Daily Profit Compass February 21

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Tickers discussed: SPY QQQ IWM AAPL CAR CYBR

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: 

Fade Certainty 

 

 

 

 

 

Peter Brandt has been trading for 40 years. Whenever you do anything for 40 years, you get to know the lay of the land. As Peter points out, in markets, the higher one’s certainty becomes, the higher the probability that you’re wrong.   Let that percolate.    One of the things I do as a mental exercise before putting on a trade is to be the devil’s advocate on what I am about to do….in other words, try to see the opposite side of the trade.  Another way of saying, I assume I’m wrong.  If nothing else, assuming you’re wrong keeps your position size in check.

 

Earnings Calendar

Headlines

  • Corona, the come back kid,  sends chills through markets at So. Korean and Japan cases leap higher
  • Safe havens  Gold / US Dollar / Bonds  rocket higher  even as equities hold the line
  • China Markets act like Corona Virus threat is over
  • $WFC nears $3B deal to kill government probes.
  • Trump books the YouTube homepage for Election Day ads.

Safe Havens Rocket Higher

Yesterday, as they have since as long as I can remember, dipsters rushed into the morning low as price hit support to put in another dramatic “save”.  From a technical perspective SPY and QQQ had 61.8% Fib retracements and stopped at OH resistance where you’d expect them to.  Meanwhile IWM had a 100% retracement after putting in $5 of total travel ( $169 >> $166.5 >> $169 ) intraday.

Gold / the US Dollar / and Bonds continued their strong advance and now this morning, futures have all 3 popping again in pre-market trade. Some say the US Equity markets have become a safe haven for the world as well. Hard to argue with that assertion given every single micro dip gets bought up like there is no tomorrow. That said, we’ll find out out how badly every one wants to be long into the “Corona Weekend”.

About those Stops

In the trading room yesterday several traders were lamenting getting “shaken out” of long positions in the morning and then being dismayed at the afternoon rally recovering the key levels. All I can really say to that is “That’s Trading”.  It sucks when it happens. That said, if you don’t respect your stops, you’ve really got nothing.  We could have easily cascaded into the close this yesterday or been down 50 handles this morning. Then you’d have been congratulating yourself on how smart you were to have exited those long positions.  You can’t have it both ways.  All I say is be consistent with whatever you do.  Over time, it will all work out.  I heard something the other day that reasonated with me.  “Determine what mistake you can least afford to make, then guard against it“.  So in regards to stops, honoring a stop you are saying “I will forgo the chance of potential upside in order to protect my capital from further destruction” In trading, the mistake you can least afford to make is losing capital, not missing out on upside.

Index Chart Review

SPY Daily

Price made a deep look to nearly the 20ema where it bounced. If bulls close price above $338 then Thursday was simple a bad day at the office and it can be ignored. Closes below the 8ema and certainly below the 20ema would highlight a change of character.   The rising 8 and 20 emas will act as support on any draw down.   $332 meets the eyeball test as an important level where both the 20ema and lateral support coincide.

SPY 60 min

Bulls –  Buying the dip at $334 worked like a charm; congrats if you did that. Price action validates $335 and $334 as important downside support levels. .

Bears –  You can be short against yesterdays close. Above that and bulls win short -term. THe levels as marked seem spot on as reactions occurred there. Follow the game plan as presented in the annotations

QQQ Daily 

The bulls re-captured the upper rail of the trend line, so no damage done short term.   If / when price drops back into the channel the 8ema is first support followed by $230.30. Any moves below $230.30 would likely target the bottom of the rising channel.

QQQ 60min chart

Bulls – Bulls need to hold $233.40 on the downside or bears will get emboldened. If bulls can close price above yesterday’s close, they will foil any big ideas the bears may have.  Use the levels to trade against. They are spot on and have been working.

Bears –  Bears need a close today below $233.40 and preferably below $232 to maintain downside momentum. Friday would be a good day to do it if bulls get wishy-washy about holding long exposure over the “Corona Weekend”

IWM Daily Chart

No changes to the game plan with price making a round trip to close where it opened yesterday. 

$169 has emerged as a key location with price failing to break through on multiple tries. Unless price can clear $169 and hold it, bull ideas of taking out $170 and powering above the 2018 highs will be on hold.

 

$IWM 60 min

Bulls – Real simple. Above $169 opens door to $170 or higher. Presently chart is flashing a double top with bearish divergences on RSI and PPO supporting that thesis. Bulls can try to buy $168 first support on a pull back, but a break below $168 would tilt probabilities to the bears short term.

Bears – Sell a break below $168. Breaks below 166.5, 166, and 165 are places to initiate / add to new short exposure when / if those levels break. If the snowball gets rolling, a back test of the prior low at $160 would not surprise anyone.

 

Trade Ideas and Set ups

$AAPL 60m

A day or so ago after price filled the gap it was advised to consider taking profits. Now price got slammed to support and has formed a bear flag. A break below $319 opens up downside to a measured move target of $315. Elegant technical set up as measured move aligns perfectly with next support level. We’ll see if it plays out.  Yesterday late, I opened AAPL FEB 28 $320 Put for $5.00

$CAR Daily

Price gapped up on earnings and now sets up as a nice bracket trade. Alarm the levels and then wait to follow price higher or lower from its range.

 

$CYBR Daily

Price still inside the bracket. It should be a good trade when it emerges. Alarm the levels.

 

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