Weekend Profit Navigator – August 25

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The Weekend Profit Navigator explores the past week’s market action with key trading levels for the indexes and the SPDR Sectors. Timely commentary is provided to keep you on the right side of the trade.

$SPX 30,000 foot view

Another wild, news and tweet driven week for the markets.  After hovering near the highs of the recent trading range in anticipation of soothing words from Chairman Powell at Jackson hole, China’s Xi dropped a tape bomb Friday in the premarket with Tariff retaliation measures.  Powell’s remarks were mostly non-committal regarding future rate cuts but kept to the data-driven script.  The remarks lifted markets for a few brief minutes until President Trump came after China hard with new trade war escalation tweets. That sent markets spiraling downward 600 points into the close Friday.

Big picture we have the broadening top formation on $SPX. For 3 weeks, price has been trying hard to break above the trading range and recapture the broken uptrend line off the December lows but has been unable to do so.  Although the last 3 weeks has been frustrating, if you look back to the Fall 2018 consolidation action, you can see we spent 9 weeks chopping around. I still remember 2811 being the wall of resistance.  So this action isn’t anything particularly new.   What is new is the seemingly hour to hour news flow that can and does rip the faces off both bulls and bears with positions.

Now, the key level to hold for bulls is 2822 which is the August low. A move below opens the door for a run at the June low.  That won’t happen in a straight line but that would be the technical target.

What is just as important as price is the impact the volatility is having on trader psychology.  In my view, retail had a collective sigh of relief in January after averting the Q4 disaster of a 20% draw down. Now I belief you’ll see a faster move to the sidelines with the market on a tighter leash.  Time will tell.

$SPY Weekly

Bullish Factors:  Price remains above the 40 week ema and the August lows at $282

Bearish Factors:  The RSI, PPO and ADX indicators have gone bearish as price dropped below trend from a divergent high.

Bottom Line:  From a weekly perspective, price has set up a wide ranging chop zone between $282 and $294. As long as prices stay above $282 and the 40 week ema the bull case remains alive. If however, price punches through the 40 week ema and $282, I would expect a deeper correction the would target the May / June lows near $273.  A move above $294 would open the door to new highs.  While all the above is certainly true and valid, from a subjective view, the price action this past week was bearish as we closed at the low end of the trading range after spending most of the week at the high end of the range.   Bulls need to hold the low and 40ema or else price will get away from them.

Trade Ideas:   $282 is set up as a key level. A break below is a place to anchor a short position with an eye on the June low as a target.  For bulls, a test of the August low is a place you’d expect fellow bulls to defend and is thus an objective place to try a long with a tight stop.

As I said last week, because of the posture of the indicators I favor a resolution of the trading range to the downside.  I am long SPY puts.

$QQQ Weekly

Like SPY, QQQ has set up a wide-range chop zone between 179 and 189. SPY and QQQ are trading similarly from a technical perspective.

Bullish Factors:  Price remains above key support at $179 and the 40ema.

Bearish Factors:  Price however has broken below trend coming off of a divergent high and closed at the lowest point of this move. The PPO bear cross and break of trend on RSI are early bearish developments.

Bottom Line:  As long as prices stay above $179 the bulls are fine to call the move a dip.  If however, price moves below $179 and the 40 week ema, a deeper correction should be expected and would target the May / June lows near $170.  A break above $189 would favor a run at the prior highs.

Trade ideas:   A break below Friday’s close would offer an objective location for a short with a tight stop. The other location would be on a break of the August low at $179.   Bulls should expect $179 to be defended with a bounce to be expected. A long against $179 w/ a tight stop is objective.

I believe this resolves to the downside and have QQQ put positions.  $179 will be the key spot.

$IWM Weekly

Bullish Factors:  None

Bearish Factors:  Price has broken below the 40 week ema, key support at $150 and the consolidation triangle.  The RSI and PPO indicators have moved below their center lines and into their bearish regimes.

Bottom Line:   IWM is in a clearly bearish technical posture.  If $145 breaks, there is a minor support at $142.50 which I would expect to break.  $150 is OH resistance given price has not been able to close above for the past 3 weeks. .

Trade Ideas:   For those with no IWM position, get short on a break of $145 with a stop just above. A great place to anchor your position.  If you’re a bull, its do or die right here.  You’d expect a defense of this level given it is so key.  A long try against $145 is objective. Be open-minded enough to reverse and go short if you get stopped out.  Bullish positions are counter-trend trades for this security.   I am long IWM puts.

