Tickers discussed: SPY, QQQ, IWM, CASY, COG, DBI, NFLX
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 – Focus on what you control
Timeless wisdom from 2500 years ago. Putting a little meat on the bones, although we have no control over outside events doesn’t mean we shouldn’t use our minds to prepare for random events that are known to occur from time to time. For instance, Floridians shouldn’t worry themselves sick over the potential for a Hurricane to make landfall, but they should have insurance. Once insurance is in place, it’s out of their control. Likewise, Traders cant prepare for news events that come out of the blue to negatively affect our positions, but if we size our positions correctly and stay within our risk tolerances, we need not fear them. Using our minds, we can also avoid bad things happening to us, that to the outside world look random. Bad things can happen to our positions if we hold them through “random events” like earnings. If we avoid the situation completely, we need not fear it.
So in your everyday life ( which includes trading ) do your best to consider possible outside events, do your best to plan for their possibility, but then let it go. Focus the majority of your effort within your sphere of influence. This is the area where you’ll find the true power Marcus Aurelius speaks of.
- FOMC Rate Decision at 2pm; presser at 2.30pm
- Aramco IPO soars
- Christine Lagarde chairs first ECB meeting tomorrow
- Big Tech falls in GlassDoor’s “best places to work” survey
$LULU after the bell
Market Observations, Technical Developments, Outlook, and Strategy
The market as a whole spent Tuesday simply treading water in front of macro news flow. I expect that market pattern to continue today, with a possible drift higher, into the FOMC rate decision at 2pm, followed by the Jay Powell Presser at 2.30 pm. Most expect Powell to say the US economy is “in a good place” and therefore keep the FOMC on hold. What would be enlightening is more commentary on the “not QE ” program and the “temporary overnight liquidity injections” that have gone on everyday in the last 8-9 weeks.
The VIX was down ever so slightly after the big pop on Monday, so vol remains elevated as it holds its bid.
The elephant in the room is the Dec 15 tariffs. Expect more news leaks both positive and negative, but until the President decides I dont think anyone knows for sure. t
Strategy Update: Expect more drift into the FOMC meeting and while waiting for tariff news. Keep risk at a comfortable level; no need to be over-extended. THe gaps below have not been filled and remain as natural downside targets if selling activity returns. Know your exit points!
- 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 – Price set to open in the middle of the gap which will make the open tricky. Could break low or flash higher to fill the OH gap first. Use the top of the gap and the bottom of the gap as key locations for higher or lower prices. Within the gap is no man’s land.
Swing Traders. A recovery of $314.11 would be bullish while prices below $312 would be bearish and would open the door to $310.
$SPY 60min chart
Bear Set up: A break below $312 would open the door to the next gap entry at $310.50.
Bull Set up: Bulls need to hold $312. That would be a location to try a long with a tight stop. A place to add would be on a recovery above $314.11.
Price closed below $204.15 and in the gap which now favors a move to $202.83 to fill the gap.
Swing Traders Stay long against $204 regardless of where you entered on this cycle. A drop below $204 signals a move lower. A move below last weeks low around $199.85 would likely mean a trend change is underway.
QQQ 60 min
Bear Set up: Stay short against $204.15 and look for 202.83. A break below the bottom of the gap would be a place to add to the position and look for $202.
Bull Set up: A recovery above $204 would be bullish. If price moves to the bottom of the gap and finds support, that would be a good place to try a long w/ a tight stop below.
Price closed at the top of its $1.50 wide gap but is set to open in the middle of it if futures hold where they are. If prices were to fall all the way back to $160 I’d again be a motivated buyer there with a tight stop below. Also, if price recovers $162.50 it is a bullish location for an add or initiate a new long position.
$IWM 60 min
Bear Set up: Get short on a break below $162.50 and be looking to cover at least 1/2 at $161. A break below 161 favors a move to $160
Bull Set up:
Bulls can look for either $161 or $160 to hold. $160 should offer solid support for a try at a long. Also, a recovery above $162.50 would be an objective location to try a long or add to one from lower levels.
************************** TRADE Updates and positioning ************
Long $KL Jan 40C
Long GDX long Jan 27C
( I forgot to update you that I closed XRT last week ; apologies )
Dec 6: Long GTT FEB 15 C at $1.15
Dec 10: Long PFPT Dec 115 / 110 P at 1.95
Flat on the indexes
************************ Trade Set ups and Charts ********************
$CASY Convenience store operator Casey’s dropped out of a big divergent high in dramatic fashion yesterday. Note the all-time high price but with very low momentum readings. This is classic divergent high behavior. Everything is fine until 5 months of gains are wiped out in just a few minutes. Anyhow, price is back at key support. Watch this area closely. Possible bounce zone if market stays productive, but if it loses the 200ema at $155 , it will likely move fast thru the thin volume / price support zone toward $135.
$COG – Oil and gap producer just put in a divergent low with large bullish divergences on the indicators. Saw some elevated PUT selling yesterday. Being long against $15.50 with price near $16 wouldnt be a bad place to be. 50c of risk to play for a bounce toward $17 or higher. Love the strong bull divergences
$DBI ( the old $DSW ) Apparel retailer Designer Brands got hammered yesterday and slammed price to long term support at $14. As you can see, you gotta go way back to find lower prices. Price at a key spot for either a bounce or a failure of support. Put it on your radar.
$NFLX – Bad day at the office as Needham downgrades the stock. As you can see there is a small gap over head to fill, but the main technical event is falling below the uptrend line. As long as price remains below, the door is open to $285 at T1 and $265 as T2. THe indicators favor a move lower as RSI breaks below 50 and PPO puts in a bear cross.
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