Tickers discussed: SPY QQQ IWM $NYMO $NAMO $NYHL $NAHL $GLD $TLT $USO Strategy and Tactics
The Weekend Profit Navigator provides a big picture stock market analysis for the week just past with a look ahead. 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.
Executive Summary
- Price erased all gains from the Q4 rally; hit key support levels and marginally bounced into the Friday close
- The price oscillators are historically stretched to the downside, thus favoring a reflexive snap back over more down side near term
- While historically stretched there is the possibility that the market simply breaks into a further cascade.
- QQQ outperformed and is above it’s 200ema. Market leading FAAMG names remain the key. The market will follow them up or down
- IWM tested long-term support at $144. Below opens up door to Dec 2018 lows near $126
- Oil is at support at its December 2018 lows; favor a bounce
- TLT is at historic highs but at trend line resistance; favor a fade
- Gold sold off hard and put in a bearish engulfing candle after being over-extended; Favor further downside to the 50ema
Strategy Overview
- Migrate from strategic to tactical thinking and trading. Near term, the days of sitting in positions for weeks and weeks is likely over.
- Expect added chop and volatility. Look at the period after the Jan 2018 and Summer 2019 rug pulls; possibly even like Q4 2018 if credit markets lock up
- Reduce position sizing. With the added vol and out-sized moves you can make good money with smaller position sizes.
- Flip your mentality from offensive to defensive if you have not already done so.
- Unlike Dec 2018, the FED wont be able to flip flop so the chances of a steep V recovery are diminished somewhat. Lower interest rates wont cure corona or repair supply / demand destruction. THey will do everything they can including QE4 or 5 to save this, but it will be harder than in Dec 2018 / Jan 2019.
- I expect a bounce into key fib and OH resistance levels that will ultimately fail. The range of possibilities are huge so trading becomes day- to- day, hand-to-hand combat keying of support and resistance levels
- In this environment, fundamentals go out the window as the technicals come to the forefront. Valuation guesses are not going to get it done. Both “good” and “bad” companies will get sold equally hard with the market on further rug pulls.
- Be ready for Wave 2: Wave 2 is when we start seeing Corona’s impact on actual data points like earnings and guidance, PMI’s, GDP’s etc To date the numbers have been pre-corona and honestly were not that hot to begin with. China just posted its PMI at 35…ugly Wave 2 may be the catalyst for price to roll over after a healthy bounce.
- Cash is king. A gun is worthless if you don’t have ammo. This is a time to protect your resources. Prevent losses first; Make money second.
Earnings for this week
Time to become a Doomsday Prepper?
After a historic week of downside action, many folks likely remain in shock and licking their wounds. Especially true if risk was not taken down ahead of last week. There was a window of opportunity on Thursday and Friday of the prior week to take down risk as price broke below the 8ema. Anyhow, I hope you were not materially hurt.
As we sit now, price has erased all the gains from Oct 3 2019. So anybody who bought after Oct 3 is losing. These are the folks who will be motivated sellers when / if price puts in a good bounce. With price deeply oversold and bonds at technical resistance, a price bounce is now favored.
The key now is the Friday lows. Above is technically bullish near-term. That goes out the window if we break below that key level. That’s when Doomsday Preppers go into their active sequence of cleaning the guns, preparing food stocks and everything else.
Focus on Flexible Thinking
In times like this, those traders who are adept at flexible thinking will be the most rewarded ( they always are, but now more so ). Watch price and know your levels. Create an active bull AND bear plan. Both may play out and probably will, maybe in the same day. The moves will be insane. So while I favor a bounce, we could gap down 50 or 100 handles tonight and full on bear mode might be the right call. If the vol is simply too much for you to handle, or you’re unsure of your trading plan, just step aside. No shame in that at all.
Oscillators
3 90% down days have blown out the oscillators. “Dont fight NYMO ” is a standing rule. Dont be caught short when they flip the switch. As we saw Friday afternoon, they popped SPY 3% in 10 minutes. Be very careful on the short side
Equities
$SPX Broadening Top
Devastating week for SPX / SPY technicals. Price fell back well inside the broadening top formation as price sliced through multiple support locations. To avert further downside, price must recover 3005 , then the 40 week ema at 3086. Downside support comes in around 2855 then 2750. Below 2750 not a lot in the way of a back test of the Dec 2018 lows near 2346.
$SPY Monthly
Price broke the steep narrowing wedge at the top of a divergent high with an unmistakably bearish monster red candle that engulfed the prior 4mo of trading. The key now is to hold the monthly 20ema. If at the end of March we are below the 20ema it will be a very bearish technical event. Bulls need to hold the line here.
SPY Weekly
I dropped the fibs over price in brown. These are key levels to watch for potential reversals. Most importantly, price needs to hold last weeks low of $285 to prevent further downside. Below $285 and all bets are off. 
$QQQ Monthly
While price popped briefly above the long term uptrend line, it never recaptured it. Now the key level on the monthly chart is $194 which was the level of the breakout. Monthly closes below $194 would be bearish and favor further downside.
$QQQ Weekly
If there was any good news last week, it was that QQQ outperformed and held its 40 week ema. THat is the first key level to watch. THe second is $194. If QQQ can hold above the 40week ema at $202.50 it will bode well for a bounce in the other indexes and the market leading FAAMG names. 
$IWM Monthly
Price put in a double top with bearish divergence on the monthly. Very bearish set up. Additionally it lost the minor uptrend line. The door is open for a run at the Dec 2018 low
$IWM Weekly
Real simple here. Long above $144; short below it. $144 is the last chance for a bull defense. Below and price has a clear path to go much lower.
$USO Weekly
Price found support where it should have at the prior low. Sets up well for a bounce. Traders can be long against $9.25 ish with an eye on making $10.50. All bets are off with a break below $9.25 with lower prices being favored.
$TLT Weekly
Price was stopped on Friday at TL resistance as it put in a big divergent high. I favor a moderate pull back; possibly to the bottom of the rising wedge.
$GLD Weekly
Gold was over-extended above the 8 and 20 ema’s and was ripe for a pull back. Sellers may have been using as a source of funds last week. The big bearish candle favors further downside, possibly to the 50ema. Gold is in a bull market and I expect higher prices. Entries are tough to pinpoint. Looking to build a long position if equities bounce and gold falls further.
Pulling it all together
Reset your thinking to tactical and flexible. Expect high volatility to continue with headlines and earnings warnings etc. Create your bull and bear scenario game plans and be ready for anything. Reduce position sizes and keep plenty of cash at hand. We may yet see a panic flush of epic proportions that would allow shots for an upside move down the road.
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