Daily Profit Compass Aug 31

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Tickers discussed: SPY QQQ IWM  TLT GLD GDX FAAMG MCD DRI DENN ENPH NFLX PTON PEP   Key option order flows  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 

Stop Comparing

Actually, comparing yourself to others is worse than simply wasting time. It often reinforces negative perceptions we have of ourselves. I ought to know, having lost decades involved in that game. In the world of social media, there lots of opportunities to compare ourselves to anonymous traders making imaginary millions. Even if every single post is 100% true, what does that have to do with you?  I can’t see any upside to consuming that content. I wrote a whole blog on the topic. Find it HERE

Companion Video

The video covers the indexes, gold, gold miners, bonds, FAAMG names along with several trade sets ups. I also shine a light on how I am approaching this FOMO driven market.    Run the video at 1.25x to reduce run time.

Earnings

News Flow

  • AAPL and TSLA begin trading on a split-adjusted basis
  • Tik Toc says it needs China’s permission to sell; May force Trump to either shut it down or back down
  • Buffett plows $6B into 5 Japanese trading firms
  • Nestle to buy peanut allergy maker AIMT for 2.6B and 174% premium to Fridays close.
  • Covid cases spike in India as the virus ravages interior / rural  regions

 

Top Down charts recently presented a number of charts worth looking at.

Spooky analogs

These analogs to past market events are useful to gain perspective but are not predictive. Hopefully we will be able to see the inevitable downturn in price and be able modify our outlook before riding the big wave down.

The percentage of SPX 500 stocks with yields greater than the 10 yr hits a record. 

Institutions are Cautious

Credit standards are tightening, not loosening

Despite all we hear about home buying “going nuts” the credit standards for getting those loans are getting harder, not easier

Meanwhile, dark pool buying is drying up just as retail gets bulled up

FOMO in Control

Sales Growth snapshot

Short interest at 15 year lows.

We’ve seen this chart before. Max PUT hate

Speculative Fervor in options

75% of options are being bought with less than 2 weeks to expiry. I’ve seen this with the institutions as well. It’s not just dumb retail money. Hard to find a lot of institutional flows that are looking out in time. Mostly short term stuff.  This is probably the first market event where option trading has gone mainstream. It used to be the realm of sophisticated traders.  Now with zero commissions and weekly options on just about everything, retail can blast away on speculative trades.  I mean if you can buy a TSLA option $200 out of the money and it closes $100 in the money, its easy to see how a mania gets started.

Pulling it all Together

Be ready when the sheep hit the exit

A lot of charts there that if you are not careful can lead you under your desk and have you crying for mommy. My strategy is this. Accept on faith we are in a FOMO bubble. Accept on faith that one random day or overnight that we will sell off 100 ES handles and then sell off more in the days that follow as traders hit the exits. Accept on faith you won’t be the first guy out. It will happen. The question is when?   It is also quite possible that we keep driving higher as fund managers are forced to participate as FOMO reaches their desks and they realize they are falling further and further behind benchmarks ( career risk ).  Therefore if you want to participate in the above environment, keep your exposure limited to what you can lose. Think of it as a trip to Vegas. Only an idiot takes all their money, stuffs in a briefcase, and gets on a plane to hit the tables. Risk only what you can afford and are willing to lose, because the day is coming when you will lose.  Also, be damn diligent about implementing our “roll and protect” program. When the market gives you a win, take it off the table and reset. You’ll be glad you did when they pull the rug. 

If you are one who is mostly in common stock with deep embedded gains, use some of that money to buy some protection. Look out to October and target say a $340 put. Insure a portion of your portfolio. If nothing else, you’ll sleep better at night. You get hedges when no one in the world thinks we could have a pull back. ( now ).  Waiting until after the fact is too late. Premiums will sky rocket and it will be hard to make them pay.

Notable Option Flows

  • Bullish Airline Flows:  Still seeing active buyers across the major names AAL / DAL / LUV / UAL / JBLU
  • Money Center Banks: Still generally bullish but not to the degree of Wednesday / Thursday.
  • Cruise lines;  Elevated call buying in CCL, and NCLH. RCL neutral
  • MCD saw 10x call buying
  • $FB / $AAPL / $AMZN  generally bearisg flows persist. Lots of call selling but not as much outright put buying.
  • $GOOGL Neutral flows; equally split
  • $MSFT  Maintaining bullish flows
  • SPY and QQQ – bearish flows on average volume
  • IWM neutral.
  • GLD – Bullish   GDX – Neutral
  • TLT slightly bearish
  • WMT – 5.5x call buying
  • DIS 2x call buying with both near dated and far dated strikes
  • Gaming Space  WYNN/ LVS/ MGM / MLCO all saw elevated call buying. Exceptions were PENN neutral and DKNG bearish

 

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 – Technical Breakdown

Still looking for $159; short against $162

$GLD – Daily

Gold is still trying to resolve it’s direction. A decisive break above $185 is a long. A decisive breakdown below $179.33 is a short. No trigger, no trade. Plenty of money to be made once price paves the way by choosing its near term direction.

$GDX – Daily Gold Miners

Like gold, the miners are busy resolving this consolidation. To my eye a break above $42 clears the way to higher prices. A break of $39 should see a quick move to $37 as a first target.

Active Trade set ups / Positions

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

Aug 28 Activity

$CHEF – Opened a new long position via September $17.50 calls at 80cents following a technical breakout, 5x call buying with institutional support

LVS – opened a new position in Sept 52.50 calls at $2.47.   The gaming space has seen a marked pick up in institutional call buying in recent days.

$V – Price broke to a new high over 212.50. Perfect time to roll our  Sept 202.50 calls to Sept $215 calls @ $4.80.  Booking profits, staying long long against the prior high at $212.50

$DNKN – Rolled Sept 72.50 calls to  Sept 77.50 / 82.5 call spread at $1.45.  Booking profits and staying long

Aug 27

EBAY / CHWY – closed longs.  EBAY simply never performed; CHWY hit our stop right out of the gate.

NIO – closed out longs after a nice win.

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 30 min

QQQ 30 min

IWM 30 min

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