Weekend Profit Navigator September 22

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The Weekend Profit Navigator provides an in-depth stock market outlook for the week ahead.  Key trading levels for the indexes and the SPDR Sectors are provided with timely commentary to keep you on the right side of the trade.

$SPX  20 year view

The chart captures 20 years of monthly candles.  As you can see, the uptrend line off the 2009 low was violated in the Dec 2018 sell off. Price has recovered since then and has been back testing the bottom side of the uptrend line for several months, but has not been able to recapture it. From a purely technical view price needs to recapture the uptrend line for a secure view that the uptrend is proceeding. With price still below trend it is still vulnerable to sell offs.  Bulls still have work to do to recapture that trendline.  While Bears have had moments of success driving price down since December , they have not had any lasting impact to break the chart.

The Markets from 30,000 feet

In the early part of the week, price on the indexes for the most part drifted in front of the FOMC rate decision.  While Powell did a much better job in his presser the price action following the announcement remained choppy with a downward bias through the end of the week. Contributing to the choppiness was the “Quad Witching” option expiration on Friday.

The week following Fed announcements and options expiration are often pivotal and mark inflection points in price that often lasts for weeks.  I will be watching this carefully.  The key levels for SPY and QQQ are where price originally broke out from. SPY $292 and $QQQ $189.  If bulls push price into the prior trading range it is bearish news. On the flip side a move to all time highs will again send bears packing.

$SPY  2 hour

Bullish Factors:  Price has held key levels $297.50, $295.50 and $292.  Price above these levels keep the breakout in tact.

Bearish Factors:  Price broke the rising wedge to the down side and backtested OH resistance.  Indicators are weak and favor more downside as currently positioned.

Bottom Line:   Price is currently vulnerable to more downside. Bulls need a breakout above $301 to get the program back on track.  Bears need to break a couple of key support levels and drive price back into the trading range ( below $292 )  to create a false breakout set up which would be very bearish.

Trade Ideas:  Bulls can stay long against $297.50 but below and the bears will feel more emboldened. Bulls would be in complete control above $301.  For bears, a break below $297.50 would be a place to anchor a short with an eye on $295.50.  Below $295.50 would be an objective place to add short exposure with an eye on $292.

$QQQ  2 hour

Bullish Factors:  Price remains above $189 where the breakout occurred and as long as that is the case the breakout remains in tact.

Bearish Factors:  Price failed 2x to breakout to challenge the old highs and was soundly rejected both times. Now the indicators are weakening.

Bottom Line:  Bulls ok above $189, below things are likely to fall apart.  Bulls need to convincingly break price out above OH resistance.  Below $189 would result in a failed breakout scenario which would be bearish.

Trade ideas:   Between $189 and $194 is chop city.  If price reaches $189 expect bulls to defend and if you’re a bull you want to be buying at that location with a stop just below.  Bears should key off $193.50 and $189.  A back touch of resistance is an objective place for a short as would on a break of $189.

$IWM Daily

Bullish Factors:  Price is in the upper 25% of the recent trading range between $145 and $158 and is above all the key moving averages.

Bearish Factors:  Despite the advance price has failed multiple times over the past few months to take out $158. Until price is able to take out that level, benefit of doubt is with the Bears.

Bottom Line:   While the advance was impressive off the lows, price has not shown it can penetrate the OH resistance at $158. Until it does, the strategy in my opinion is to fade advances against resistance.  Above $158 flips the script and bulls would move into control.

Trade Ideas:    While there are no simple or easy trades, the set up for IWM is binary.  Get long above $158 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.

Risk On or Risk Off ??

After the risk-on inflection point in early September, all the risk- on indicators have rolled over.  While this is short term bearish it should be noted that these indicators ( on the hourly chart ) can and do change quickly.

$VIX Daily

The VIX found support near $13 and has bounced to overhead resistance. A break above $15.75 would move volatility into a higher range and would likely lead to or be an indicator of lower equity prices.  $15.75  is a key level to watch.

High Beta ( SPHB ) vs Low Vol ( SPLV )

The declining trend is signalling a persistent bid in the low volatility names and showing a preference for risk off positioning.

Consumer Discretionary ( XLY ) vs Consumer Staples ( XLP )

When this ratio is rising it shows risk appetite is increasing.  The ratio just broke down and signals a shift toward a defensive posture.

