Tickers discussed: UUP, WTIC, GOLD, AAPL MSFT TTWO, PSX
The Weekend Profit Navigator takes a look at the big picture and provides the stock market analysis for the week. Key levels and trading locations are provided, along with trading plans and timely commentary to keep you on the right side of the trade
Trader’s Couch – Goal Setting 2020; Advancement
If you’ve noticed the same problems over and over in your trading, it is a sign that you are not learning the lesson that problem is there to teach. Whether it be impulsive trading, risk management, or ignoring stops to preserve your ego and attempting to prove you’re right, those problems will persist until you learn what you need to know. These problems are rungs on the ladder to success. Once those lessons are learned, new challenges will replace them, but they will be higher-level lessons. It’s like that with everything from relationships to yes, even trading. When I was going through my divorce, my counselor told me that unless I was prepared to learn from the past and change the behaviors that contributed to the problems, all that would change would be the name of my significant other, and my zip code. That’s why you see some people marrying and divorcing 3,4 and 5 times, they didn’t learn anything. They are stuck. Same is true for aspiring traders, if you don’t change anything in 2020, next year will look a lot like 2019. And if 2019 wasn’t so hot, you’ve got, like we all do, some lessons to learn. Use the time this week to crystallize your thoughts to identify the problem spots of 2019, and commit to corrective actions. No reason why you cant make big strides in your trading journey. You are certainly capable of it.
The Week ahead
The most interesting and possibly market moving situation ahead of the New Year’s holiday on Wednesday is in the Repo Market and regarding IRA flows. Max stress on the Repo market will be on Monday and Tuesday as year-end liquidity requirements peak. Jay Powell told us he stands at the ready to open the fire hose of liquidity injections to extinguish any fires that develop. We’ll see how it goes. The other thing I have my eye on is required mandatory distributions from IRA’s. The deadline for these distributions for persons 70.5 years or older is Tuesday. Many folks wait until the last moment to make these withdrawals. I have no idea if these “sell orders” will be easily absorbed by the market or not. Trading volume will be low so this selling may have a larger than normal impact.
Fed Liquidity in Control
In the past week, all but the Utilities sector were green with the XLY, powered by a huge move in $AMZN, leading the way up 1.2%. The market dynamic of gap – camp – ramp still seems to be in control. This is when you have an overnight gap followed by a narrow trading range during regular hours, then a closing ramp in the last 15min of trading. Only on Friday did we see that dynamic change a little when they sold the close. As mentioned above, on Monday and Tuesday there will be added stress with year-end liquidity demands and required IRA distributions hitting. Have to wait and see if these have any impact on the market. My base case in they wont, but I am ready if they do. I think the FED hits the market with shock n awe liquidity injections just like Powell told you he would. They’ve been adding $40 B – $75 B on run of the mill weekdays so I would not be shocked if they doubled or even tripled that amount on Monday and Tuesday.
So for now, the Fed liquidity -driven rally marches on even as risks increase. My guidance remains the same. Stay long, keep your head on a swivel, and your hand on the rip cord and pull at the first sign of trouble. We are at a point where a liquidation break could morph into a wider correction at any time and for any reason or no reason.THis week is ripe for it with holiday trading volumes near the lows and with most shorts either completely dead or on the sidelines.
My Put / call extreme-o-meter shows the excessive call buying clusters of the past few weeks. This hasn’t resulted in any corrective activity so far but that doesn’t mean it wont.
Charts I’m Watching.
The U.S. Dollar
They say if you can get the $USD right, everything else falls into place. While not a big FX currency trader, I do my best to keep an eye on the Dollar. Dollar strength or weakness funnels into everything from commodities, to precious metals, to emerging markets.
Taking both the daily and weekly charts together we see that price is coming off a divergent high. ( price higher, indicators lower ) While not sell signals, divergent highs signal a potential trend reversal is likely. Notice that on the weekly chart the past divergent highs and lows marked great trade locations to anchor short and long positions for trends that lasted many many months. For me the key spot on the chart is the prior high on the weekly chart at 25.90. Below 25.90 would be an intermediate to long-term sell signal on the $USD. Even if you chose not to initiate that short, a long term sell signal for a falling dollar would be a tail wind for emerging markets, precious metals, and commodities.
Oil / Energy Complex
Although many have been screaming to get long the energy complex, the following charts reveal that oil has simply moved from the lower end of the trading range to the higher end of the range. A great trade if you caught it ( I didn’t ) but now is at a point where we truly see if the trade has legs with price near resistance. A breakout above $63 would be a meaningful move.
Additionally, we can see that in terms of relative performance, $WTIC oil has not yet broken out against $SPX. The move we’ve seen over the past few weeks has been a counter trend rally to resistance. When flipping through dozens of charts within the energy complex, many names are are downtrend resistance on the weekly charts.
Drilling down to the $WTIC weekly chart we can see the next level of resistance is at the Saudi refinery attach high beck in September.The chart is un-mistakenly bullish with an emerging breakout working. Would not be surprised if price made at least a final push to $63. At that point I’d be a motivated seller with a tight stop just above.
Apple and Microsoft
Would it surprise you to know that combined the market cap’s of $AAPL and $MSFT are greater than the total market cap of the $DAX? I was floored.
Sven Henrich over at the Northman Trader wrote up a couple of nice articles on $AAPL and $MSFT citing the risks and vulnerabilities embedded in these charts. I refer to them here not to be a fear monger but to simply communicate the risks. If you’ve been long for the whole ride, you’ve had a helluva run. Congrats to you! Now, simply have a stop and respect it. If you’re a trader, set up a game plan to take advantage of a potentially big downside corrective move when / if it occurs.
You can find the Northman Trader’s write ups on $AAPL HERE and $MSFT HERE.
GOLD
Gold made an impulsive move out of its bull flag consolidation this week. I believe we are in the midst of a bull market in Gold and this breakout may be a sign of the next leg higher getting underway. There is resistance in the $1550 / $1560 area but if it can break through that level, the measured move projects a target of $200 higher. If the $USD breaks down, it could be the rocket fuel gold needs to make the move. That said, this emerging gold move has been made with the Dollar at lofty levels. I don’t think a falling Dollar is an absolute requirement of a move higher, just that it would be really helpful.
Silver along with the gold and silver miners are also making bull moves. I am long GDX calls. Typically you’ll see the miners outperform the metal so I am hoping that is the case this time as well.
Trade Ideas
$TTWO Take Two Interactive
Short n Sweet. The chart is poised to make a breakout. I like it long above $125 with a stop somewhat below.
$PSX Phillips 66
I like $PSX short here and am looking for a move to $103 which coincides with support and a 38.2% fib retracement of the recent move. On the indicators there is a trendline break on RSI along with a bear cross working on the PPO supporting a further move down.Earnings are set for Jan 31 so I’d target the Jan 24 option chain. I like either the Jan 24 110 Puts for about 1.90 or a a Jan 24 110/103 put spread for about $1.50. Shoot against the 50 ema on the daily chart at $112.12. Any move above that level, I’d kill the trade. The stock closed at $110.60 on Friday
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