Daily Profit Compass February 25

Tickers discussed: SPY QQQ IWM FB AAPL AMZN MSFT

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: 

Mindful Strength amid Chaos

 

 

 

 

Following processes, routines, trading rules, and spiritual practice are, at least in relative terms, easy to accomplish and implement in everyday life when things are calm and placid.  It’s when we receive a body blow or face a chaotic situation that we are most susceptible to reversion to base instincts, yet need mindful strength and quiet fortitude the most.  Like a tree facing brutal storms, it is where strength is forged. There is no way to prepare for it other than to understand these tests will come and go and come back again. You’ll know it when you see it. Maybe one of those tests was yesterday if you were not well-positioned. The fear and anxiety hits you in the face and does its best to take hold.  When that happens, take a deep breath, and reach deep for that mindful strength. It will be what gets you through the turbulence with poise and grace.  The more you live within your mindful practice, the more readily available that strength will be.

Slow down. Breathe, Look and Listen 

 

Earnings Calendar

Headlines

  • Equity and bond yields trying to bounce
  • Europe mostly lower by 0.5%
  • $GOLD collapses after a near parabolic move.
  • $EXPE lays off 3000; 12% of workforce
  • Amazon opens Amazon Go cashier-less grocery store in Seattle
  • Trump says China is getting Corona “under control”

Mind the Gaps

I want you to think of yesterday as you would an earnings-driven or event -driven gap down.  Many many stocks gapped down and created a nice trading range. Now the set up is just as we have on a regular earnings gap. A great set up for a bracket trade.  You can mark the high and low of yesterday’s range and use those levels to trade against, following price higher or lower out of the range.

Even if you are not a particularly active intra-day trader, these will be great trade locations for longer duration trades. For instance, if we break yesterday’s low, you can get short against that level and set a stop just above and look for more downside. You can leave that trade on as long as you’re not stopped out. You can make it a low intensity trade.  You can use the bracket trade methodology on any of your favorite stocks that gapped down yesterday.

When things get crazy

On days like yesterday, I find it difficult to jump all over the place hunting fresh set ups. I must have had 40 or 50 sell alarms go off and did not look at any of them. Why?  I was well positioned heading into the day and had my hands full managing what i had. I didnt want fresh short exposure and did not feel like trying to bottom fish. My bandwidth narrows when things get crazy. I gravitate to the indexes where option spreads are tight. I dont want to try and manage a ton of new positions. I can size up or size down the index positions and do fine. If you are active on days where you feel like you’re getting overwhelmed, try narrowing your focus to 4 -5 names or indexes you know well. When volatility explodes you can make plenty of money trading just a few stocks you know well. Give it a try sometime.

Strategy and Key thoughts

  • Time will tell but I think we will head lower. Price of course will dictate moves, but I’d like to recycle into fresh short positions if we get a bounce into either resistance or key fib level.
  • Get tactical in your trading and thinking. The market has given folks easy longs that they could sit in for months. I think the environment is going to get tougher and that is where technical trading shines.
  • Seeing lots of evidence that pro money managers were maxed out on long exposure heading into this event. Would not be surprised if they are forced to unwind a ton of long exposure in the days / weeks ahead. Corona has shown no signs of getting better, probably getting worse. Plus there has been a massive shock to the global system.
  • TLT heading higher / rates lower.  Looking to recycle into TLT long on a nice dip. I think we take out the prior low down at 1.36 or so and move towards 1.25 or lower on the 10 year.
  • Gold got too parabolic and needs to pull back; want to recycle long on a pull back for the next leg up. If the FED rolls out QE , gold will do a moonshot
  • Implied Volatility is elevated.
    • Puts are going to get very expensive
    • Consider using spreads to both reduce cost of the structure and reduce the volatility of the position.
  • 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. Be open to quickly flipping long or short.

Index Chart Review

SPY Daily

Back on Jan 31 SPY put in a low at $320.73 which at that time was the 50 ema. Notice that in yesterday’s price action, they tried to rally the open, but that rally failed on a touch of the 50ema in green from below at $326.30. You can see on the chart that price has dropped below the uptrend channel and therefore the SPY Daily chart is on a sell signal. Two potential bullish events would be to recapture the 50ema and then recapture the trend line.  A bearish event that would open the door to further selling would be price dropping below the prior low below $320.73.  There is also a huge overhead gap to $333 that has form from yesterday’s gap down.

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. Any moves above $325.85 opens the door to a fill of the overhead gap to $332/$333 .

 

SPY 60 min

Treat the gap down and price consolidation as a Bracket trade. Use $325.85 on the high side and $321.24 on the low side as your bracket range and for levels to trade against. The 60min time frame is oversold and I favor a bounce, however small, but over sold can get more over sold so use price as your guide.

QQQ Daily 

Price held the 50ema at $221.23 . In late January there was a prior low at $218.29. QQQ is also on a daily sell signal as price has dropped from the channel but as with SPY, if price were to rally to recapture the uptrend line, it would temporarily negate the sell signal.  A break below $218.29 would open the door to lower prices.

$QQQ 2 hour

Such a nice view of the large volume / price support “value area” between $$224 and $218.  THis aligns well with the other charts and the consolidation after the gap down.

QQQ 60min chart

A break above $224.25 would give price room to run, and possibly fill the gap above. Dropping below $220.26 opens the door to test the $218 key support zone. I favor at least a small bounce, but any break below $218 and price has room to the downside.

 

IWM Daily Chart

Price is well below all the faster moving ema’s 8,20,and 50emas. Price would have to at a minimum recapture the 50ema at $164.82 to get the charts bullish. Although a short term bounce is favored, I expect price to back test of the prior lows near $160 before this corrective phase is over. A break below $160 opens the door to a move to $157.

 

$IWM 60 min

Use the consolidation range to set up a bracket trade. Above $163 traders can be bullish and look above for a potential gap fill. Below $161.50 would favor a move to $160.

 

Checking in on Big-Cap Tech

$FB Daily $202.50 is a key level on the chart. As long as price is below $202.50 the door is open to a move to test the 200ema and first support at around $195.

$AAPL 60min

Key off of $297.50 and $304 as your bracket range. Nice gap overhead and about $10 available on a break below. Regardless if you trade, AAPL is a market key. Sustained moves in either direction will influence the indexes and sentiment.

$AMZN 60min

Spent yesterday flirting with $2000 which is a key level. There is a big $140 gap below and $60 gap above. Again, a bracket trade set up should serve traders well.

 

$MSFT  60min

$174.55 and $170.50 should serve traders well as levels to trade against.

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