Weekend Profit Navigator September 8

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

We had some significant technical events this past week.  SPY first challenged the top of it’s $12 point trading range before gapping above resistance in dramatic fashion.  From a classic technical analysis perspective, the measured move, 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 and their grandma have been looking at for weeks. All SPDR sectors were up for the week showing the advance was broad based. A good sign for the bulls.

The $NDX saw similar action with QQQ breaking above it’s $10 trading range with a big gap higher. The Q’s now have a measured move target of $199.

The small cap Russell index remains the mystery as it under performs it’s larger cap cousins.  IWM remains $20 lower than it’s 2018 high with price below both its 200ema and 50 ema.  While the small cap under performance remains perplexing, I don’t think it is something that should keep you on the sidelines indefinitely if you are constructive on other segments of the market.

My bias all along has been that the trading range would resolve to the downside. The recent breakout has forced me into a re-think. While bearish outcomes still remain possible, with each passing day that price holds above $294 on SPY, those outcomes become more remote.  Bulls should keep in mind the big unfilled gaps that remain below.

 

$SPY Weekly

Bullish Factors:  Price broke above key resistance after a long, wide – range balance area.  Price remains well above it’s 40 week ema.

Bearish Factors:  There are multiple open gaps below that remain open after this week’s price action. THese gaps will be filled at some point, but until they are filled, the breakout will be built upon a shaky foundation.

Bottom Line:   Price broke above the trading range with a big gap up which can only be taken as bullish.  Watch $297 carefully.  There is a $3 open gap below to $294.   Late arriving bulls wont appreciate being under water if this level breaks because a rapid move to $294 would be favored.   About the most bearish event possible is if $294 fails and price moves back into the trading range. THis would constitute a failed breakout with a price target of $282.

On the upside, anything above $297 is bullish and new highs favored.

Trade Ideas:  Bulls:  Stay long against $297 and look for new highs.   Bears: Be patient and wait for a break of $297 for a quick flash back fill of the open gap to $294.  If $294 were to fail, it would be objective to add to your short position on the failed breakout.

$QQQ Weekly

Like SPY, QQQ broke above its wide trading range and is in a position to reach for new highs.

Bullish Factors:  Price remains above the 40ema with what once was key resistance at $189 now becoming key support.  RSI held its center line and PPO is poised to put in a bull cross.  Both bullish looks.

Bearish Factors:  There are open gaps below that need to be filled. If QQQ puts in a marginal new high, it will almost certainly be a divergent high as momentum has been falling since the Jan 2018 highs.

Bottom Line:  As long as price holds $189 the breakout remains in tact.  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:   The set up is a little tricky.  There is roughly a $2 gap from $190.33 to $188.25 ish.  Key support lies at $189.   Swing traders can be long against $189 with a tight stop just below.  That said , a break of $189 to the downside would favor a gap fill to $188.25 and that would also be a failed breakout.  Bears can either get short on a break of $190.25 or wait for a break of $189 to get short.  That said, the benefit of doubt now swings to the bulls after the breakout.

 

$IWM Weekly

Bullish Factors:  None

Bearish Factors:  Price remains pinned below its 40 week ema and $150 for 5 weeks with the RSI and PPO indicators remaining weak.

Bottom Line:   $150 is the gateway price to higher levels while $145 remains the gateway to lower prices.  In between is a chop zone.

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:  Despite a rough week for the gold and silver miners, XLB put in a decent gain and built upon the prior week’s gain.  Some OH resistance comes in at about $57.60

Trade Ideas:   Use $56.50 as your bull / bear pivot.  Above $56.50 bulls are ok, below and it’s more iffy. If price moves above $57.60, bulls can add to their positions.  A price break below the uptrend line off the December lows would mark a change in control of the tape from bulls to bears.

$XLC – Communications

Bullish Factors:  Price built upon last week’s gains and the indicators are bullishly configured.

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 broke well above the top of the chop zone at $49.50 and hence the bulls are in control.

Trade Ideas:   If you got long on a break of $49.50 as suggested last week, well done. Stay long and look for new highs.  An objective place to add to your position is a break above the prior highs.  Bears, sit tight, nothing to do.  If price breaks $49.50  you can establish a short there and look for a move to $48.

$XLE – Energy

Bullish Factors:  Price broke above key OH resistance at $58 and now favors a move to DT resistance line.

Bearish Factors: Lower highs and lower lows and in a persistent downtrend.  The indicators remain within their bearish regimes below their centerlines.

Bottom Line:  Aside from the inevitable relief rally, keep a bearish bias.

Trade Ideas:  A move to the downtrend resistance line is favored but if price breaks below $58 get short.  If price reaches the downtrend line, it would be an objective place to try a short.   Bulls:  Sit tight.  If price takes out the downtrend line it would be a smart place to locate a long for a potentially durable swing long.  IMO I dont think establishing a long here makes sense. Price is in no man’s land and the benefit of the doubt has to remain with the bulls. THat changes if price takes out the DT line

$XLF – Financials

Bullish Factors:  Price recaptured the bull / bear pivot at $26.50 and its 40ema and built upon those gains last week.

Bearish Factors:  THe indicators are not screaming out strength.

Bottom Line:  This one has been frustrating for me as $KRE simply did not cooperate with my short tries.  $26.50 remains the bull / bear pivot.  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:   There is resistance in and around the $28 level. Above $28 and price can make a run at the most recent high and possibly the 2018 highs which it has not taken out yet.  Bulls are fine to stay long against $26.50.  Bears are probably best served by being patient and waiting for a break of $26.50 or a re-test of the highs before getting any bright ideas.

$XLI – Industrials

Bullish Factors:  Price built upon last week’s gains and is still above it’s 40 week ema.

Bearish Factors:  Price is 0 for 4 on taking out $79.  Will the 5th try be the charm?  Time will tell but $79 is the next location of interest for both  bulls and bears.

Bottom Line:   The moment of truth for XLI will come in the resistance zone between $78.50 and $79.  $BA is a major component within XLI so it is a good barometer to be watched closely.

Trade Ideas:   Given XLI’s inability to take out $79, I’d be a motivated seller if / when price tests that area.  That would be an awesome trade location if the market stumbles.  If you’re wrong, close out the trade and get long against $79 for blue sky highs.  If you’ve been long from much lower prices, I’d be trimming and trailing stops into that resistance zone.  If price breaks through, it would be objective to add to long exposure with a clear line in the sand to shoot against.

$XLK – Technology

Bullish Factors:  Price recaptured the uptrend as I have drawn it and remains well above  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:  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.   As it stands now, price has a clear run to the old highs.  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.  $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:  Watch that gravestone doji. These candlesticks often mark a reversal point. A confirmation would be a big red candle this week.

Bottom Line:  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.   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:  Price built on the prior week’s gains and moved higher off key support at $90.  Price also above the 40 week ema.

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 at $90

$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:  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. If price breaks above $124 that is an objective place to either add to an existing position or establish a new one against $124.   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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