Daily Profit Compass April 7

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Tickers discussed: SPY QQQ IWM USO GLD   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.

Trader’s Couch :  Labels are dangerous

Veteran trader, Peter Brandt, reminds us that being bullish or bearish are not luxuries many of us can afford.

In a recent blog post, I did a full treatment of the subject and offer a more constructive way to think about price action. If you missed it, you can find it HERE

Earnings

  • News Flow

  • UK P.M. Johnson in ICU as Covid complications mount
  • Global rally continues as US futures drive higher; DAX pulls itself out of bear-market territory
  • Dimon sees “bad recession” and echoes of 2008
  • Pelosi says next relief package will be $1T or more
  • Oil super-powers stumble their way towards a supply deal.
  • CARE Act’s PPP program off to a slow start as reports of chaos at the local level delay relief for small businesses.
  • Fun Fact: A teen in our neighborhood was bummed that her 20 hr / week, $9 an hour high school internship was cancelled due to Covid. Now she’s “making” $600 a week in unemployment and lovin’ life.  She’ll be livin large for months and months to come.

Moonshot

The major indexes rallied nearly 7% yesterday on hopes the Covid crises is topping out. This morning futures are tacking on another 2.75% as I write this. Nothing much else to say other than the bulls have taken over the tape and continue to look for higher price targets. Remain tactical in your trading and thinking. As in most trading situations, time frame matters. The things you should be doing trading off short term charts are totally different than strategic asset allocations driven off longer term charts. Know your trading time frame and objectives.

Wave 2 DATA

The JOLTS data point this morning should be interesting. For those who don’t know, here is what the JOLTS report measures.

The Job Openings and Labor Turnover Survey (JOLTS) is conducted by the Bureau of Labor Statistics of the U.S. Department of Labor. The program involves the monthly collection, processing, and dissemination of job openings and labor turnover data. The data, collected from sampled establishments on a voluntary basis, include employment, job openings, hires, quits, layoffs and discharges, and other separations.

4/7 Redbook / JOLTS / Consumer Credit

4/8 Mortgage applications/ oil inventory / FOMC minutes

4/9 Jobless claims / Consumer sentiment

4/10 Markets closed for Good Friday

Strategy and Tactics

So in the pre-market both SPY and QQQ have reached the near-term targets on the charts shown below.

Today we should learn if there are more buyers willing to step into this “new bull market” or if the “bear market rally” has run it’s course. Bullish or bearish arguments to explain the price action are easy to make. Let’s leave it at this…..Until I see a clear rejection at a particular resistance level and the the beginnings of a reversal, the path of least resistance is higher. Enjoy it and take advantage of it for sure, but be careful about getting emotionally attached. The job of a bear market rally is to rid the market of shorts and convince you beyond a shadow of a doubt that the advance is the real deal.  But for now, the trend is higher and the right side of the trade is to be long. Remain nimble and fluid in both your thinking and positioning.

Oil

On Friday,  I ( and maybe you too ) tried a short on USO but was stopped out after a whole 3 hours. Over the weekend news flow turned bearish as the OPEC+ delayed their planned meeting until Thursday. Oil was off some 7% yesterday.   Would have been nice to not have been stopped out, but if you randomly start ignoring stops, you’re on the road to nothingness. Now USO is caught between support at $5.15 and resistance at $5.70 resistance. News flow on Thursday will likely be the determining factor for the near-term direction.  If they pop resistance I would be more inclined to fade it than buy it. Even a 10M BBL production cut wont be able to counter the massive demand shock.  I think oil heads lower over time.

 

$GLD Daily

So far so good on our long gold trade. The chart annotations explain what possible adjustments we could make if price crosses above it’s next price target of $158.50.

Index Chart Review

While it is never too late for bears to arrive at the party, you’d think they’d begin to make their presence felt at least a little. After yesterday’s rally of 7% you’d think bear would at least try to take some of that back. But as we’ve said so many times, “thinking” is usually where the trouble starts.  The price action is bullish no matter if you’re a bear, bull, doomsday prepper or V-bottom hunter. Price action is what it is and looking for the “why’s ” is a waste of time and valuable brain power that could be better used to study the charts.

The annotations provide the updated bull / bear pivots and upside targets. Because the charts and annotations were done last night before the overnight rally, the comments are not reflective of where price is this morning.

Here are some supplemental thoughts.

  • The anticipated 3% gap higher will leave yet another gap below that will eventually get filled. That may mean an immediate fade off the open or a move days or weeks from now. Just be aware of it and ready for it. If you see price enter the gap, a move lower to fill the gap would be favored.  Bulls ok above as long as it holds.
  • If you were long heading into yesterday, coupled with this mornings anticipated 3% move higher, you’ve enjoyed a 10% two-day move. Congrats.  Now IMO, protect that win by rolling higher to an at-the-money strike. You’ll harvest profits but still be long for further upside potential.
  • Regardless of however you decide to handle you open long positions, please raise your stops to a logical support level on whatever chart you are trading. You simply need to get paid on this move; don’t let a winner become a loser.

SPY 2 hour

 

SPY 30 min.

QQQ 2 hour 

There is a typo in the annotations “292.50” should be “192.50”

 

QQQ 30 min

IWM 2 hour

IWM 30 min

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