Daily Profit Compass February 3

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Tickers discussed: SPY QQQ IWM TLT AAPL FB 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:   3 Paths to Success in Markets

Dr. Brett Steenbarger suggests there are 3 paths one can take toward success in markets:

1. Statistician:   Maybe another name for a statistician is a quant. Someone who takes a deep dive in markets looking at distributions of possible outcomes and correlations between asset classes. This person constructs portfolios where there are a series of distributed bets, each with a positive expected outcome and will perform well in a wide variety of possible outcomes.

2. The Big Thinker:  This person excels at seeing the big picture. These are often Macro traders or fundamentally- oriented investors that have longer time horizons than most. Soros would be a guy in the Macro camp while Buffett would be in the fundamentalist group.  Coming out of the financial crisis, the big thinker may have surveyed the landscape, observed central bank policy and concluded the best path was to go long risk assets.

3. The Trader: The trader is a pattern recognition machine that is constantly looking for technical set ups and / or supply / demand imbalances that favor certain directional moves in the underlying. Each trader, through their own particular process, defines their EDGE and produces a positive expectation achieved over a large number of individual trades.

Since this site is geared towards traders, if you are reading this, I can only assume you classify yourself as a trader, as do I.  When I think back to my biggest blunders in the marketplace, they have come from wandering off into “Big Thinker” land.  Somehow believing that I’ve put all the puzzle pieces together for a particular stock or the market as a whole and have correctly figured out it’s future trajectory.  FAIL.   That’s not a comment on my lack of brainpower, it’s simply not what I do best.  I am a good trader. When my focus wanders to other areas where I lack expertise, my performance suffers. As the quotation suggests, when I accept myself as a trader, and nothing more, I am invincible.

The above is another example of hard work in front of the mirror. It does not have anything to do with learning options of finding support on a chart. Those things are mechanical and easy compared to fully knowing who you are and accepting it.   It’s also an example of how this trading site is different than 99% of others I have looked at. Mastering yourself and your  trading psychology is the single most important things to do and work on in your trading. Without that, you can be fed all the trade ideas in the world and still find a way to screw them up. Ask me how I know.

Earnings Calendar

$GGOGL is the last to report for the FAAMG names.  Other marquis names include DIS / SNAP / CMG / GM / QCOM / TWLO / TWTR / WYNN / UBER.

Headlines

  • China pummeled 8% as markets catch down after being closed 10 days.
  • Commodities across the board feel max pain as demand fears spread
  • Corona case load and death toll both up 70% SINCE FRIDAY. Cases 17,000 +   Deaths 360+
  • GILD up 12% on Corona Virus vaccine hopes; emphasis on “hopes” nothing documented or proven.

All about the FAAMGs

In the Weekend Navigator I pointed out how important the performance of the big-cap tech names are to the market both from a sentiment standpoint and from a market cap -weighted perspective.  The top 5 QQQ names are literally 50 % of QQQ.  The Q’s are the market, and FAAMG are the Q’s.  If they backslide, it will be next to impossible for the QQQ to advance or even tread water.  If you  have your finger on the pulse of FAAMG you’ll have the pulse of the market.GOOGL reports after the bell.

The indexes: 4 hour charts in focus

SPY 4 hour

On this view, $320 is support and this level also corresponds closely to the 50ema.  A price move below opens up more downside while above favors a bounce.  If you were not short heading into the weekend, objective places to open a new position would be after a bounce into resistance ( $324-$325)  or on a break below $320.  Preferably, you’d like to see a breakdown of QQQ below $218 in conjunction with SPY below $320.  Without the QQQ confirmation breakdown, any SPY breakdown is suspect and would likely be a headfake / false breakdown.

 

QQQ 4 hour

This one is simpler. Get short on a break of $218. Prices above $218 qualify as “a save”.  In my view the market isnt going anywhere without the Q’s dropping below $218. As far as I am concerned, this level is the downside trigger for everything.

IWM 4 hour

Great view of the $2 wide support level between $159 – $157. I expect price to bounce on the initial tag of $159 which may come as early as today. I will be covering my shorts if price makes it there. I expected the support zone of $159 – $157 to hold unless / until the broader markets break their support levels.

 

$AAPL 60 min.

As I write this note in the premarket, AAPL is down $3 and is trading in an around $306 which is inside the gap. Unless price can recapture $307.50 , I’d expect the gap to fill to $303.  A break of $303 brings $298 into play.

$AMZN 60min

Simple ( not easy ) as simple can be. Above $2000 and bulls are ok. Below $2000 opens the door to a $140 gap fill. The risk reward is skewed to the downside unless you think AMZN is going to all time highs soon. For me I’d much rather buy a new all-time high, than here.

$FB Daily

A break below Friday’s close opens the door to a move to $193 where both lateral support and the 200ema lie.  A move above the daily pivot at $209 opens up the possibility to fill the upper gap which is substantial.

$MSFT  60 min.

Price needs to hold $170 or it likely fills the gap. $168 is the 60m pivot. Below that and $162 comes into play as the next technical target.

Manage Risk on Open positions.

My view is now tilted bearish but not gonzo bearish. I have small short positions that I carried over from Friday. A QQQ break of $218 is the trigger I am looking for before sizing up on bearish positions.

We’ve had a number of nice wins to the long side. XHB / ITB, ICE, etc. Hopefully you’ve honored stops if hit and have managed risk on your winners.  If you’re short, do the same. Bear market kick back rallies can be swift and scary. Make sure you keep risk at manageable levels and you know where you’re wrong.

$TLT is set to open down $1 in the premarket. If you are not long TLT, I think it would be a place to nibble and start building a position. I got long March $146 Calls on Friday. I will likely either add to that position or open a new one with March $145 Calls. I like the March chain over the Feb chain. Give this time to work. I think we go higher.

Make a change in 2020; Join our Trading Tribe!

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Our group of aspiring traders are into active swing trading using technical analysis to find objective, high-probability,  low-risk trades.  Using these processes we’ve been fortunate to be winning; not perfect but winning. If that is appealing to you, join us!  I’d like to think you’d benefit from the work.  You’ll get premium  content 6 times a week including a copy of my Daily Profit Compass, Weekend Profit Navigator,along with other actionable content delivered directly to your mailbox. You’ll even get an invite to our new trading room on SLACK.

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