Daily Profit Compass August 28

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Tickers discussed: SPY QQQ IWM  TLT GLD GDX  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 

Maintain a healthy diet

The tales on Twitter are getting hot n heavy. Say you read a post by some trader you don’t know saying they made $73,000 in 1 hour trading TSLA.  Given how TSLA moves, certainly a possibility.  Does it make you feel diminished because you lost $500 in the past hour?  Does it make you want to trade TSLA because you want to experience the same results? Does it help you become a better trader?  There are good people with good information on Twitter. But you have to have a finely tuned filter to both find the good stuff and not let the bad stuff plant weed seeds in your brain. It’s not easy to do.  Be careful and wary about your Twitter consumption.  And remember, that same trader who made $73,000 in an hour will NEVER post those occasions where they got their face ripped off.  It’s just the way it goes.

Earnings

News Flow

  • Japan’s longest standing Prime Minister resigns due to health concerns.
  • $BA pulls 8 Dreamliners from service after potentially catastrophic structural deficiencies are discovered.
  • The Gulf Coast begins the mop up and damage assessment after Hurricane Laura
  • Trump makes his pitch for second term
  • $NIO floats 75 M share secondary sending the ADR lower by 5%

Greed Meter grinds higher

Buy the dip?  You first. 

The VIX climbs with equities.

After they pull the rug, they’ll tell us we should have known this was the canary in the coal mine. Everything is clear after the fact.

Notable Option Flows

Unlike Wednesday that saw full bore tech call buying, after Powell’s talk and interest rate pop, there was a pronounced shift toward cyclicals / value. Still saw some tech buying, but much less.  Interesting that the call buying in cyclicals / value / junk did not follow through in a lift in IWM. Price action there remained muted.

  • Bullish Airline Flows:  AAL  3.5x call buying; JBLU 2x call buying; UAL 2x call buying;    Cyclical rotation
  • Banks: BAC 1.5x Calls; JPM 2x calls……….. Rising rates would help banks; interesting though to see call buying not flow through to $KRE for regional banks
  • Cruise lines;  Elevated call buying in CCL, RCL and NCLH
  • $FB / $AAPL / $AMZN  outright bearish flows with elevated put buying and call selling.   Been a long time since I’ve seen a pronounced bear flow in these names
  • $GOOGL Neutral flows; equally split
  • $MSFT  Dramitic bull flows w/ 5.5x call buying;  anticipating MSFT seals deal with TikTok?  Going out to oct / Nov  230, 240 and 250 strikes
  • SPY and QQQ – bearish flows.  Put buying / call selling
  • IWM bullish bias, but not dramatic.
  • GLD / GDX – Bearish
  • TLT neutral

Interest rate Inflection?

Powell’s speech drove interest rates higher. If it sticks or if interest rates drift higher, it will generally be bullish for banks and other cyclicals.  Yesterday saw the option order flows go in that direction. Value has had multiple false starts only to disappoint. Let’s let this play out a little and resist the urge to pick the bottom in value. THe group is so beaten down that if there is a true turn, there will be plenty of time to hop on. Also, if there is a shift away from big tech, value could rip but the broad indexes fall because of the big tech cap weighting. So if that scenario plays out, dont be surprised. if you see the broad market roll over while the beaten down names do well.

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

Powell’s speech did in fact crater bonds as yields popped and bond prices fell. From a technical perspective the bear flag breakdown doesn’t get any prettier than this. An impulsive sell off, followed by a tight 38% fib retracement, followed by the next leg down.  The technicals point to a target near $159. If price can recapture the $162 level it can possibly stave off that move to $159. he 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

Gold is trying to resolve it’s direction. Big fake move and reversal lower yesterday but this morning futures are up $27.  Price above $185 opens the door for a run back toward the highs.  A break below $179 open the path toward a deeper pullback. No need to front run or guess the direction. Let this consolidation resolve itself; then go with the flow.

$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 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;

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$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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