotations for details
$RVLV A sharp sell off followed by a flat bear flag sets up for a follow up move to the downside. alarm the low near $15 and get short w/ a break and look for $10 as a first target.
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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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