Weekend Profit Navigator – September 2

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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

The bulls grabbed the ball this week and pushed prices for the indexes to the top of their range but were stoned on Friday as prices were firmly rejected.  We remain trapped in a wide-range chop zone that is making it tough to hold any position for more than a day as the market has shown it’s ability to snatch gains away from both the shorts and longs without discretion.

In these situations, its best to recognize it for what it is…..a hi-vol chop environment. If you’re a nimble, active day trader and are good at it, you’re likely having a field day.  For swing traders, it has been a frustrating month.  If you’ve been trying swing trades and been getting chopped to pieces, take a step back to re-assess. There are times to engage the market and times to step aside.  There will be plenty of time to make lots of money once price decides to either break out or break down from this range.  Avoid the frustration and losses; be patient and let the market come to you.

While my bias continues to be that this trading range will be resolved to the downside, I am not married to that idea.  A break above $SPY $294 and $QQQ $190 would force a re-think on my part.  Whether a bull or a bear, identify a level where you know you’re wrong.   Those are my levels.

$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:  This past week price made yet another run for the top of the range for a potential breakout but was once again rejected.   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 it’s hard to get too bearish. 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.

Trade Ideas:  If you are trading the weekly time frame, there are 2 objective shorting locations.  A rejection at the high end of the range around 294 / 295 or on a break of $282.   For the bulls, a break of $295 is a green light to get long or on a touch and hold of $282 with a tight stop below.

Because of the posture of the indicators I favor a resolution of the trading range to the downside.

$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. Although the RSI and PPO have turned down, they remain above their center lines which keeps them bullish.

Bearish Factors:  Price however has broken below trend coming off of a divergent high. And as previously mentioned the PPO bear cross and break of trend on RSI are early bearish developments.

Bottom Line:  No material changes from last week.  Like SPY , QQQ was rejected on Friday at the top of the range. 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:   Swing traders on longer time frames should wait for a decisive break from the chop range and “go with ” price.  For the more adventurous, an objective location for a short would be at the top of the range near $188 / $189 with a stop just above. Likewise, bulls have an objective long near $179 w/ a stop just below.

I believe this resolves to the downside but will let price decide. Conversation and speculation is nice but price pays the bills.  I am short QQQ

$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:  Price had a wide-ranging week touching both the bottom of the range at $145 and the top of the range at $150 If price can break above $150 it would have room to run to $152.50.  Below $145,  $142.50 is the first support.  A break below $142.50 opens the door to December lows.

Trade Ideas:    Above $150:  Get long with a tight stop below and look for $152.50 as a first target.   Below $145: Get short and look for $142.50 as a first target.   Nimble / active traders can trade the chop zone by buying tests of $145 and selling tests of $150.   I am short IWM

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 and key support at $56.50

Bearish Factors:  No immediate bearish factors but I would be watching for breaks of support, a trend line break on RSI and a bear cross on PPO.

Bottom Line:  The outperformance of the gold and silver miners have helped this sector. As long as price holds $56.50 there are no immediate worries.  If however $56.50 breaks along w/ the 40 week ema, the bull case would be in trouble.

Trade Ideas:   Use $56.50 as your bull / bear pivot.  Above $56.50 bulls are ok, below and it’s more iffy. Below the 40week ema the bears will become emboldened.  A first downside target would be $53.50.  A first target for bulls is $57.50 .

$XLC – Communications

Bullish Factors:  Price has held the 40 week ema and the indicators remain in their bullish zones above their center lines.

Bearish Factors:  Price broke below the uptrend line off the June low and the PPO has put in a bear cross which is an early bear look.

Bottom Line:  Price moved to the top of the “chop zone” near $49.50.  Price is at a location where it is poised to breakout but as we’ve seen for 4 weeks running, easier said than done.

Trade Ideas:   With price at the extreme top of the range trades set up this way.  On a break above and hold of $49.50 traders can get long.  Bears can get short below $49.50 and look for a move toward the bottom of the range.  A move below $48 would be an objective place to either add to a short position or establish one.  The target would be the June low of $46.50 and $45.

 

$XLE – Energy

Bullish Factors:  First positive week in 8.

Bearish Factors: Although XLE was up this week it failed to take out OH resistance at $58.  While oil has been steady to slightly soft the energy company shares have been decimated. Price has taken out the June lows and is well on its way to challenging the Dec lows. 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:  With the pop this past week, XLE makes for a better short.  Get short against $58 and look for a move to the December lows.   If price breaks above $58, 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:  Price recaptured the bull / bear pivot at $26.50 and its 40ema.

Bearish Factors:  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.

Bottom Line:  This could go either way but one thing I am confident of is $26.50 being the key. Above is ok for bulls; below and bears will start “feelin it”.   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 am bearish XLF for the reasons stated above. That said, I am waiting for a break of $26.50 which has been a great pivot point for longer term trades.       I am short $KRE

$XLI – Industrials

Bullish Factors:  Price recaptured the 40 week ema and is still above a high price / volume support levels.

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.All bearish developments

Bottom Line:   I view bull / bear control as being above or below the 40week ema. Above ok for bulls, below favoring bears.  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:   If you got long against $73.50 well done, you got a nice move. Trail your stops up and dont get greedy. THis market will take it away in a heartbeat. I think as long as price holds $73.50 the bulls are ok. Below $71 and look out below. Between 71 and 73.50 I’d expect choppy action.  Below $71 hit it with a bazooka. Much lower price are favored.

$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. 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.  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:  Sector remains a beast; All-time highs

Bearish Factors:  Nothing

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. With blue sky above there are no natural sellers.  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:  Price had an inside week  but managed to recapture it’s  40ema and the bull / bear pivot at $90. Both events are bullish.

Bearish Factors: RSI and PPO remain weak.

Bottom Line:  Price continues to wrestle with $90 which has done a great job as the bull / bear pivot. A break below I’d be inclined to lean bearish.  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 emerge and get traction on the democratic side.

Trade Ideas:   Lean bearish below $90 with a stop above.  $90 would also be a good location for bulls to be mindful of.  Above $90 and bulls remain in control.

$XLY – Consumer Discretionary

Bullish Factors: Price remains well above the 40ema at $114 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:  RSI has broken trend and PPO has put in a bear cross. Both are bearish developments.

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.

Trade Ideas:  Bulls remain in control above $114 and I’d expect dipsters to defend that level. 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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