Tickers discussed: SPY QQQ IWM INTC SMH Strategy & Tactics
The Daily Profit Compass provides the stock market analysis for the day. Key levels and trading locations for the indexes are provided, along with trading plans and timely commentary to keep you on the right side of the trade.
Trader’s Couch – Enemies of Maintaining Emotional Stability
As we’ve discussed countless times, maintaining emotional stability while trading is paramount. One of the things that can get in the way of achieving that are big P/L swings. When your P/L is swinging wildly it makes having emotional stability really tough. Up huge today, devastated tomorrow. Even pros would find it difficult to maintain a stable core. One way to address the problem is trading smaller both in the size of each position and in the percent of your assets at risk. With smaller position sizes and less of your total capital of risk you’ll remain stable. And if you’re stable the chances of improving your consistency of winning trades greatly increase. A classic less-is-more story. Another way to minimize wild P/L swings is through diversification of asset classes that are non correlated. Equities / Bonds / Precious Metals / Commodities will all behave differently on any given day. Mix up some risk-on assets with some risk-off assets. It’s a psychological benefit to always see some green on the board versus every single position being hammered. Explore those asset classes that you are not familiar with. For example, when was the last time you were long Coffee, sugar, or corn? Corn prices don’t have anything to do with interest rates or equities. There are liquid ETFs for all of them…commodities are not limited to oil and copper. If you can knock down your P/L vol, your emotional stability will return and will be easier to maintain. An emotionally stable trader is a better trader.
Earnings
Verizon and American Express headline this morning’s earnings releases.
News Flow
- Bill to re-capitalize the PPP program goes to President’s desk this morning for his signature
- Gilead and markets slide on report their drug is not an effective therapeutic for Covid.
- $CLR declares Force Majeure and refuses to deliver a crude contract to a refiner
- GOOGL to layoff 50% of marketing staff as AD spending plunges; by extension $FB on watch
- Cowen transport analyst estimates airlines to permanently shed 200K jobs in 2020; Meanwhile $LUV contemplates first layoffs EVER
- Big Universities and public companies shamed into giving back PPP monies. Public outcry does have an effect.
- $INTC drops 8-10% after earnings
Massive Cognitive Failure
I’m going to beat a dead horse again. Why? Because I want to I guess. “Massive cognitive failure” are the words Mohamed El-Erian used to describe market participant’s reaction to the events that are unfolding before them. The data is so horrific that the mind cannot conceptualize the reality of what’s coming. It’s putting tape on your windows for a CAT 5 hurricane that will rip your roof off. Instead, its much easier and more convenient to concoct happy talk or assume the FED will buy EVERYTHING so investors and traders can waltz through this with no pain. We are at 20% + unemployment in 5 weeks. France just posted a composite PMI of 11. The planet is at full stop. Companies can offer zero guidance because they have zero visibility; they are in the Fog of War. Nobody seems to grasp how difficult it will be to do a global un-synchronized cold start to complicated, intertwined economies. I’m not an economist but I know SPX was at 2800 last summer with the lowest unemployment in 50 years. Now we’re at 2800 with unemployment racing to 25% ( same as the Great Depression ), a FED balance sheet that has doubled in 6 weeks, US debt at $4T for this year, never mind all the debt companies are piling on to ensure that liquidity issues don’t morph into solvency issues. Even so, the Ch. 11 filings are coming. All that said, here we are at 2800. If you are buying at this level for anything more than a trade, you must believe that price is a value and is going higher from here. Be very careful. Know what you’re buying and know when you’ll get out before you get in.
I am thinking the trick, trap, fool and frustrate crew is in full control right now. Algos can’t see what’s coming. They don’t know consumers are going to hold onto every thin dime they’ve got for a long time to come. They don’t know companies won’t be buying back stock anytime soon or that they are piling on debt that will need to be serviced with shrinking cash flow streams. Those factors are all equity negative. The only potential near-term positive is the FED rescue brigade. Simply put, I don’t think they can save everything. Having just written how Jesse Livermore screwed up trading the 1907 bear market, his lessons are at top of mind. If you missed it, you can find it HERE. I am going to do my best to keep my powder dry to prevent it from being severely menaced by starting plunging operations too early. There will be the proper time and place for that. It’s not now, but with each passing day it gets closer. You know I am a technician at heart. I hope to let price lead me to the path of least resistance. Right now we’ve got bull markets in Bonds and Gold. For equities I think this very convincing bear market rally is nearing it’s end. No particular evidence of it but I am finding it difficult to find the catalyst for the next leg higher. I am strategically long gold / gold miners and looking for a dip to buy in TLT. I’ve been tactically long or short the equity indexes based on technical and price action.
It really does boil down to liquidity provided by the FED vs The realities on the ground. The pain trade remains higher and that in and of itself is bullish. The market will keep squeezing until all the early shorties are out. That is why I am not firing any bazookas. There is no conflict between being tactically long while being bearish longer term. Rant over; thank you for indulging me.
Sector Summary
Price action was choppy yesterday.
Wave 2 DATA
4/24 Durable Goods / Consumer sentiment
Charts in Focus
$INTC 60 min
Price will open with gaps both above and below with nice potential gains in either direction. Stay nimble with this one. If they flash higher to fill the gap above, I’d favor reversing your position at the top from long to short given price will still be below trend on the daily chart. Please make a note that the 200ema on the daily chart comes in at $55. I failed to show that on the 60m chart. May provide some support.
$INTC Daily
$SMH 60min
As the largest component of $SMH, $INTC will move the needle here and may also weight on sentiment in the sector. Great vehicle to use for the rest of semiconductor earnings season by eliminating single stock risk .
Strategy and Tactics – Tilting bearish
No changes. Still leaning short on IWM, Long gold and gold miners; long marine shippers
Positioning Update: Short IWM , rolled position to May 1 119P, Long GLD May 160 C. and GLD May 165C ; Rolled GDX May 31C to May 35C ; long DHT Jun $8 calls
Index Chart Review
All the index are sitting on or near their pivots. It could prove to be a big day if the averages all break lower. A more probable scenario is for them to park price at these levels in order to keep both bulls and bears guessing over the weekend. That would deny both a simple entry and face a potential gap Sunday night. Be ready for anything..the trick, trap, fool and frustrate crew brings in extra people on Friday’s 🙂
Here is a refreshed view with some commentary. Follow the annotations on the charts.
SPY 2 hr
SPY 30 min.
QQQ 2 hr
QQQ 30 min
IWM 2 hr
IWM 30 min
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