Before the Bell April 28

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

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 – Trade School

The quotes are from HoF Market Wizard Paul Tudor Jones.  They say 90% of traders lose money.  Could it also be true that 90% of traders are fixated on making money as opposed to preventing losses?  Coincidence?  Probably not.  Any Village idiot can open a big position, have it go their way, and then make a bunch of money.  Next is a post on fintwit.  Long-term market participants focus on defense.  Closely examine yourself and your trading psychology.  What are you fixated on?  As I review my position book, I see a couple of terrible losers resulting from not promptly closing them out.  You’re not the only one with work left to do.

 

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

It’s Crunch Time

Yesterday, at the broad market index level, it was a day of oscillation and chop as participants cheered MSFT’s results but were clearly disappointed by what GOOGL had to say. Feeble attempts at a rally were thwarted at the top of the range and we actually closed near the lows. THis morning, $FB shares are set for a big gap open higher as the earnings report was better than most feared.  Today after the bell, AAPL and AMZN report.   Within FATMAAN we’ve had 3 positive results ( FB / MSFT / TSLA) and 2 bad reactions in NFLX and GOOGL.  With the indexes along with many of the SPDR sector charts are literally sitting on key support, the AAPL and AMZN report reactions will be very important.  As technicians often say ” “support is support until / unless broken”. Price is positioned so finely on support that we are set up either for a  big rally or a nasty breakdown.  Although I favor lower over time, I am not willing at this point to push a lot of chips to the middle of the table on what amounts to a guess. I want to stay nimble and keep an open mind.  Dont forget we have the FOMC next week so that is another big event.  If markets break down, they’ll be plenty of time to get short.  If we bounce, we know the lines to shoot against.

Here are the key support levels I have

  • SPY  $415. 50, $411
  • QQQ $317.35
  • IWM $188

 

Market Internals

  • Oscillators:

     

VIX and Vol Term Inversion

 

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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