Let’s look at the sectors.

$XLB – Materials

Bullish Factors:  The PPO remains above it’s centerline.

Bearish Factors:  Price fell below the bull / bear pivot and the 40week ema.  The indicators are flashing a bear look.

Bottom Line:  If you alarmed $56.50 from last week’s recap and got short you are sitting pretty.  Look for a continuation move to $53.75 where there is minor support. Longer term, look for a move to test the June low at $52.50

Trade Ideas:   Price is now in no man’s land caught between support and resistance. If price were to back test $56.50 from below, I’d be a motivated seller with a stop just above.  The next objective level of interest is $53.75, then $52.50 where bulls can look for a bounce and bears can look for a breakdown to anchor a position.

$XLC – Communications

Bullish Factors:  Price has held the 40 week ema and therefore the bulls have a solid place to defend / bounce price.

Bearish Factors:  The indicators are flashing an early bearish look and price is below the uptrend line off the June low.

Bottom Line:  Price has set up a chop zone between $48 and $49.50. While price is in this zone it is an indecisive look and will of course resolve either higher or lower.

Trade Ideas:   A break below $48 is bearish. Traders can get short and set a stop just above.  Bulls need to defend here or lower prices are favored.  Given the posture of the market and the indicators for XLC I favor a break of support. Alarm $48. If / when a support break happens, get short with a stop above.

$XLE – Energy

Bullish Factors:  None

Bearish Factors:  XLE  seems destined to test the December lows at $54 despite Oil hovering in the mid $50’s.  The Indicators are well into their bearish zones below their center lines which tells me to keep a bearish bias.

Bottom Line:  Aside from the inevitable relief rally, keep a bearish bias.

Trade Ideas:  Stay short against $58.  If price breaks above, a move to the TL is favored where again I’d be inclined to locate a low-risk short.  A break above the down trend line favors a stronger advance.  I’d expect a bounce at support at $54, but a break below and we’re headed to 2016 lows.

$XLF – Financials

Bullish Factors:  PPO is above it’s zero line.

Bearish Factors:  Price broke my bull / bear pivot at $26.50 which has been a great spot to locate both bullish and bearish trades for well over a year.  Price is beneath the 40 week ema . RSI has broken below 50 and the PPO has put in a bear cross.  Additionally, price was never able to recapture the up trend line off the June low.  All bearish developments

Bottom Line:  The June low is only 30c away at $25.79 and the March low is $24.95.  If you got short per last week’s note at $26.50 you’re in good shape. I expect the June low to be tested this week.  If bulls recapture $26.50, cover your shorts.    Banks and other financials are suffering under low interest rate environment that persists.  $XLF is a big index with lots of cross currents.  Traders are encouraged to look at $KRE which is the regional Bank ETF and other subgroups for more pronounced trends.

Trade Ideas:   I was shaken out of my short position in $KRE before it reversed and headed lower.  A backtest of $26.50 would be a great place to locate a short position. Aside from that, I’d use a break of the June low at $25.80 to position short.   If price were to recapture $26.50 and / or  the 40 week ema, then bear ideas are put on hold.

$XLI – Industrials

Bullish Factors:  Price is above the June low and the PPO remains above it’s center line.

Bearish Factors:  Price is below the uptrend line off the June lows and was rejected 4x at the Jan 2018 highs.  RSI has dipped below 50 and the PPO has put in a bear cross. Price lost the 40ema. All bearish developments

Bottom Line:  Price is set up to test the June low at $71.60.  The zone between 71 and 73 will likely be choppy with large volume / price support there.  $BA is a major component within XLI so it is a good barometer to be watched closely. Any tariff retaliation on $CAT / $BA would likely push this below support.

Trade Ideas:   Adventurous traders could shoot against $73.50 and look for a move toward $71.60. Otherwise a much clearer look would be to focus on the June low as a bull / bear pivot. A break below $71.60 would be very bearish and point to the December lows. I’d expect bulls to mount a defense at that level and put in a bounce.  Re-capturing the 40ema would be a nice accomplishment the bulls can shoot for.  Aside from that, bears are in control here.

$XLK – Technology

Bullish Factors:  Price well above key support at $74 and the 40ema. The sector has been uber resilient and remains a key for the whole market.  Tough to crack the market if XLK remains strong.

Bearish Factors:  PPO put in a bear cross and price has not yet regained its uptrend line.

