Tickers discussed: SPY, QQQ, IWM, DIS, XRT DLTR
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
Thought for the Day
Saw this floating through Twitter world and thought I’d grab it. Although no one seems to know it’s origin or author, there are enough kernels of truth here to make it worth reading.
- Trump, speaking at NATO Summit, talks tough on China deal saying he may wait until the election is over in 2020 to do anything. Markets tumble.
- US weighs imposing $2.4B of tariffs on France for digital service tax. France vows EU retaliation.
- Amazon announces Quantum Computing business. Partners and customers will get access to quantum computing hardware.
Earnings Calendar A big week for cloud stocks. CRM / WDAY / ZS after the bell. More to follow this week.
Market Observations, Technical Developments, Outlook, and Strategy Following a better-than-expected Chinese PMI, the ISM Manufacturing Index for November missed and decreased to 48.1 (consensus 49.2) from an un-revised reading of 48.3 in October, further into contraction. The report’s new orders and employment sub-components both contracted further. A reading below 50 denotes contraction, making November the 4th consecutive contractionary print. Markit’s final Manufacturing PMI for November beat expectations, printing 52.6 (from 52.2 flash and 51.3 in October) Construction spending declined 0.8% in October (consensus +0.3%) after decreasing a revised 0.3% in September (from +0.5%).
The market traded impulsively down on these disappointing real-economy numbers. The weird thing about yesterday was that on the biggest decline we’ve had in over a month, neither gold nor TLT could catch a bid. That was a departure from the norm. Additionally, financials saw almost no pain yesterday as most of the damage was contained to XLK / Tech.
These are the sectors I want you to watch today to get a feel of the market pulsemarket pulse.
XRT – How is retail doing?
KRE – small banks more exposed to rates than big banks
IWM – Did it flash a false breakout?
SMH – Semis are good risk on / off sentiment gauge
TLT / Gold – Is there a flight to safety?
IYT – Transports provide real economy pulse.
IBB – Another risk on / risk off sector.
If the risk on / off sectors sell off hard coupled with a strong bid on safety trades, the sell off has the potential to morph into something bigger. If there is not a rush into safety then the pullback may be contained at the next level of support.
Hopefully you have been ratcheting up stops and exited long positions on the break of the levels we identified. Now is the time to be looking for a place for price to hold and a reversal to emerge.
- 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 – Spy closed the gap and closed below the 8ema. THe daily RSI has turned down and the PPO curling lower. With futures down 14 handles as i write this, $310 is a key area to hold and it is where the 20ema sits. A move below opens the door to $308. You should be out of long SPY positions and have booked nice gains from lower levels based on prior guidance.
$SPY 60min chart
Bear Set up:
These levels worked perfectly yesterday. “A break of $314 would likely open the door to test the gap at $312. If the gap at $312 to $311 fills, the bears may have a head of steam for a run at $308” . From the 60min chart, a bear flag measured move to $308ish is favored. If $308 fails we gotta snow ball on our hands.
$QQQ Daily Price tagged the 20ema at $201.80 and held, but is trading well below in the premarket. To my eye the first test comes at $200.50, then $199.85.
Swing Traders Price is still in an uptrend so view this corrective activity thru that lens. Even if you are tactically short, pre-identify locations where you will cover and look for a bounce. To my eye, 199.85 and 199 would be locations to zoom in on.
QQQ 60 min Bear Set up: These levels are perfect and have worked well. Stick with them. Breaks below $204.50, $203.50, $202.67, 201.83, $200.50, $199.85, $199, and $197.63 are price support levels and objective places to either add to or initiate short positions. I’d be looking to cover or roll positions down if prices reach $199. THe 50ema sits at 197.48 and i expect a big bounce there if / when we get there.
Bull Set up:
Focus on each level and look for signs of a bounce. No need to rush. I expect prices to find $199 short term. If we find the 50ema at 197.48 i expect a big bounce
Price is trading well below $160 and therefore IWM has a failed breakout look. I favor price filling the open gap. If when price re-captures $160 that would be very bullish.
$IWM 60 min Bear Set up:
The break of $161.25 did indeed open the door to $160. The measured move target is for a gap fill. If short, consider closing at least a portion of the position because a bounce would be favored there.
Bull Set up: $157.50 would be a location to try a long swing trade with a stop just below.
************************** TRADE Ideas **********************************
$SPY Bought the Dec 4 $314 P on a break of that level for $1.42. Followed the morning plan. Will likely be out today.
$QQQ Bought the DEC 6 $204.50 puts for $1.13 on a break of that level. Will likely be out today.
$DIS – I was stopped out of my long DIS trade for a 20% loss.
$DLTR – Got short with DLTR Dec 6 $90 P on the price break of $90. Just looking for a quick move and will likely be out today or tomorrow.
$KL long Jan 40C / GDX long Jan 27C / XRT short w/ Dec 44P no action; holding all for now.
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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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