Daily Profit Compass April 3

Tickers discussed: SPY QQQ IWM     Strategy and Tactical Update

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.

Trading Tip :  Overnight Holds with Options

When holding option positions overnight or over the weekend, I have been having good luck using spreads instead of holding straight CALLS or PUTS.  The spreads help you on Volatility and time decay. They also serve as an insurance policy if price opens against you the following day. If you still think price will ultimately go in your direction, you can buy back your short strikes at a profit, then at the end of the day, spread your position again.

When it’s all said and done, spreads stabilize your P & L and offer a counter-balance against time decay, volatility, and over night moves against your directional bet. 

 

Earnings

  • News Flow

  • Euro Area Covid death count easily tops 30K
  • Unemployment claims of 6.6M in a single week boggle the mind; market shrugs, then rises, just like last week.
  • US Govt turns its back on Mortgage Servicer’s  request for assistance; Mortgage defaults could dwarf those from GFC 1
  • Fitch downgrades 11 retailers in one day
  • Trump oil gambit seen as mostly fake news, yet OPEC+ to hold virtual meeting Monday
  • SBA watch dog charged with ensuring no fraud occurs in  the $350B of loans to small business under the CARE Act investigated ……. wait for it…..8 such loans in 2019
  • Govt doubles interest rate on SBA loans to 1% after lender push back.
  • The NYSE requests permission from the SEC to offer a new high-speed wireless internet plan at $10K per connection and $45K a month. I guess time really is money

 

Jobs Friday

The Jobs number this morning, unlike most of the time, is expected to be a non-event today as the data set only captures up until March 13.  Most of the job losses have come after the reporting period. The report next month will be a different story as COVID-19 induced sudden stop data will be fully captured. It will be a huge Wave 2 data point.

Yesterday, as it did last week, the market largely ignored the 6.6M print on initial jobless claims.  The major averages ping-ponged roughly between our T1 and T2 levels we’d originally marked for our short trade with price finishing on the high side of the range.  For the nimble and active, the width of the trading range provided some nice trading ops. This morning, the futures are broadly lower by 1.25% or so.  The drop, for all intents and purposes, simply drops price to the low side of yesterdays trading range.  Until we either break above or below yesterdays range, expect more consolidating action. Be ready for anything, but often the trick, trap, fool, and frustrate crew park price on a Friday afternoon on the location that keeps the most people guessing heading into the weekend.

Oil

Trump’s oil gambit popped crude by 20% or more as shorts covered and some got long.  Great if you were long, less so if you were short.  One side effect was to blow a hole in the “tanker trade” I outlined earlier in the week.  I had not established a position yet and I hope you did not either.  I actually think that the price dynamics for oil are still negative even if there is a supply cut. THere will still be a glut because demand is essentially almost zero. Watch USO and the tankers carefully. There may still be a trade to make as USO hit OH resistance yesterday.

Chemical Activity Barometer

The Activity Barometer maintained by the Chemistry Council is one of the longest running data sets that track sensitive economic activity. The data does back to the early 1920’s. The barometer leads industrial production by about two months. The barometer just experienced it’s fastest drop since WW2.

Credit Card spending Data

The graphic shows credit card spending trends by category.

 

Strategy and Tactics

The gap down on Wednesday left a sizable gap overhead that has yet to be filled. I call this unfinished business. Price will often want to take care of it before proceeding lower.

Scenario 1: A move higher

That would be a fly in the ointment of our short positioning.  I am going to handle it in the following way.  If price moves above our original  T1   ( SPY $252 / QQQ $186 / IWM $109 ) I will take off / close my shorts on the indexes.  I will then use those levels as my short-term Bull / Bear pivot. OK to be long above; OK to be short below.  I certainly want to be long if price moves into the over head gaps. There is money to be made on that gap fill.  If price makes it to the top of the gap, it would be an excellent risk / reward location to refresh short positioning at the top of the range.

Scenario 2. A move lower

I am already set up for a move lower. If price breaks below yesterdays low, I will be adding short exposure intra-day.  There are also big gaps below on all of the indexes. If price breaks into those gaps, I will add again. Very unlikely that happens today but if it does, that is what I will do.  Towards the end of the day, heading into another “corona-weekend”  I will take profit on any short position by rolling down to the at-the-money strike and creating a put spread for over the weekend.  The position sizing will be on the modest to small side. I dont want to be sweating bullet all weekend with something super-sized for the Sunday night coin flip. Manage risk.

Since we have nice plans for higher and lower today, they will probably chop around, do nothing, and keep us all guessing for the weekend.  Both Bulls and Bears will then be denied a nice simple entry.  I will communicate my thoughts, based on price action, around 2.30-3pm today so we can all have plenty of time to make adjustments to our positions heading into the weekend.

Wave 2 Data Flow

  • 4/3    March Employment number / PMI services / ISM non-mfg index /  Rig count

 

Index Chart Review

Futures are flat ahead of the jobs number.  The chart annotations are detailed. Follow them in your trading today. Remember, all our downside targets from yesterday are resistance levels for the advance. Be ready for quick reversals.

SPY 2 hour

SPY 30 min.

QQQ 2 hour 

QQQ 30 min

IWM 30 min

 

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