Daily Profit Compass Feb 8

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

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 

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

 

Exploring how Narratives are central to Wall Street

In the most recent “Smarter Markets’ podcast, Dr. Ben Hunt explains the central role narratives have always played on Wall Street. The recent $GME –  /WallStreetBets episode is just the most recent example of how narratives can mislead the masses as to what is really going on.  Dr. Hunt explores how the advent of social media has turbo-charged the phenomenon and has made the consequences that much more dangerous.  I recommend you listen to the 60min program. It’s important to recognize and be able to discern these narratives as they’re being fed to you.

Find the podcast HERE

Market Risks  vs.  Flood of Monetary and Fiscal Liquidity

As market participants, you must feel the conflict in your gut. It is uncomfortable.  You watch markets make a round trip from ATH’s to the 50ema back to ATH’s in less than 10 trading sessions. You know that is not typical market behavior.  The markets are finely balanced between unhealthy excesses and excess liquidity.

Catalogue of Market Risks

  • Record long positioning by retail
  • Record speculative activity in cheap stocks
  • Record margin debt
  • Record Bullish sentiment
  • Record volume in short dated CALLS
  • Record low cash position in mutual funds
  • Hedge funds at record net and gross long positioning
  • Lowest percent short interest on record
  • Record short positioning in the $USD
  • Record short positioning in the 30 year Bond
  • Growing divergence between Rising USD and SPX

Wow! What could possibly go wrong?  Two weeks ago we saw a glimpse.  $GME, a piss-ant company that few followed, sent hedge funds, prime brokers, exchanges, and prices into a sharp tail spin. The point here is to simply communicate that it wont take much to tip this thing over and that the unwind will be brutal.

Record Liquidity; Project Zimbabwe 

Both the cause and the counterbalance to the current market condition is the record and massive liquidity that is finding its way into the market as evidenced by the fact that stonks only go up.  All global central banks, led by the FOMC, are pumping and now most governments are cranking up the latest fiscal surge of liquidity. Soon we will have the next round of Covid relief spending around $2T and if sources are accurate, that will be followed by a big infrastructure bill.  The Dems don’t need bi-partisan votes, they can do as they wish.  All corners of power will do everything possible to keep all the balls in the air.

I found this interesting snippet describing market activities in Weimar Germany.

From the book When money dies: “Speculation on the stock exchange has spread to all ranks of the population and shares rise like air balloons to limitless heights…… The population was now engaged in evading taxation and devoting their money to speculative purchases…. Shares in respectable concerns which had paid a 20% dividend, were pushed higher and higher till the final holders could not expect a return of even 1%.”     If we’re not already there, we soon will be.

Balancing the conflict and Actionable Activities

As the $GME episode highlighted, when markets break things happen very quickly. Have a game plan together and be ready.

  • Simply recognize the market is highly vulnerable to a massive rug pull and that you wont be able to, nor should you try to anticipate it. 
  • Stay long but not ludicrously long; with market risks elevated find a balance between long and stupid long and dont cross the line. 
  • Resist the temptation to achieve immortality by trying to short the ATH top tick.  You will likely be throwing money away.
  • The “Valuations are stretched” train left the station a long time ago. Fundamentals dont have anything to do with the market action. THis is a liquidity-fed momentum market. It will work until it doesn’t.
  • Aggressively “Roll and Protect” your longs by rolling your deep in the money positions to at -the -money strikes. Thus continuously banking winnings while keeping your risk profile relatively constant.
  • While a potential rug pull will happen quickly, we will see it. In order to have a sell off price has to lose the 8, 20, and 50 emas. We will see each as they happen in real time and have an opportunity to react. The key is to not stick your head in the sand. Trust your charts; react quickly, decisively, and defensively. If, like in the case of $GME fallout it turns out to be short-lived, re-establish longs.  Remember, had last week gone another way, we could be testing the 200ema instead of being at ATH’s.  You dont want to be holding the bag if / when the floor falls away.
  • Stay nimble! Don’t lock in on any one particular narrative to the exclusion of others  Remain flexible and fluid.

Growing divergence between the $USD and Equities

Until recently, a rising $USD has resulted in a risk-off impulse for both equities and commodities. Only gold has respected the relationship in recent weeks as price has been dwarfed during this up cycle in the Dollar.  The graph from Cam Hui shows the divergence.   Does the Dollar roll over, do equities roll over, or does the divergence grow even larger?

 

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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