Daily Profit Compass February 24

Tickers discussed: SPY QQQ IWM 

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: 

Will Return

 

 

 

Earnings Calendar

Headlines

  • Corona Contagion fears go Global as virus hot spots in So. Korea and Italy explode with new cases.
  • Nowhere to hide as most markets off 2.5-3.5%
  • Gold reaches for $1700; Bond yields collapse with the 10 yr yield  reaching for the 2016 low of 1.36%

Contagion

I decided to recycle a title of the morning note from a couple weeks ago, because well ……it fits. The idea that corona would get worse before it got better seems to be playing out  even though price did not seem to agree for several weeks.  Now price is catching down to better reflect the corona risks. This morning I focus exclusively on the indexes to provide a granular view of the levels.

On days like today, your first obligation is to manage what you own first, then focus on the key levels that would be key support or locations that would signal fresh sell signals.

Strategy and Key thoughts

  • If you are still long certain stocks; honor whatever stops you had in place. Resist the urge to put your head in the sand. Accept the loss, then re-focus on potential locations where you’d be an interested buyer at lower prices.
  • Be cautious about “shorting into the hole”; the opening this morning will leave a giant gap above that may favor a bounce.
  • If you do enter a short position, please set a clear stop and honor it if a bounce takes it out.
  • Implied Volatility will spike.
    • Puts are going to get very expensive
    • Consider using spreads to both reduce cost of the structure and reduce the volatility of the position.
    • If you were short heading into today, you can …
      • Close the position for a big win ( good option if you had these in place as a hedge )
      • Spread the position by selling a strike against your original position. The jacked IV in the PUT chain will enable you to get good money for whatever you sell
      • De-risk your position by rolling down, harvesting profits, and still staying short.
  • Focus on Mental Flexibility. New information is being injected into the market and may require a shift in strategy that quite possibly could be 180 degrees apart from what you’ve been used to doing.

Index Chart Review

SPY Daily

The key downside locations are $324.12 at the bottom of the open gap and $320.73 which was the prior low on the last Corona scare.  A great victory could be had by bulls if they were to rally price to recapture and hold the 50 ema at $326.46. If price were to make a spike low down around $320.73, I’d be inclined to cover shorts and be ready for a bounce, then look to recycle into a short position as the daily chart will definitely be on a sell signal after today unless some miracle rally takes place before the close.

SPY 2 hour.

The 2hr view gives a beautiful look at the value area bounded by $332.50 and $321. While most people have long forgotten the overnight spike low of $317.50 on the Iran missile strike, I have it marked on the chart. Any break of $320.73 targets that level.

 

SPY 60 min

Price will open with a massive overhead gap and open gaps below that have yet to be filled. No way to know which way it breaks out of the gate.  If I were to guess, I’d expect some selling for the first hour of trade followed by a market pivot at 10.30.  Nothing to trade on; just a guess. Formulate a game plan but be open and flexible to be ready for a rip or a dip out of the gate.

 

QQQ Daily 

A daily close below the uptrend channel line at / near $225, would put QQQ on a daily time frame sell signal. Dont be surprised if they park it right on the line at the end of the day to keep everyone guessing. 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 2 hour

Such a nice view of the large volume / price support “value area” between $$224 and $218.  Based on this, I’d expect $224 area to hold today. Also based on this, if / when $318 were to fail, I’d expect price to move fast as volume / price support falls away quickly. I doubt we need to worry about that today, but tossing it out there for further reference down the road.

QQQ 60min chart

The 60 min chart is a series of gap levels. These levels are very well-defined and clean. Active, nimble traders can trade level to level using each as support and resistance to shoot against.

On the downside, I’d key off the 50ema which comes in at $221.22. I think you’d see a bounce when / if price comes into that level.

 

IWM Daily Chart

Price should open in/ around $163.  I would expect the 50ema at $164.93 will contain any bounce and could possibly be a good shorting location if you are not already in. IWM has had a weaker technical posture than the other indexes not having achieved a new high during the Q4 and early 2020 rip. I expect a back test of support near $160 and that is my near term target.

 

$IWM 60 min

Like some of the other charts, the IWM 60min chart is loaded with gap support and resistance levels. THey are clean though and should give nimble traders good lines to shoot against both on the long and short side.

 

Trade Ideas and Set ups

This morning, focus on what you own and managing it well as opposed to hunting new trading opps. Once some of the vol settles out I will send new ideas as they present themselves.

Managing the safe Havens

Many of you are well positioned in Gold, Silver, PM miners and TLT.  These will be spiking off the bell. Just as you would with any other winning position, consider rolling higher or spreading the position to harvest gains and insulate the position from extra volatility. You will want to keep some exposure here. Very good chance they go higher as we move forward.

 

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