Transports vs Utilities

Despite fits and starts by transports, utilities continue to outperform as shown by a series of lower highs and lower lows.   Risk Off

Equities ( SPY )  vs Bonds ( TLT ) Relative Performance

The ratio rolled over at the end of Q4 2018 and has yet to break out to the upside.  At least by this metric, bonds are preferred to stocks.  Risk off.

SPDR Sector Deep Dive

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:  The rejection at OH resistance is bearish and the chart has a double top look. No immediate bearish factors but I would be watching for a rejection here at resistance.

Bottom Line:  Price needs to take out $59.25 to invalidate the double top look.   A break above and price would be in a position to reach for a run at old highs.

Trade Ideas:   Bears can short here against the OH resistance at $59.25 with a stop just above. Bulls need to wait for a breakout to either add to existing long positions or establish new ones.

$XLC – Communications

Bullish Factors:  Price near the highs with indicators bullishly positioned.

Bearish Factors:  Another double top look with indicators lower than previous high.

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:   Bulls can add to existing longs on a break above $51.50 otherwise I’d be cautious and book at least partial profits if you got long at lower levels. Dont like the look of that potential double top.    Bears can shoot against $51.50 on the downside with the rejection at OH resistance and look for a move to $49.50.

$XLE – Energy

Bullish Factors:  Money flowed into the sector on the Saudi supply disruption and price gained on the week.

Bearish Factors: Price action broke above resistance but then closed below both technical resistance and the 40week ema giving the price action a failed breakout look that is bearish.

Bottom Line:  Looks ripe for an objective , low-risk short to my eye. A price break back above the 40ema and $62.50 would put bulls back in control.

Trade Ideas:  Short against the 40ema and the downtrend line. Any move above and kill the trade.  Bulls need to wait for a break and hold above the DT line and $62 / $62.50 before establishing long positions.  The price action this week was bearish since bulls were not able to hold the breakout despite hugely bullish news for oil .

$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:  Yields fell this week and financials followed.

Bottom Line:   Expect choppy action between $29 and $27.75.  Obviously moves in interest rates will be key to the sector.  Rates on the $TNX hit resistance and backed away.  Bulls need a breakout in yields to help the financials higher.

Trade Ideas:   Price caught between support and resistance. Wait for price to move closer to either one before taking a shot.   I like trading $KRE over $XLF. You get a clearn shot at banks vs XLF which has lots of moving parts besides banks.

$XLI – Industrials

Bullish Factors:  Price is near all time highs and the indicators are above their centerlines.

Bearish Factors:  From a price action perspective you never want to see price breakout then immediately fail and fall back below. Failed breakouts are bearish.

Bottom Line:   While we are only talking about a few cents, price breaking back below $78 after breaking out is bearish.  If bulls can pop price back above they can negate last weeks failed move. Otherwise the bears are apt to sink their teeth into this and drive price lower.

Trade Ideas:   Bears, use the failed breakout and close proximity to the key level and get short against $78.  It is a very objective and low-risk trade location.  If price pops above and holds, close the position.  Bulls need to wait for the break out to hold to get long or add to existing positions.

$XLK – Technology

No technical Changes.

Bullish Factors:  Price remains well above  the 40ema and near all time highs. .

Bearish Factors:  Key off $78.50.  A break below is bearish.  Above keeps bulls in control.

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 $78.50 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:  None.

Bottom Line:  No technical changes from last week. Bulls have no worries for now with the sector having the best performance last week and at all-time highs.  No red bars for weeks.  That said, dont get complacent. Trail your stops up.

Trade Ideas:   Simple stuff here. Bulls, stay long and trail up stops.   Bears:  Dont get cute and try to call a top. Not happening.  Wait for a trigger.

$XLV – Healthcare

Bullish Factors:  Price now walking the uptrend line off the Dec 2018 low and is above the 40ema.

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 had no effect last week; I thought they would have.

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:  There was bearish follow through to the spinning top doji at resistance which signals the high probability of further corrective action.  The aforementioned $AMZN has been very weak.  Many of the other top components of XLY like MCD, SBUX, HD and LOW also took dumps last week.

Bottom Line:  This is an important offensive sector that is a good proxy for gauging risk on / risk off sentiment.   Bulls are in control, but if they cant take out $124 soon, bears will be emboldened to take it lower.

Trade Ideas:  Although less objective than last week, bears can shoot against either $124 or the top of last weeks candle. Bulls can either add to existing positions or establish new ones if price clears $124 and holds it.

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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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