Daily Profit Compass Feb 2

Tickers discussed: SPY QQQ IWM FB AAPL AMZN GOOGL MSFT NFLX TSLA  VIX

The  Daily Profit Compass provides stock market technical analysis for the stock market today and is focused on the indexes and FAAMGs. Key levels and trading locations are provided, along with trading plans and timely commentary to keep you on the right side of the trade.

Earnings 

Big Day for Earnings as BABA, UPS, AMZN, GOOGL, and CMG are set to report.  Although to this point mega-cap tech earnings have been nothing short of stellar, the reaction to those earnings have been poor as most names trading appreciably lower since reporting.

Companion Video

The video is a detailed technical review of the indexes and FATMAAN names.  All the key trading levels are identified along with commentary and trade plans for each ticker. Trade ideas are also discussed.

Run the video at 1.25x to reduce run time.

Find the Video HERE

Economic Calendar

  • Tuesday: Redbook; Williams and Mester Speak
  • Wednesday: Mortagage applications; ADP ; PMI Composite; ISM Services; Harker, Mester, Bullard, Evans, Kaplan speak
  • Thursday: Challenger Job cuts, Jobless Claims, Productivity, Factory orders,  Daly speaks
  • Friday: Jan Jobs report; Consumer credit.

Risk – On Returns

So just as quickly as SPY and many of the sector ETFs tag their 50 ema’s, the dipsters piled into risk assets and boosted the market 1.5 – 2.5%. In the process the dipsters all but put Friday’s ugly price action in the rearview mirror. A factoid about Monday’s price action I found interesting is that the “bubble stocks” were up 3%. I viewed those as most vulnerable. Watch them for clues about risk / on – risk / off  sentiment is prevailing.  While you can never emphatically state “we’re out of the woods” with the VIX putting in a series of higher highs and higher lows, the price action seems bullish. Although I hold short positions at this time, I am throttling back the urge to “pile in long” with a bunch of duration swing trades.  I am opting instead to trade shorter time frames on an in/out basis.  As I will point out today, and everyday, in the morning market video, there are and have been massive trading opps in FATMAAN, the indexes and other active names.

Maybe the market is putting the /WSB phenomenon behind it or maybe the market found comfort instead of terror that Robinhood raised another $2.4B on Monday bring it’s 2 day cash infusion total to $3.4B .  Regardless, beginning to believe that the WSB strategy of forcing short squeezes will start to fail more regularly. I’ve never known a widely -broadcasted strategy to work very much longer.  Just like when CNBC airs “Markets in Turmoil” its time to go MAX LONG.  That wont stop me from following a WSB name if it starts moving.   I never want to be so proud as to not make a trade or a profit if the situation presents itself.

For now it’s risk -on but with one eye on the VIX.   In this elevated Vol environment, It can be advantageous to use call spreads to reduce the cost of trades.  Selling the elevated vol of the short strike will capture extra premium to reduce the cost of the trade and will also stabilize the position.

 

Risk Management


Market Wizard Larry Hite says….

The fallout of the $GME story have been substantial.  By all accounts, the principle member of Melvin Capital, is an exceptional talent.  Maybe one of the best fund managers on Wall Street according to his peers. Yet the WSB crowd exposed the weak underbelly of his strategy and resulted in Melvin Capital to lose half of it’s value.  If it were not for friends in the business to add much needed liquidity, he could have been forced to close shop and declare bankruptcy.  Now pundits are asking “Where was the risk control?”  Simply put, there wasn’t any.   As Larry Hite states, if you fail to respect risk, it will take you out. 

So unless you have a rich grandma that will be happy to re-capitalize you after a “Melvin Moment”, carefully assess your risk and account for it.  If you don’t, it will eventually find you.

FATMAAN Names

In the companion video, I cover off the FATMAAN names using the daily timeframe. Some very interesting trade locations are on the horizon that will set up well for swing traders on the daily time frame.

INDEX CHARTS

A detailed walk-through of the levels and trading strategy for the indexes is given in the video ( link above) . The static charts are provided for reference. The FATMAAN names are also reviewed in the video.

SPY 2 hour

SPY 30 min

QQQ 2 Hour

QQQ 30 min

IWM 2 hour

$IWM 30 Min 

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