Small Caps Wobble; Gold makes a move

Tickers discussed:  SPY, QQQ, IWM, MOMO, GTT, DPZ, CHWY, GDX, GLD

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 –    In 2020, Avoid labeling yourself

 

 

 

One of the common things in stock trading, especially with social media, is to be asked, “So are you a bull or a bear?”  Once you answer that question you are making a subtle or maybe not so subtle,  emotional commitment to being in a camp. What if you say you’re a BULL and bearish information comes tomorrow; will you see it?  Once you’ve associated yourself with a camp or belief system, it is tougher to see the other side. Can you see that?  For example: If you label yourself a Republican, it’s harder to see the potential good things a Democratic idea might hold. The inability to see the other side has deeply divided our country and it’s not a great thing.  In trading, it’s the same way.  Closing yourself off to the other side is dangerous to your success.  So in 2020, instead of labeling yourself a bull, restate it this way. ” I see the line of least resistance to be higher right now” . In this way, you’re keeping your optionality and your mindset open. You’ll be much more able to see potentially bearish input and offer you the opportunity to change your mind.  Try this in 20202. I’ll bet you’ll be much more open to market input and have more success migrating back and forth in your positioning as market input changes.

January Earnings Snapshot

Headlines

  • Stocks flat to soggy for the open.
  • Oil holding it’s bid above $62.  $63 has been the high end of the recent trading range over the past 18mo.
  • Markets open for full sessions Mon & Tue; Bonds close at 2pm tomorrow.

Market Observations, Technical Developments, Outlook,  and Strategy

Small Caps Wobble; Gold makes a move

As discussed in thew Weekend Profit Navigator ( HERE ) , Monday and Tuesday will see peak Repo stress and Required Mandatory Distributions from IRA’s.  Europe has opened soggy with most of the Euro bourses off between 0.3 and 0.5% in morning trading.

Here in the US there is expected to be low volume trading as many extend the Christmas holiday into New Years on Wednesday.  US markets will have full sessions on Monday / Tuesday although the bond market will close at 2pm on Tuesday Afternoon.

On Friday IWM had a bad day at the office as shares impulsively sold off at the open and then sold off into the close. Time will tell if this is a canary in a coal mine, but for those long IWM it should signal to you to pay closer attention. I’ve highlighted the key levels below.   Gold had a great week with price moving impulsively higher out of a 4mo long consolidating bull flag. While OH resistance remains, the yellow metal is set to hit the ground running in 2020.

 

Strategy Update:  No Changes. Ratchet up stops; maintain a bullish bias ; Hunt for objective, low-risk trade locations on stocks where you can get in with a clear stop in place in case things don’t work exactly as planned.   Avoid full FOMO of buying everything in sight. Dont sacrifice set -up quality because of FOMO.  There is plenty of time to make money.

  • 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; 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.

$SPY Daily

Key off the uptrend line. Hard for bad things to happen as long as price stays above. Breaks below and things get more iffy.

Swing Traders.  The chart is bullishly configured with the ema’s bullishly stacked and price above everything. Consider moving stops up to at least $317.50 which is the daily pivot. For those that are more conservative, raise stops to $320.25 which is just inside the first sizable gap.  The 60min chart is close to a sell signal so if you are micro managing your swing positions, be aware of it.

$SPY 60min chart

There is the potential for price break of the rising uptrend line which would trigger a short term sell signal. Moves below $322.50 would likely bring in a few more sellers. Be aware that the light holiday volume makes the averages more susceptible to oversized moves.

Bear Set up:  The first actionable sell signal would be on a break of the 60min uptrend line around $323.  Below $322.50 opens the door to $321.71 where there is a shelf of support. Be aware that the top of the first sizable gap is at $320.37.

Bull Set up:

On longer time frames, the charts of SPY are bullish. That said, you can see the declining momentum on PPO on the 60min chart. For your SPY longs ( and all your longs for that matter ) know your exit points and honor them.  One never knows when soggy trading morphs into selling. Be open to bearish signals. If the first gap fills to $319.33 and that does not hold, I’d expect more selling pressure to come in.

$QQQ Daily

On the daily chart, price is at the top of the channel and could see a decent pullback to test the bottom of the channel. Price could see a $5 pullback and still be above the daily pivot so be aware.

Swing Traders  Stay long with price inside the channel. Dips back to the low side of the channel can be viewed as value buys as long as the channel holds.  You can also use the low side of the rising channel as your stop.

 

QQQ 60 min

Bear Set up: A break of $213.25 would likely open the door to $212 where there is a minor shelf of support. Below $212 brings the first decent gap into play at $211.37.

Bull Set up: Declining momentum combined with what appears to be a soft open sets up for a soggy day. Like SPY know your exit points. No need to sit thru corrective activity and watch profits erode unless you are trading longer time frames and have a plan.  Time frame matters. Nothing in the daily or weekly charts say to turn outright bearish at this time.

 

$IWM  Daily 

A big bearish engulfing candle on Friday is the first sign of corrective activity in weeks. A red candle today would confirm a deeper correction is likely. Watch to see if price loses the 8ema and breaks below the uptrend line. If it does, plan on a 20ema test at $163.66.

$IWM 60 min

Bear Set up: A break of $165.60 likely brings in sellers to test $164.75. Below that makes the top of the gap the next technical target at $163.75.  Although IWM may lead to the downside, it will ultimately get held up if SPY / QQQ do not follow.

Bull Set up: 

Unless you’re trading longer time frames no reason to hold short term longs below $165.50. If price breaks that level I’d close that stuff out and either step aside or look for bearish entry points.

 

 

 

 Trade Set ups and Charts

$CHWY  Price getting rejected at $29.50 at OH resistance. I think this is a short against $29.50 with a move to $27 favored as T1.

$GTT –  Made us some money a few weeks ago. Now with a pullback to backtest the breakout I think it sets up as a long against Friday’s low of $9.66.  THe big bulls who got us interested in the first place have not gone anywhere. 4300 contracts remain in open interest in Feb 25C.

$MOMO   Testing lower support. A break below the TL and 200ema would trigger a sell signal. If it breaks and you get short, use the 200ema as your stop.

$DPZ  Weekly

Dominoes is at the top of its weekly trading range but has never recaptured the long term uptrend line. Not ready to make a call on this one but am setting alarms on either side of price for a potential bullish or bearish trade. A breakout would be massive. Price at a critical spot.

 

 

$GDX

A move above $29.25 with a hold opens the door to the next level higher. Dont get frustrated if it hesitates here. We’ve had a fast, impulsive move that may need to be digested.

 

$GLD Weekly

The Weekly chart clears shows the sweet breakout from the near text-book bull flag consolidation over the past several months.  $150 will be a tough nut to crack with lots of OH resistance there, but once cleared I think price will make its way to the mid $160’s to low $170’s.  While not an absolute necessity, a falling US Dollar would be helpful.

 

 

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