The Elephant in the Room

Tickers discussed:  SPY, QQQ, IWM, GDX, PLAY

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 –    Give it Time

 

 

 

Mental transformation, as the Dalai Lama suggests, is often a daunting task; just ask anyone who’s tried it.  Success requires the aspirant to inspect, test, and often re-write the “mental software” that has been embedded in our  brains since early childhood and reinforced throughout our lives.  It’s the same way for aspiring traders.  The problem is most traders dont view trading that way or fail to realize the magnitude of the undertaking.  Unrealistic expectations leads to frustration and frustration leads to anger. They just don’t get how everyone on social media is “killin it” while they struggle.  If this describes you, understand that the journey toward consistent profitability doesn’t take place quickly.  Lots of flawed mental programming will need to be re-written.  It requires patience, persistence and determination but over time you’ll see the progress.  Keep the great expectations in check and you’ll find joy in the process.

 

Headlines

  • FOMC keeps rates unchanged; marginal lift to stocks
  • UK Voting underway.
  • Plenty of rumors and fake news but no official word on Dec 15 tariff implementation / delay / rollback
  • Aramco valuation tops $2T as IPO continues to lift.
  • Christine Lagarde chairs first ECB meeting
  • Xi signals that he’d like Macau to become a financial hub.  Schedules visit and offers policy initiatives

Earnings Calendar

$LULU down about 4% on earnings;  $COST, $AVGO, $ADBE, $ORCL after the bell today

Market Observations, Technical Developments, Outlook,  and Strategy

Elephant in the Room

Welp, 1 down and 2 to go.  FOMC keeps rates the change as Jay Powell remains firmly in robo-mode. Powell robotically lets us know that we’re in a good place and inflation is subdued. No new info on the repo turmoil bubbling under the surface.  No Gaffs >> no drama >>> no movement in stocks.  I cant remember a Fed meeting where the stock market did not respond with at least 1 wide-range algo bar. This time completely nothing. At best, stocks drifted higher on the news. IWM was in fact red by a couple pennies.

So now there are 2 remaining catalysts. The UK election which I think will have little tradable impact on our markets. Hopefully well will start getting clarity on BREXIT.

The elephant in the room is the Dec 15 tariffs.  YES, NO or PUNT.  To make a long story short, NO or PUNT should be market positive.  If YES, market negative. How negative?  Dont know. Guessing a first move to back-test the breakout ( SPY $302 / QQQ $194 ).  From there who knows.  Below I share additional thoughts as it applies to strategy.

Elsewhere in the markets, GOLD / Silver and the Gold miners did well.  The $GDX was up over 2% with $885K in call premium bought yesterday. I’ve been hoping to see some positive order flow for a while and this is the first signs of it. $GLD also saw elevated call buying. $GDX is a high-beta kicker to the $GLD, so we need the metal to perform if we expect $GDX to move.

One group that had a bad day at the office was software. Lots of names off 1.5% – 3% with several names down 6% plus. We’ve seen this before where out of the blue fund managers seemingly liquidate indiscriminately with no news or downside catalysts. Keep and eye on the sectors. In other episodes the dips have been bought. If you have a favorite name, look for an objective buying location and see if it comes in a little more.

 

Strategy Update:  The Tariff dilemma is another binary event where there is no edge. Could get news in 15min or Sunday night at 11pm. I am side-stepping the event by keeping things light. Also specifically not trying to game the event. PUT premium is elevated and that IV will collapse once news comes out. So even if you guessed right on a drop, you could easily not make any money.  If there is upside on good news or downside on bad news, I think we’ll have time to position ourselves correctly and participate.  So……. 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 – Re-assess your position and exposure to the Tariff risk. From a technical perspective, a move above $315.5 is bullish and a place to add. Moves back below and into the gap would generally be bearish and would favor a move to $312. We filled about 1/2 of that gap so open space remains.

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:  Moves below $314.11, a break below $312 would both be bearish events and be locations for objective shorts w/ a stop above.

 

Bull Set up:  A move above yesterdays high at $314.70 traders can be long w/ a target of 315.50. Above 315.50 is a place to add.

$QQQ Daily

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:  On a move below 204.15 get short 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:  Traders can get long on a break above $205 and look for a move to $206. Above $206 would be a place to either add or start a new position w/ a tight stop.

$IWM  Daily 

Price has been trapped between $162.50 and $163 for a few days. Swing traders need price to break above $163 to add to longs.  Bigger picture, anything above $160 keeps the daily chart bullish. .

$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 need to hold $162.50 and get a break above $163 to either add to or start a new bullish position.  Drops back below $162.50 would be short term bearish and favor a move back down to $161.25.

 

 

 

**************************  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 ********************

$GDX Would like to see price emerge above $28.25 to get the chart really working. After the back-test of the DT line, no technical reason for this to back track now. Go time in my view.

$PLAY – Price again tested $37.50 and held. Keep an alarm there. THe stock has been in a tight range for 6mo and has tested $37.50 multiple times. Usually when you see that constant pressure on a level, it eventually gives way.  No harm in watching right. Just keep the alarm in place.

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