Daily Profit Compass April 9

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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.

Trader’s Couch :

Self-built prisons and the key to unlock them

 

 

 

My counselor George used to tell me that most people are the architects and builders of their own prisons.  Brick by brick, day by day, we build walls around ourselves, often purposely never leaving a door. As the years go by the walls become thicker and thicker. When a person finally decides to wake up and attempt an artful escape, the first step is to stop adding bricks. The next step is the hardest….confronting the source of the pain.  That is hammer and chisel work chipping away at the bricks. Hard work, but with time and effort one can escape to freedom.

For we trader’s its the same thing. Confronting the pain of our repeated mistakes; then working hard in front of the mirror to smash the problem. There is not a single person among us that does not have the aptitude to be come a very competent, consistently profitable trader. The key, as I always say,  is the work in front of the mirror. That is hard, thankless work, but if you grab a hammer and chisel you can and will break through.

Use your day-off on Friday to do some deep thinking and reflect on your trading. We are close to 1/3rd through the year. How’s it going for you? Forget the P&L, focus on your process. How are you executing your process? Are the mistakes you’re making the same ones from last year and the year before?  Why?  Confront that pain and figure out how to break through. It’s the only way to advance yourself. If you get stuck, reach out.  Slaying dragons is hard work so its nice to have a helpful hand nearby. George helped me, and I’d be glad to help you.

 

Earnings

  • News Flow

  • Fresh Initial Jobless Claims data point at 8.30am
  • All eyes on OPEC+ meeting. Cuts planned to be announced
  • World Infections top 1.5M.  NY, UK, Germany post deadliest days
  • Private Equity denied access again in Senate’s new loan bill. Politicians view helping private equity as a toxic kamikaze run and prefer not to have an Occupy Wall Street reboot in their driveway.
  • Longstanding animosities within the EU hold up virus relief package.
  • Countries plan for post-virus restart but with no global unified approach.  Example: Wuhan factories re-open but are making products for no one as its customers remain closed for business; there is no demand for anything.
  • $SBUX misses estimates, pulls guidance. Expects covid impact into Q3 and Q4
  • Disney + subs hit 50M

Time to Lighten Up

If you’ve been paying attention over the past couple of week’s I’ve advised trader’s to periodically raise stops to protect profits as price has advanced. Now, I think the time has come to pro-actively reduce long exposure. Here’s why…

  •  If you’ve enjoyed the bulk of this rally you should be quite pleased. We are up about 25-27%.  Alex Barrow of Macro Ops compiled the “average bear market rally” table showing the median duration is 35 days with a 19% pop.  While our rally is currently above average in terms of % gain, the duration is only about 14 days. While there is always the potential for more upside, I think the rally has pretty much run its course.  Pigs get slaughtered. 

 

  • Over bought conditions are flashing. You’ll see below that the % of stocks above their 20ema’s for both the NDX and SPY have done a moonshot from extreme oversold conditions to now overbought. It literally can’t go much higher. 
  • $NYMO and $NAMO oscillators are now overbought.  Don’t fight NYMO! Period, Full Stop.
  • Price at Resistance. Price, for the most part, finds itself at the 50% fib retracement level and at overhead resistance either in the form of a declining moving average and / or overhead supply.  If price does advance from here I think it will be tough sledding. No impossible but tough.
  • Earning Season should be neutral to bearish. Big Banks begin reporting next week followed by a building list of earnings reports.  No CEO with half a brain will be popping off with big plans for the balance of 2020. Guidance will be pulled if it hasn’t been already and CEO’s will talk about the lack of visibility for the rest of this year.  Is that bullish?  Even if bad news is “baked in the cake” that doesn’t make it bullish. It would be a neutral.   Except for the possibility of a few select companies offering an upside surprise, I don’t see the potential for many bull catalysts in earnings season.
  • Risk is to the down side.  The weight of the evidence suggests the rally has likely run it’s course. It may eek out a few more points but I don’t see much more than that.
  • Ways to de-risk your holdings.  We’ve gone through this a bunch of times but worth repeating now. De-risk by….
    • Taking profits across the board, go to cash, enjoy the 3-day weekend
    • Rolling your strikes higher and reduce position size leaving runners to participate in any upside that may be left.
    • Rolling higher, reduce position size and create call spreads to reduce exposure even more and stabilize position against vol.

Should I be shorting?  We are at the top of the range up against what I think is stiff resistance.  There is no harm in a tiny starter short with a tight stop.  Keep in mind however that we have no sell signals such as a support break or trend break.  If you do end up trying a short, just keep it really small. No need to try being a hero in front of a 3 day weekend. Trade small if at all.

 

Things to fix after Covid-19 dies

  • $5T ++ Global GDP hole from Covid-19
  • Biggest Equity Bubble of all Time
  • Biggest Bond Bubble of all time
  • Biggest Corporate Debt Bubble of all time
  • Student Debt and Auto Loan Bubbles
  • Demographic Bubble  ( Massive wave of new retirees that own the majority of stocks and credit)
  • Foreign Sovereign Dollar denominated debt bubble ( $15T ++ )
  • US Debt to GDP Moonshot; US Debt racing to $30T
  • Global Central Bank Balance Sheet Bubble ( FED Balance Sheet Moonshot; heading to $10T ++ )
  • Unfunded Liability Bubble Moonshot ( Medicare, Medicaid, Social Security costs are going vertical )
  • Passive Investing / Index ETF Bubble and Market Structure
  • Pension Fund Unfunded liability Moonshot when the necessary 7.5% annual returns are impossible

Here comes MMT !!  Got Gold?

Wave 2 DATA

4/9 Jobless claims / Consumer sentiment

4/10 Markets closed for Good Friday

Strategy and Tactics – Going neutral to bearish

We are in a bear market. In bear markets, rallies are sharp, swift, and very convincing. After a 25% run into the teeth of overhead resistance and 50% fib levels, I am stepping aside now. I will likely initiate “probing short positions” at resistance with a stop just above.  Very small positions while waiting for a more decisive sell signal likely to come early next week.

 

$Index Chart Review

Follow the annotations on the charts.

SPY 2 hour

SPY 30 min.

QQQ 2 hour 

QQQ 30 min

IWM 2 hour

IWM 30 min

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