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.

Welcome new members!  Great to have you with us!  Let me know how we can help you in your trading.

Special Programming note:   I will be visiting my parents in Florida over the next week or so. While I will be in the office today, I’ve got some errands to run prior to my trip and will be away from my desk much of the day. There will be no morning note tomorrow, but my hope is to pick up coverage on Monday.  Thanks in advance advance for your understanding. 

Earnings Calendar

Market Observations, Technical Developments, Outlook,  and Strategy

Relentless

Relentless is the word that comes to mind regarding this market. While there is plenty going on under the surface in individual names ( DIS up 7%+  RUN down 5% +  both highlighted as trade ideas )  at the index level there is a relentless underlying bid that will not allow prices to fall. Keep in mind, corrections can come either in price or in time.  Maybe we just oscillate near the highs for a while to let the oscillators and sentiment come off the boil and reset.Given SPY and QQQ barely moved, not a lot to say or do but be ready. When this market decides to get off the dime, I think it will move fast in either direction.

More on Disney and Sunrun

I received several nice notes from subs yesterday on the gains from these 2 highlighted trade ideas over the past 2 days.  Both were explosive moves. If you had them alarmed, you had to move fast but the trades were there to be made.  Congrats to all those in the trade(s). If you missed it, lets go after the next one. The nice thing with the market is that opportunities are constantly coming and going.

Powell talks again today. He is now on script and simply re-stating the same talking points over and over. No surprises anticipated. WE have oil inventories at 10.30, a day later than usual because of the Monday holiday. Walmart had a nice beat this morning. Worth watching for retailer sentiment.  Also keep an eye on XRT as retailer earnings are at the back end of earnings season. Yesterday $GOOS got clowned on horrible guidance. Down 10% and near 52 week lows from June.

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. The near-term upside seems very limited given where we are both in terms of price and sentiment. I think the upside is limited. Therefore…

  • Maintain bullish bias while keeping your head on a swivel.
  • Set tight stops depending on your time frame.
  • Keep some dry powder ready; a back test 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 – They gobbled up the morning weakness and moved price back up near the highs leaving the market nearly unchanged. Nothing of technical significance resulted in the price action. With price above the 8ema on the daily nothing for bulls to worry about at the moment.  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 can stay long but move stops up to $307.66. Below $307 you’ll probably see added selling pressure.  A back test of the break out is a common technical move so no one should be surprised if we pull back to $301 where the breakout happened.  If the rally is for real, there should be a boatload of buyers at that level ready to BTD. Bottom line, have a long bias and a short leash.

$SPY 60 minute chart

Bear Set up:  Price breaks of  $308, 307 and $304.75 would be places to initiate or add to short positions.  Trade level to level and don’t get too far out over your skis. The Bulls remain in control with no significant sell signals in place so at this point, any corrective action is within the context of an uptrend   Bull Set up:   Support zones are at $308, 307,  and $304.75. Traders can nibble on long positions with a tight stop below and play for a bounce.  A smarter play may be to wait for a gap fill to $303.33 before trying for a meaningful long try.

$QQQ Daily – No changes to technical picture.

 Swing Traders.    Watch price and its relation to the 8ema currently at $200. So breaks of $199.85 would probably bring in sellers.  Hard to tell how many weak-handed longs there are in the market but dont be surprised with a quick downside move if the snowball begins to go downhill.   Honor your stops.  The big re-grouping level will be $194 on the back test of the break out.

QQQ 60 min

Bear Set up:  $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. No need to be a hero here. Let the selling play itself out and look to re-position long on a pull back. The lowest risk entry will be $194 on a back test of the breakout if we go down that far. Way to early to tell. Play level to level.

$IWM  Daily – Price was down 0.4% and tested the lower levels of its box at $157.50 but ultimately held.  This is the last minor level of support before falling back into the trading range. Watch the emerging PPO bear cross on the daily.

Swing Traders.   Simple Simon set up. Long against $157.50 and short against $157.50 with a break below. Notice the posture of the PPO as it flattens and begins to roll over.  If you do see a break below $157.50 and decide to get short, buy some time on your puts. This is a perfect low-risk objective trade location for a longer term short position. Place your stop just above

$IWM 60 minute Key off the commentary above. $157.50 is a key location. Below would mark yet another failed breakout and thus could open door to much lower prices. A move back above $158 would keep hopes alive for the bulls.

Bear Set up:  Short below $157.50 w/ stop just above.

Bull Set up:  Above $158 and bulls are ok. A break above $160 breathes new life into IWM with a chance to make a run at old highs.

 

 

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Relative Rotation: – Here is the latest 5 week rotation of the SPDR sectors. Things have gotten decidedly Tmore offensive with defensive sectors weakening and offensive sectors like financials, tech, industrials and even energy moving higher. THe one exceptions is XLY which has sat out the party with AMZN remaining soggy. AMZN is almost 25% of XLY so it isnt going anywhere without AMZN participating. 

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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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