Before the Bell April 26

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Tickers:  SPY QQQ IWM FB AAPL TSLA MSFT AMZN GOOGL NFLX SMH

Before the Bell  is premarket prep for active traders. The note provides detailed stock market technical analysis focused on the indexes and FAAMGs. Key levels and trading locations are provided, along with trading plans and timely commentary to keep you on the right side of the trade.

Inspiration 

The quote is from Dr. Brett Steenbarger, psychologist and trading coach. If something isnt working, the only way to change is to do something different. If your trading isn’t going the way you want, analyze it.  Is it the process or the execution of it?  In most cases, traders quickly point to the process and thus get on the hamster wheel of chasing new indicators or processes.  In my experience and observations problems are primarily in the execution of a good process. Look there first. Take action and fix those execution errors. 

Earnings

This will be a pivotal week of earnings as much of mega-cap tech reports. Make note of when the big names report, especially if you are in the Q’s or individual names. These names can / will move the entire market.

Today’s Companion Video  

The video is a detailed technical review of the indexes and FATMAAN names. All the key trading levels are identified along with commentary and trade plans for each ticker. Trade ideas are also discussed.  Run the video at  1.5x to maximize efficiency without loss of clarity.

Find the Companion Video HERE

Macro Data Releases Week of April 25

  • Monday –  Chicago Fed; Dallas Fed
  • Tuesday – Durable Goods; New Home Sales; Consumer Confidence; Case-Shiller Home Prices; Richmond Fed; 2 yr Bond Auction 1pm
  • Wednesday – Intl Trade; Retail & Wholesale inventories; Pending Home Sales; Oil Inventories; 5yr bond auction
  • Thursday – GDP; Jobless Claims; NatGas Inv; KC fed; 7yr Bond Auctions
  • Friday – Personal Income; Employment Cost index; Chicago PMI; MI consumer Sentiment

BIG BOY BLITZ

The balance of the mega-cap Tech names begin reporting after the bell tonight. ( MSFT / GOOGL ) followed by $FB Wed, then AAPL / AMZN Thursday after the bell.  Because of the sheer cap-weighting of these names, there is the high likelihood of whipsaw price action particularly in QQQ and to a certain degree in SPY.  Although I remain in the bearish camp for equities for all the reasons we’ve been talking about, for me there is no edge to going out on a limb heading into these earnings. I assume all these names will blow their earnings out of the water because they usually do. That said, I have no idea how the market will react.  ( Fade or drive higher for a kick back rally )  THerefore I plan to be light on exposure for the balance of the week, possibly trying to jump on a post earnings 2nd day move if it develops.

Yesterday, the TWTR developments lifted sentiment in the Bubble / Social media space helping the ARK Complex outperform. The basic theme basket performance is shown in the table below.

Prior Sector Leaders continue being destroyed

Global slowdown fears fueled by China lockdowns and the threat of expanded lockdowns continued to crush energy, commodities, and anything connect to China.  Traders should track these sectors closely in the coming weeks. I think this sharp pull back will be proven to be a buying opportunity but timing is everything in this game.  Energy and the entire commodity complex has a structural deficit. China fits in on the demand side. If their economy remains stunted, they’ll continue to be a wet blanket on energy and commodities. We’ll need to be careful not to jump the gun on a re-entry to the space.

  • US Markets
    • Yesterday the indexes appeared to put in a marginal bottom after 2 hard days of selling and rallied from late morning into the close.
    • On shorter time frames, the bounce looks like a bear flag.  We’ll need to wait and see if that structure plays out with the big earnings names having  lot to say about that.
    • Otherwise, be putting your Fib retracement tool on the price action for locations where the bounce may run out of gas.
    • My base case if that the Feb / March lows will at a minimum be tested on this sequence ( and probably break ). We got close, but fell shy of those levels yesterday.

Market Internals

  • Oscillators:

    • NYMO and NAMO both fell shy of falling into traditionally oversold conditions at minus 60.  Be open to a marginal rally, then having the oscillators make another run lower.

VIX and Vol Term Inversion

Watching the intraday VIX trend was helpful in picking the bottom yesterday as the VIX peaked, then rolled over. We did not get a vol term inversion signal as the 3mo vs 1mo term structure did not invert.  Seeing both Vol Term structures invert would mark a higher probability that a major tradable bottom is in place.

Macro Framework until further notice

Shrinking Liquidity

The combination of aggressive rates hikes and balance sheet run-off are bearish for markets.  Markets thrive in times of ample liquidity and starve in times of low liquidity.  JPOW & Co. now have a singular mission to knock down inflation by the reverse wealth effect. These guys won’t stop until the market is down substantially. There will be lots of trades both bullish and bearish between now and then, but they’ve made themselves clear, they will insist on the market going down. This will be the over-arching theme from now through the summer. Here is an excellent 75min video that explains the linkage between global liquidity and capital markets.   HERE

Persistent Inflation

While inflation may moderate later this year, I think that inflation will be persistent for at least a year. The FOMC’s rate hikes will tighten financial conditions and thus make it tough on financial assets, but it wont affect oil or gas prices, a grain shortage or a myriad of other commodity based inflation inputs that are the root causes of the problem.  s

Commodity Super Cycle

“Spot Prices cure Surpluses; Long-Term Contracts solve shortages”  Jeff Currie Head of Commodities at Goldman Sachs.  Commodities, historically speaking, tend to trend in broad 10 year Boom –  Bust cycles. This is also coincident with capital funding of the sector. The commodity boom of 2000-2008 was met with a wall of capital investment. THis greatly expanded capacity of all manner of commodities. Then from 2012 – 2020 was a period of capital destruction and collapsing returns. The emergence of ESG has constrained re-investment into these “dirty Sectors”.  We are now in the upswing of the commodity cycle.  We are probably in just the first year of the upswing. We are literally YEARs away from seeing supply expand because no capital is yet flowing into the sector.  The exception of course is a recession. A recession will kill demand and cause most asset classes , including commodities.  Here is a 60min podcast that summarizes the commodity situation.  Find it HERE

Earnings Season & Bracket Trades

As earnings season kicks into gear, a reminder that this is prime time for Bracket Trades. Bracket Trades are those trades created when a stock gaps up or down from a news driven event. Bracket Trades are set up as “2nd day trades” where you alarm the high and low of the prior day’s trading range, then patiently wait for price to either break lower or higher from the range.  You then follow price out of the range. I will do my best to help identify them for you, but you can easily find them yourself by doing a sort for “GAP ups” and “GAP Down” on your trading platform.  I add additional filters for only stocks above $10 and at least 500,000 shares traded. You can add additional filters to cut down the sort further. Generally speaking, stocks favor continuing in the direction of the gap higher or lower.

You can find out more about Bracket Trades in the video Run the Player at 1.5x      HERE.

 

INDEX CHARTS

Use the following pivots and levels in your active and swing trading. Added color is provided on the video.  Link above.

SPY Daily

SPY 1hr

QQQ Daily

QQQ 1hr

IWM Daily

IWM 1 hr

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