Daily Profit Compass Aug 27

Tickers discussed: SPY QQQ IWM  TLT GLD GDX  Fed Review  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 

A rigorous trading process will lead to success. 

Edwards Deming was an engineer who is widely credited with bringing Japanese statistical Process Control to USA’s manufacturing sector. The core of the core of his work was to break down all steps into processes that can be studied and refined over time to improve quality and efficiency.  Coincidentally, Deming’s quote has direct application to trading. I challenge you to write down your trading process. It’s harder than you think and I will go so far as to say I bet you can’t. You’ll struggle either because you have no true process or if you do there are so many exceptions and caveats to render the original process useless.  Rigorously go through what you do. Write it down. Refine it. Crystallize it like a diamond. Do the work, then good things will begin happening on a more regular and consistent basis.

Companion Video

The 25min video covers the daily and 30 min time frames on the indexes and also Bonds, Gold, and the Gold miners.  The key trading levels are identified with timely commentary to keep you on the right side of the trade.

Earnings

News Flow

  • Hurricane Laura makes landfall in Louisiana and inflicts major pain in the region
  • Trump considers delaying RNC acceptance speech due to Laura’s impact and priority
  • Stocks cautious and Bonds are being bid ahead of Powell’s Jackson Hole speech scheduled for 9.10am
  • NBA players walk out on their playoff games in protest over latest police shooting.

Focus on the Fed

Jerome Powell is set to give an important speech today beginning at 9:10 today before the market opens.  Economists are calling this speech “profoundly consequential” and probably “historic”.   There could be big implications for the $USD, Bonds, Precious Metals, and possibly equities. Did I miss anything?  Here is what the pundits think.

Adapted from remarks by Kathy Lien of BK Asset Management

1.    Powell will confirm that the US needs ongoing policy accommodation –  Despite some green shoots in home sales and durable goods orders, the economy at large is still in peril.  Millions of Americans are out of work and thousands upon thousands of small businesses are throwing in the towel.  Sure, there’s more economic activity than in March or April, but coming off of zero, that’s not hard to do.  Most economists believe we won’t get back to pre-covid levels until 2022 or later.  So interest rates will be pinned at the short end and Powell will encourage lawmakers to keep the free money flowing.

2.    Powell’s outlook will be cautious –  Since the pandemic hit, Powell’s remarks about recovery have been cautious if not dour. He isn’t drinking the rah-rah kool-aid. The run-off of the expanded covid benefits just blew a hole in retail spending and that will ripple through. He wants to keep the pressure on DC to pass a robust fiscal package to support the recovery.

3.    Inflation Targeting is what everyone is talking about – Yet the big historic conversation that is happening surrounds inflation. Consumer prices has undershot the central bank’s target for most of the past decade. This week, Powell is expected to outline the central bank’s plan to drive inflation higher which represents a dramatic change from the Volcker period when the focus was on taming price pressures. There’s talk that he could use the term “average inflation targeting,” which would imply that the Fed could allow CPI to exceed 2% in order to keep average inflation at that rate. Such a policy would be positive for stocks and negative for the dollar as it means the central bank will allow monetary policy to remain accommodative for longer than necessary. It should also be a positive for Gold and Silver.  If Gold can’t rally on this kind of news, it would be noteworthy and cautionary for gold super-bulls.

Strategy & Tactics

No Changes – Maintain Bullish bias; be cognizant of the many yellow flags

  • FAAMG – THe 60 min levels on these names have been pure gold. Use them to your advantage if you are an active traders.
  • Staying bullish does not mean complacent
    • Stay vigilant! Ratchet stops / Strikes higher on your winners and keep exposure at manageable levels.
    • Dont be afraid to go short if you get a price signal; especially if you’re holding a bunch of longs. You’ll like that balance on red days. 
    • Mark clear levels on your holdings for exits; honor those levels on a pull back.
    • You know they can pull the rug at any time for no reason at all.
  • Stay Fluid and flexible in both positions and thinking; Dont lock in on Narratives.
  • Expecting a hi-vol summer with Covid and political headlines whipsawing markets

Charts of Interest / Trade Ideas

$TLT – Will Powell Bury Bonds today?

The last time we visited bonds, I said I favored a Fib retrace then resumption of the downtrend. Check.  Price made a 38% Fib touch, then rolled over. Now price has traced out a pretty bear flag and has broken down. THe measured move target is 159 – 158 area. Not a promise, a projection. Trading it:  A baby back touch of $165 can be faded. Also a break of $163 prior low, sends price to 162. A break of $162 opens flood gates for a move $3-$4 lower.

$GLD – Daily

Powell’s comments today have the potential and even likelihood of being a catalyst for the next move in Gold. The question is, which way?

$GDX – Daily Gold Miners

Active Trade set ups / Positions

++++++++++++++++++++++++++++++++++++++++++++++++++++

Aug 26 Activity

CHWY – Bought Sept 60 Calls  at $3.74    Ahead of earnings on Sept 10 and following institutional call buying.

NIO – trade management.  Rolled out of deep in the money calls  to book a massive win and re-positioned in Sept 4 21 calls but with fewer contracts as the measured move target of $21 was tagged. Noted that unlike yesterday, Put buyers were making their presence felt.  Price has not given any sell signs yet, but in a volatile name like this, that can happen in 15 min.

AUG 25 Activity

NIO – Bought on breakout above $16.

PINS – Stopped for 30% loss. Nice idea, wrong result.

Aug 24 Activity:

TWTR – Opened Sept 41 C for $1.73 on breakout

PINS – Opened Sept 32.5 puts at $1.83   on a breakdown from a consolidation range and into a wide open gap.

Aug 20 Activity: 

XRT- Extreme bearish order flow has again picked up with big players shooting against our long position. In the face of soggy retail numbers and the bearish order flow we closed the Sept 50 Calls for $3.05

$V Rolled stops to breakeven

Aug 19 Activity: 

Trade Idea to get long $V  at the money Sept  Calls against $200.

Aug 13 Activity

$XRT – Sept 50 C ; Closed 1/2 of position.  Entered Aug 5 at 1.90; closed at 2.90.   On the other 1/2 of position sold Sept 53 C for $1.20 credit.  These moves were prompted by extreme bearish order flow into the Aug 28 exp $51 puts over 15,000 x.  Retail Sales and Retailer earnings forthcoming.

EBAY  Opened Sept 60 calls. $1.23. Looking for a move back to the highs

$IBB Closed short position for a small loss.

 Aug 12 Activity

$INTC  I finally gave up on this short. More a time thing than price hurting. Closed Sept 47.50 Puts for about a 30% loss.

$GLD  Re-entered short with Aug $180 puts. Needs to move rather quickly, if it does not, will need to exit or buy more time.

Aug 11  Activity

$IBB – opened Aug $132P   $2.32

$MNST – opened Aug 80P looking for gap fill coming out of bracket low.   $1.02

$CF – Taking a shot at Sept 40 C  at 45c.   after players hit that strike 2600x ++

$DNKN –  opened Sept 72.5 C  looking for a breakout ahead of earnings after the Sept options expiration.

$GLD  Closed puts for massive 340% win.  looking to re-enter;

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

$UUP – Initiated Sept UUP Sept 25.50 calls  Aug 3    looks like a fail. Will post if i exit

Index Chart Review

SPY Daily

SPY 30 min

QQQ Daily

QQQ 30 min

IWM 4 hour

IWM 30 min

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