Bottom Line:  I view XLK as a key to the market.  Big bearish ideas won’t materialize unless they break tech.   Watch key components like $MSFT and Semis for clues.  The sector is not in any apparent or imminent danger but the strongest are often the last to go.  Key off the 40 week ema. Like all the other sectors, above keeps bull case in tact, below and things could deteriorate quickly.

Trade Ideas:   In the very short term, I view $79 as a location for both bulls and bears to pay attention to.  Above, and bulls can run with it. Below and price may be subject to rug pulls. If you are a bear with big ideas, this is the most important sector to watch.  As long as price is above $74.50 a seed of doubt will remain. Below $74.50 and things run downhill fast.  If bulls recapture $79, chances are big downside momentum for the market as a whole will stall.

$XLP – Staples

Bullish Factors:  Although price was down about 1% for the week, the sector continued to outperform the market.  Price above $59 keeps everything bullish.

Bearish Factors:  Nothing

Bottom Line:   No technical developments.   The defensive nature of XLP names combined with the relentless search for yield have kept a bid in these names.  This will of course end badly but until price breaks trend and loses $59 for starters, there is nothing to do on the short side.  Not advocating piling in long at these levels, but there is no short here and the path of least resistance remains higher. Bulls remain in full control.

Trade Ideas:   Prices above $59 are bullish.  A weekly close below $59 combined with a trend line break would give the bears something to talk about and a line to shoot against.

$XLU – Utilities

Bullish Factors:  Everything. Grren on a red week says it all. Sector continues to outperform.

Bearish Factors:  Nothing; All time highs

Bottom Line: With treasury yields falling money continues to flow into Utes as the search for yield rolls on. ( same holds true for XLRE which I dont cover ) Like XLP, of course this will end badly, but not now. Price could pull back to $58 and the up trend would still be in tact.  Don’t try to be a hero and fight this powerful trend.  If / When the FED cuts rates further, these should continue to keep their bid and drive higher.

Trade Ideas:   Price is breaking out to new highs on an almost weekly basis.   If you’re long, stay long and continue to raise your stops. If you’re not in, I think the same strategy as XLP will work. Hunt individual names that have either consolidated or have pulled back. I like that strategy over buying the index at all-time highs. There are names under the hood that offer more upside.

$XLV – Healthcare

Bullish Factors: The PPO indicator is still above it’s center line.

Bearish Factors:  Price lost the bull / bear pivot at $90 and broke below its 40 week ema. RSI broke trend and PPO put in a bear cross. All of these are bearish developments.

Bottom Line:  Now that $90 is in the rear view mirror bears are in control. If you alarmed $90 per lest week’s note. you are in perfect shape. Although price is always the final arbiter of opinions,  IMO the Medicare-for-all rhetoric will be a lingering overhang.  Regardless of the eventual Democratic nominee, Healthcare reform will be a major plank of their platform.  Most say medicare-for -all will never pass but markets dont think like that. Markets consider what-if and that uncertainty alone will be a drag.  Expect that drag to be pronounced if a hard-liner begins to get traction on the dem side.

Trade Ideas:   Stay short against $90. A backtest of that level would be a gift IMO to anchor a low-risk short. Bold traders could use $89 as a level to shoot against but price is in no man’s land with $87 being the next level of interest where bulls could mount a defense and therefore an objective long.  You know my position by now; I favor a downside break of $87 but will respect what price has to say.

$XLY – Consumer Discretionary

Bullish Factors: Price remains above the 40ema at $114 and the indicators remain above their centerlines.  They’ll have a hard time cracking this one unless that crack AMZN which is nearly 25% of this cap-weighted sector. The key level for $AMZN is $1752.  Below and XLY will get  iffy.

Bearish Factors:  RSI has broken trend and PPO has put in a bear cross. Both are bearish developments. Amazon close at $1748. It’s only $4 below my key support level of $1752, but if it falls away further, it will move XLY lower.

Bottom Line:  This is an important offensive sector that is a good proxy for gauging risk on / risk off sentiment.   Holding $114 is key to keeping the “consumer is fine” story line in tact.  Below $114 would likely bring out more selling pressure.  Above is fine if bulls hold it.  Below and things will get iffy. XLY has the second strongest chart behind XLK.  Hard to break the market unless XLY and XLK crack.

Trade Ideas:  I’d be a seller on a break of $114 with a first target of $110 at the June low and then $106 if $110 breaks. If price recaptures $116, bulls can use that as a line to shoot against with a stop just below.

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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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