Daily Profit Compass February 27

Tickers discussed: SPY QQQ IWM DIS CAR BAC

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: 

Let Worry & Anticipation Go

 

 

 

 

 

We’ve all done it.  We wind ourselves up in knots over something weeks in the future and make ourselves sick over it. Then when the fateful day comes, whatever we were worrying about never even happens or isn’t half as bad as we though it would be. We repeat this cycle over and over. As we run these dark scenarios in our head, we not only deprive ourselves of living peacefully in the moment, we deprive others of enjoying our company because we’re not very nice to be around during these episodes. Do this instead. Do your best to catch yourself before you’re deep into a downward spiral. Tell yourself that you’re strong enough to handle whatever happens when and if it happens, but until then you’re fine. Remember from prior discussions, Action cures Fear. If you’re worried or fearful, take action. Break it down. You’ll feel a sense of calm come over you as you either discover the root of the fear was unfounded or is something you can proactively address. Give it a try.

 

Earnings Calendar

Headlines

  • Trump puts VP Pence in charge of Corona.  It’s always nice to have someone to blame in an election year if things don’t go well.
  • 10 year bond yield sinks to 1.3% as equity futures head lower.
  • MSFT warns on PC revenue guidance;  Parade of companies lining up to withdraw or slash Q1 / Q2 guidance due to the Corona effect.
  • Hedgeye cites BABA as its best short idea with 20% downside. Report coming out Monday
  • The once high-flying $CHK nears collapse as options to deal with it’s massive debt dwindle.
  • OPEC has no near-term plans to supply as oil free-falls.

Searching for a bottom

So yesterday the market did it’s best to rally early until price was firmly rejected at first resistance. Then in the afternoon gave back all of the gains. SPY and IWM finished red while QQQ was fractionally green. If there was a bright spot, it had to be that FAAMG held up remarkably well with the market leading names all in the green. MSFT will probably get clipped this morning after warning on its Windows business revenue.

Many of the breadth oscillators are signalling a bottom is near, but as we saw on the upside in late Q4 and early 2020, these oscillators and momentum indicators can stay extended for a period of time before snapping back.  Sticking with the stretched rubber band analogy, you either have a violent snap back or the rubber band breaks and you get a violent, cascading flush.  Since Monday, we’ve had steady selling pressure but no panic.  Betting on panic is not a high-probability play. I have “shorted-into-the-hole” before when $NYMO / $NAMO were extended and it dont end well. Dont fight NYMO is the rule, meaning dont carry a lot of short exposure when $NYMO is signalling oversold.   

Oscillators Overdone

The market never makes it easy so positioning here is a tough call. For instance.  Fast forward to tomorrow morning.  Fridays in recent memory have been red. We’ve had at least a couple of massive Monday dumps after “corona weekends”.   How many people do you thing will be buying the dip in front of another “corona weekend” where the only potential news flow is negative?  We are not going to get an “all-clear” signal.  THere is either no news or there will be reports of fresh outbreaks.  I know I wont be loading up on long exposure Friday morning.

Going forward, I am kind of expecting flat to red Friday’s for a while until this settles down as traders / investors want to keep risk light over the weekends.

Strategy and Key thoughts

  • Lots of technical damage on charts as many trend lines break. These will be hard to repair short term
  • Back testing the Breakout.  The SPY breakout was at $300ish; QQQ broke out at $194 Really not that far away. A back test of these breakout levels would be a common technical event.  Tons of buyers would be waiting there if we made it that far.
  • Intermediate trend is now down. Re-position your thinking accordingly. 
  • Positioning:  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.
  • Market Direction:  The downside rubber band is stretched.  It can either break causing a day of pure panic selling or snap back for a sick rally.  Be mentally prepared for either.
  • The Corona Virus:  The problem with this Corona scare is that no one will ring a bell to sound the all-clear to buy stocks. ( Remember 2 weeks ago when they told you it was like a bad cold, not to worry, and to expect a fast V-shaped recovery ? )    We have not even measured the shock in the economic data yet. What happens when the PMI and GDP data starts rolling in?    The pall cast by Corona may linger for months and months …..doesnt sound like a recipe for a V-shaped, its all better now, recovery.   I think it will take time to heal.

Trading Tip for Active Traders:  Mark Overnight highs and lows

Like any trader, I like to set my charts up a certain way. One of the first things I do each morning before the bell is to mark the overnight high( ON High )  and low( ON LOW )  on the index futures. ( /ES /NQ and /RTY ) I both draw a physical line on the chart in a specific color and set an alarm for each.  I also go through the same process for SPY / QQQ / IWM.  Why?  These levels often act as magnets for price during the regular session ( RTH ) as the algos and human traders “double check” the overnight auction.  Yesterday morning, with futures green , I had my eye on the SPY $309 overnight low. We did not get there in the regular session, but we got pretty darn close considering we were up 400 at one point.  Consider the above as a tendency, not a rule chiseled in granite. I’d never go long or short based on overnight highs and lows.  But they sure do come in handy as a potential target / support / resistance  during the day. Try adding these levels to your intra-day chart. I don’t think it will take too long for you see the benefit.  For traders on the Daily Time frame you’re only interested in the daily closing price so the overnight futures high and low does not take on any particular significance.

Index Chart Review

SPY Daily

Price is testing the 200ema in the premarket. If it breaks and things get panicky, look for a move to test the original breakout at $300. If price does reach $300, I would expect at a minimum a bounce. In this scenario, the 200ema would become resistance on any bounce.

SPY 4 hour.

A nice view that captures the $300 support level well. All bets are off if price breaks below $300.

 

SPY 60 min

There is a band of support at $300 – $302.  All eyes will be on that level. Watch out for the OH gap. That will eventually get filled; we just dont know when.

QQQ Daily 

Take note of the $214 level on the chart. Now direct your attention to the left side of the chart. Do you see the massive thin zone of volume/ price support?  Price can move really fast through this area. The 200ema is still relatively far away at $201, and the original breakout at $194. More realistic now is to look at the overnight Iran low at $211.41 as a first target.

$QQQ 2 hour

Although it is not marked there is a higher volume bar around $203. Might serve as a buffer just above the 200ema.

QQQ 60min chart

All the support levels that have broken on the way down, will be resistance on the way up.

 

IWM Daily Chart

Very weak price action. I expect that open gap to get filled down to $152. Then head lower from there. The 200ema is already far in the rear view mirror.  I expect that price will find $146.

$IWM 60 min

Granular look at the levels.

 

Trade Ideas

$DIS Disney

Short trade working out of the gate. If you get a whoosh move, manage your risk. Close for win, roll down, or spread to stay short.  Target $116ish. 

 

$CAR Presented this idea on Feb 21. Up 475%. I still think there is more to go. I plan to roll down and use the 50ema as my stop.

$BAC

Alarm $30.50. it is key support. Bulls ok above but there’s a lot of room below.

 

 

 

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