The Weekend Profit Navigator explores the market action and the key trading levels for the indexes and the SPDR Sectors for the week ahead. Timely commentary is provided to keep you on the right side of the trade.
The Markets from 30,000 feet
$IWM was the star of the week up 5% while SPY and QQQ eked out fractional gains. From a classic technical analysis perspective, the measured move for SPY, if it is able to hold the breakout is $306. ( $294 resistance + $12 wide trading range = $306 measured move target. ) This would bring price back to the top of the channel and broadening top everyone is watching. ( shown below ).
The small cap Russell index blasted higher as the sector rotation from Growth to value ( dash for trash ) went nuts as previously abandoned sectors like materials, energy, financials and apparel all got significant bids. While impressive the week ahead will really put the rotation to the test as IWM is right at resistance and is therefor at an excellent trade location for swing traders.
SPY and QQQ are near all-time highs which on face value is bullish, but significant OH resistance is in place and it remains to be seen if there is enough power to punch price through. As it stands, marginal new highs could be achieved, but those highs, as you’ll see in the charts below, would be divergent highs. The last 2 divergent highs on QQQ and SPY have been met with swift sell offs.
Much of this week’s price action will be dominated by the reaction to the FOMC’s rate decision on Wednesday at 2pm. By most accounts, a 25bps cut is priced into the market, but as we’ve seen it isn’t as much about what they do vs what they say. To this point Chairman Powell has not been very adept at projecting confidence and clarity on the path forward for rates. If he sticks to the one and done, mid-cycle adjustment theme, the market may be set up for disappointment. I’d expect the price action to either drift higher toward the announcement or remain mostly flat. Probably a good time to review positions and relax vs actively taking on added risk into the announcement.
My bias for a downward resolution to the trading range has been tempered by the recent price action. That said, I still think the upside is limited. Now however, tradable downside moves now require a technical trigger. While those initial triggers are at higher levels, the main technical event that would demand attention would be if price fell back into the prior trading range. THat would mark a failed breakout and would thus be very bearish. Obviously, breakouts to new highs would be bullish.
$SPY Weekly and 2hour
Bullish Factors: Price is back testing broken resistance and remains well above its 40 week ema. The indicators are challenging resistance and are bullishly positioned.
Bearish Factors: On the 2hr chart you can see price driving to the apex of a steep ascending wedge. A downside break opens the door to further downside.
Bottom Line: A break of the uptrend line on the 2 hr around $300 would likely set up a test of $297. Below $297 and the door is open for a test of $294 which was the location of the original breakout. Below $294 and price is back within the prior trading range. THe bulls are looking for a break above the rising wedge around $303 and then a run to overhead resistance at the green trend line at around $305.
Trade Ideas: Sit tight ahead of Powell and remember, the first move after the FOMC is often a head fake.. Bulls: Stay long against $300 and look for new highs. Bears: Be patient and wait for a break of $300 for a move to $297. Below $297 look for a test of $294.
$QQQ Weekly and 2 hour
Bullish Factors: Price remains above the 40ema and continues to advance toward new marginal highs. The indicators are still bullishly configured.
Bearish Factors: Any marginal new high will likely come with bearish divergence. Prior occasions like this have resulted in swift pullbacks.
Bottom Line: As long as price holds $192 and the 2 hour uptrend line all remains OK for bulls. Below $192 and a test of the original break out at $189 is favored. Below $189 would be a very bearish development as it would signal a failed breakout and favor a much deeper move lower. The bulls are in control and can aim for new highs.
Trade ideas: Be patient ahead of Powell. Be suspicious of moves ahead of the fed. The key location for QQQ is $192. Bulls are fine with price above but iffy below. Above $192 and bulls can shoot for new highs. Bears should focus on breaks below $192 to anchor a short and look for $189 as a first target. Expect bulls to defend $192 but if it cracks, much further downside should be favored.
$IWM Weekly
Bullish Factors: What a difference a week makes. The laggard becomes the leader up 5% this past week and recapturing the 40ema in the process.
Bearish Factors: Despite the advance, the indicators remain weak. Price is at resistance.
Bottom Line: Our crew nailed the trade by getting long against $150 and was highlighted here last week. Now however, price is at resistance at $157.50 that has essentially capped all advances in all of 2019. A great trade location to focus on.
Trade Ideas: While there are no simple or easy trades, the set up for IWM is binary. Get long above $157.50 and short below it. This trade location has the potential to trigger a swing trade that could last for weeks. A break above would target $170 on a measured move basis. A rejection would favor lower prices and if SPY / QQQ head lower, IWM could go all the way back to test $145. IMO this is the highest opportunity on the board for the indexes and the most straightforward.
Let’s look at the sectors.
$XLB – Materials
Bullish Factors: The indicators remain above their center lines and price is above the 40 week ema. Price threatening to take out a key level at $59.25.
Bearish Factors: No immediate bearish factors but I would be watching for a rejection here at resistance.
Bottom Line: Materials benefiting from the rotation to value as money floods into base metals and chemicals. Price at a ket level. A break above and price would be i a position to reach for a run at old highs.
Trade Ideas: A nice trade location with price right at a resistance level. Get long above $59.25 but if you see a rejection, get short against OH resistance. Support levels below are shown on the chart where reactions are likely.
$XLC – Communications
Bullish Factors: Price built upon last week’s gains and the indicators are bullishly configured.
Bearish Factors: Price approaching resistance. Other than that, not much to be bearish about.
Bottom Line: $51.5 is a nice trade location to focus on. A break above is bullish and signals new highs coming. A rejection and bulls will have to wait.
Trade Ideas: If you got long on a break of $49.50 as suggested two weeks ago, consider booking at least partial profits as price approaches key OH resistance. If price can break and hold above $51.50, that would be an objective location to either add or start a new bullish position. Wait for Powell to clear before doing anything though. Bears can shoot against $51.50 on the downside if price is rejected there.
