Tickers discussed: SPY, QQQ, IWM, ALGN, QCOM, GDX, TLT
The Daily Profit Compass provides the stock market analysis 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 – Will Return
Over the past couple of week’s I’ve offered a ton of ideas for you to ponder heading into 2020. I hope you’ve found them beneficial for idea generation if nothing else. The key now is to zero in on what you really want to work on and set those wheels in motion.
January Earnings Snapshot
- Risk appetite returns with futures boldly green to start the year.
- China pulls the plug on Shanghai – London Bourse link
- Airbus claims top plane-maker spot
- Recreational Marijuana use OK’d in Illinois
Market Observations, Technical Developments, Outlook, and Strategy
The year-end ramp into the close on Tuesday could be dismissed as more moves by the Trick, Trap and Confuse crowd but this mornings jump in futures looks a bit more convincing. Time will tell of course as the new trading year gets underway. Maybe its simply a case of keeping the pedal to the metal as long as Fed repo operations keep the liquidity flowing.
Earlier this week, I thought the 60min breakdowns across the board would at a minimum fill the first open gap below. That may or may not play out, we’ll have to wait and see.
For today, focus on the prior breakdown candle highs. If price can take out the highs of the recent 60min breakdown candles, and settle above, those would be bullish developments. Closes below those candle highs would be more or less neutral, with closes below the recent lows more bearish and would favor those lower gaps filling.
Watch the big opening gaps this morning for a flash gap fill lower. These are always tricky at the open. In recent weeks we’ve just gone higher after the overnight gap but don’t get complacent. These market patterns work until they don’t. If you’re a short-term nimble trader and get long at / near the open, simply set a stop and honor it.
New Strategy Commentary
Strategy Update: The tactically defensive posture from early this week may be proven wrong if the breakdown candle highs are taken out. If that is the case, no problem. I will flip back to cautiously bullish. The daily time frame charts are still bullish; No major levels have been violated. If you’ve got long positions, simply respect your stops and don’t be married to anything. If we get a decent pull back, you can re-buy at lower levels. I’d take a pause from piling into new longs until this light volume holiday week plays out. We will know more the week of Jan 6 when everybody is back in the chair and the new year begins in earnest.
- Tactically bearish and looking for a technical pull back. Strategically bullish. Fed balance sheet expansion should be bullish markets.
- 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; to take advantage of any one n done pull backs.
- 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.
Key off the breakdown candle high at $323. Above >> bullish; Below Tuesday’s low of $320.15 >>> bearish. In between neutral to bullish. As long as a fresh low is not printed, benefit of doubt is with bulls.
Swing Traders. Price never filled the first gap below so that remains a technical target on any downside more. THe breakdown candle high is an important technical level on the upside. Respect downside stops if hit. Watch to see if price can reclaim the uptrend line to refresh the uptrend.
$SPY 60min chart
The 60 min chart is on a sell signal but reclaiming $323 ish would dent the bear case for a continued move lower to fill the gap. .
Bear Set up: A move off the open to fill the gap left from Tuesday’s close would be a nice opportunity given we are set to open about $1.60 higher.
Bull Set up:
If the opening gap fills, look for support at Tuesday’s close to hold at $321.86. THat would be a good place to try a long. If price goes higher off the open, I think traders can use the breakdown candle high as a line to shoot against. Lower levels of support remain at $320.50, $319, and $317.50.
Use the same idea outlined for SPY. THe breakdown candle high is $213.75. Closes above are bullish, while closes below Tueday’s low at $211.20 are bearish. Closes in between are neutral to bullish.
Swing Traders If / when a channel break below occurs on the daily, it should bring in sellers. Otherwise the daily chart is bullish with price above all the ema’s which are bullishly stacked.
Bear Set up: A gap fill below off the open would be the first chance for a short. Consider covering at least 1/2 at Tuesday’s close near 212.61. A move below Tuesdays low at 211.20 would be a place to add.
Bull Set up: Moves above the breakdown candle high at 213.75 would be bullish. Any moves above the ATH would also, obviously be bullish. If we were to make a move lower, the gap boundaries are typically good locations to look for support to hold and have buyers step in.
The price action has a different look and feel than SPY or QQQ. Price did not ramp into the close on Tuesday, it faded. Price is below the 8ema and below the uptrend line. For these reasons, IWM is in a weaker technical posture than QQQ / SPY.
$IWM 60 min
Bear Set up: A break of $165.50 would favor a move to test the Tuesday lows at $164. 71. A move below $164.71 favors a move to the top of the gap at $163.80
Bull Set up:
A move above $166.35 would be an objective place to try a long with a decent amount of consolidation below. If we move lower, 163.80 and 162.50 would be locations where you’d expect to see a bounce at the very minimum.
Trade Set ups and Charts
Price in a tight consolidation box. Alarm $280 for a potential breakout and a chance to get long.
Price working within a very narrow range so I am showing the 60min chart to provide some clarity to what’s going on. THe key levels are shown. The bollinger bands are really squeezing on this one so I’d anticipate a big move coming when ever vol wants to expand. I’d alarm both sides of the trading range in case this one decides to break lower.
GDX was a heart breaker on Tuesday. After nearly tagging $30 in the premarket price gave up those gains and was soggy the whole day. The chart remains constructive as long as price holds $28.80 which was the consolidation low. I closed my Jan 27C for 150% and Jan 28.5 C 75% to de-risk the positions, harvest profits, and stay long. I now re-positioned in Jan 29C and Feb 30 C. Staying long and looking for more upside.
Bonds sitting at a critical level. Below $135.50 price is vulnerable to a move to $134. Below $134 the next level of support is $132.
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