$XLE – Energy
Bullish Factors: Money flowed into Energy even though oil prices were muted. Beaten down energy names saw inflows as beaten down names saw bids. Turbulence in the Middle East has the potential to spike oil and further the advance.
Bearish Factors: Price is still below the trend line and unless / until price pops above, the chart remains bullish.
Bottom Line: Price is advancing and is in a position to take out downtrend and OH resistance. Watch $63 carefully, A break above would likely spark a more significant advance.
Trade Ideas: Focus on $63. As long as price is pinned below or rejected there it is a nice location for a short. But if you see price impulsively take out $63, get long and look for $67. Stay on your toes. This could be a volatile and fast moving trade. Oil traders will be balancing 2 opposing forces. One is bullish ( Saudi supply disruption due to drone attack ) while the other is bearish ( Lifting Iran oil sanctions and 4M BBL of oil a day into a slowing global outlook ) Rather than melt your mind on those two factors, focus on $63. Bullish above, bearish below. Price will give you the answer.
$XLF – Financials
Bullish Factors: Yields backing up juiced financials by almost 4% and now has price pushing toward key resistance at the old highs.Indicators are also threatening a breakout of their own to support the advance.
Bearish Factors: Fading and bears are on the retreat.
Bottom Line: THe FOMC will have a lot to say about the future here. If rates continue higher financials will likely advance with them. THat said, yields are fast approaching resistance of their own. If Powell somehow reverses rates, watch for this advance to stall.
Trade Ideas: Dont touch this ahead of Powell. After the FOMC if you see a break above $29.25 that would be an objective place to add to longs or establish a new position if rates scream higher. IMO that does not happen, but that’s why we have charts. A break above resistance is bullish. NOTE: $KRE is also at resistance. It is said $KRE is more sensitive to rates than the big banks. If that’s true you may be able to capture more juice by being long $KRE than $XLF.
$XLI – Industrials
Bullish Factors: Price breaking to new highs is bullish.
Bearish Factors: Price finally took out long standing resistance and is now at new highs so nothing bearish there. That said, a break back below would signal a failed breakout and that would be bearish.
Bottom Line: THe bulls did it. New highs. Now all they have to do is build on it.
Trade Ideas: Short n sweet here. Stay long against $78.50. Get short if price drops back below that level.
$XLK – Technology
Bullish Factors: Price recaptured the uptrend as I have drawn it and remains well above the 40ema. Although price was down 0.42% it has not broken below the uptrend line.
Bearish Factors: A marginal new high would likely be with bearish divergence.
Bottom Line: I view XLK as a key to the market. Big bearish ideas won’t materialize unless they break tech. Watch FB / AAPL / AMZN / MSFT / GOOGL. If these act well, XLK is going higher. If not, XLK will have a hard time. $79 is a key level to hold for the bulls.
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. With price above the 40 week ema, tough to be a big time bear.
$XLP – Staples
Bullish Factors: Price above $59 keeps everything bullish.
Bearish Factors: Nothing
Bottom Line: No changes from last week. 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. First signs of a problem would be a break of the dashed trend line. If you’re long, congrats!. Stay long and trail your stops up. Bears: lots of thin volume / price support below which means when this crowded trade ends, it should fall fast. Set yourself an alarm of two so you’re ready. Be patient, nothing to do at this time.
$XLU – Utilities
Bullish Factors: Sector remains a beast; All-time highs
Bearish Factors: The gravestone doji from last week proved to be a false alarm. XLU may be close to topping out but trying to short all -time highs isnt the play. Wait for a trigger.
Bottom Line: No technical changes from last week. Bulls have no worries above $61 but should price drop below it would favor a move to the uptrend line. Even a move to the trend line would still keep the uptrend in tact.
Trade Ideas: Bulls, stay long above $61 and trail up stops. Bears: Alarm $61. With a break of $61 get short with an eye on a move to the TL at $59.50. Below $59.50 favors a move to $58. Below $58 and some serious downside may be in play.
$XLV – Healthcare
Bullish Factors: Although price took a deep look below, it recovered and remains above trend. A good lesson on trading weekly charts. THe weekly closes are all that count. The deep look below mid week was a head fake.
Bearish Factors: RSI and PPO are improving but still pretty weak.
Bottom Line: Bulls regained control of the tape the past 2 weeks. I still like $90 as the bull / bear pivot point as it continues to work. Price has a clear path to $94 if it wants it. Democratic debates this week. Watch managed care as it is likely to again be in the cross hairs of the democratic hopefuls. I maintain the rhetoric will be an overhang for the sector.
Trade Ideas: Bulls can stay long against $90 and look for $94. Bears should take a break and watch. Nothing to do unless price approaches resistance at $94 or breaks support of the trend line.
$XLY – Consumer Discretionary
Bullish Factors: Price remains well above the 40ema and the indicators remain above their centerlines. They’ll have a hard time cracking this one unless they 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: The spinning top doji at resistance doesnt inspire confidence if you’re bullish. Price approaching resistance at $124 at the recent high. Not really bearish but a location for bears to watch for possible rejection.
Bottom Line: This is an important offensive sector that is a good proxy for gauging risk on / risk off sentiment. Bulls are in control, and if they can take out $124, then only blue skies above.
Trade Ideas: Bulls: Stay long against $116. Trim and trail stops into $124 resistance. A break above $124 to all time highs is a place to add to positions against $124. Any break back below $124 and close your longs. Failed breakouts are usually followed by more selling. Bears: A test of $124 is an objective place to try a short. If you get a rejection there, play for a move back to $116. Not saying this will work, but it is an objective place to try. $124 is the gateway level for higher prices.
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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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