Daily Profit Compass February 11

Tickers discussed: SPY QQQ IWM SMH, AAPL, FB, AMZN

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:  Trust the Process

 

 

 

“Trust the Process”.  Those 3 simple words may be the most important words in trading, or at least close to it. They also may be the hardest. In order to trust the process, you need to have a process. In order to have a process, you’ll likely run through dozens that either fail or don’t suit your personality.  After you have a process, then you’ll be faced with rigorously executing it without wandering off course. Most traders think they have a process, but when asked to write it down or explain it, they cant.  Or, there are so many holes or exceptions, you can drive a truck through it. Do this for me. Take some time one afternoon or evening and commit yourself to writing down your “process”.  It does not have to be complicated or wordy, but it does have to be pure.  Here is a possible example:  I am a specialist and have narrowed down my field of view to 200-250 stocks. Stocks I consider must do 500,000 shares of volume a day, be over $10, and have a liquid option chain with no more than 25c between the bid / ask spread. I never hold a position through earnings. My opening position size is 1% of my assets. I allow myself to buy more on a rising scale up to 2% of assets but no more.  I never add to a loser. I use technical analysis to help me buy support and sell resistance. Fundamentals or valuation are not considered in my process. If a position increases to 300% profit, rules dictate to harvest profits either by closing out or rolling strikes higher. My max stop loss is 50% of premium paid, no exceptions. If price stagnates for 7 trading days, I close my position.  I am never long below the 200ema and never short above it.    Crisp, concise, bullet pointed, no fluff.  Work on creating a process you can call your own. Over time and with hindsight of results, feel free to tweak your process.    Nothing needs to be carved into stone.   Note:  You can have more than one process for more than one style of trade.  You just can’t mix those processes between trade types. Give it a try; reach out if you get stuck.

 

Earnings Calendar

Headlines

  • FOMC’s Powell heads to Capitol Hill for 2 days of testimony.  Sen. Rick Scott pre-published his questions which included “How and when do you plan on deflating the asset bubble and bringing prices back to historical norms?”  The testimony may have more fireworks this time around.
  • $TMUS – $S Merger green light expected.
  • $WORK popped some 20% on “news” that IBM was migrating their whole company to SLACK.  Problem was IBM was already one of their biggest customers, so the pop was on “fake news”. Shares down sharply AH
  • The Mobile World Congress trade show is seeing major cancellations by key attendees  as Corona fears prevail.
  • NatGas at 4 year lows; $EUR at 4mo lows; $USD continues to climb

Record Highs

It only took 1 second after the opening bell for the big boys to gobble up the opening pre-market weakness. From there the auto-pilot algos were set to “relentless nibble” mode gnawed their way to record highs on  $SPY and $QQQ.  As previously discussed , the markets are being led by FAAMG names.  Specifically, yesterday AMZN, MSFT and GOOGL were the big out-performers with AAPL and FB mostly taking the day off.  The market structure, after taking a 2 week sabbatical on Corona fears, is back to the Gap-Camp-Ramp program.  Gap overnight, camp-out most of the day with little 2-way action, then jam the close. So for the most part, over -night is where the gains are being made and where poor structure in the form of gaps are being left behind.  Nothing to do about it except to be aware that the gaps will eventually be filled.  So until we see tangible evidence to the contrary, the charts remain bullish and the FAAMG names are doing the heavy lifting.

 

Index Chart Review

SPY Daily

Multiple doji candles be damned!  Price found support at the gap at $331, then put in a decent sized marubozu ( no wicks ) bullish engulfing candle took out those dojis from last week and now points to a continuation higher. The marubozu  shows particular strength by the bulls as they were in control the whole day. You can research more about the Marubozu candles HERE The price action suggests the market is putting the 10-day long turbulence in the rear-view mirror as new highs are being forged. Traders can use $334 ( 60m support shelf), $332 ( Friday close), $331 ( Monday break up candle low )  or even the rising 8 ema as stops depending on how tight a leash you want to keep things.  Find objective locations to get long. With price well above the bullishly configured 8 and 20 ema’s, hard to get too bearish.

SPY 60 min

Bulls –  The breakout above $334 gives bulls a new location to shoot against or place to raise stops. Traders should remain aware of opening gaps higher leave the door open for a flash gap fill lower.  A nice opportunity to buy at lower prices if you get it. Stay long. Price action is bullish.

Bears – Backfills of gaps are one of the few places to look for objective shorts. Be tactical and nimble. Once the gap is filled, take profits.

QQQ Daily

The break above $230.30 offered an ideal entry point as shown in the annotations on the 60min chart. Traders can stay long against $230.30 with a stop slightly below.   Any dip to back test either $230.30 or the  break-up candle low at $228.30 that holds would be a place be a place to try a long.

QQQ 60min chart

Bulls – Stay long against $230. Nothing else really to say. If you did not buy the breakout you’ll need to either accept a stop at $230 or wait for another objective location to emerge. A back test of  $230 would be perfect if you get it.

Bears – Back to hunting for gap back fills. Everything else on the chart is bullish.

IWM Daily Chart

Price is lagging both SPY / QQQ. Yesterday’s price action did not even recover Friday’s breakdown candle high.  $166, then $166.50 remain as OH resistance points between price and $168 which was last Thursday’s breakdown candle high.  As long as price remains below $168 the chart will keep a neutral to bearish posture. Trade form level to level.

$IWM 60 min

Bulls –  $166 and $166.50 are places you can either add or initiate longs as those levels are taken out. Your near term target is a move to recapture $168.

Bears – A move back below $164.50 would be outright bearish. A move in that direction brings all the open gaps back into play.

Trade Set ups and Ideas

 $SMH 60m

A triangle has formed on the hourly chart. Breaks above can be bought with a tight stop below. SMH is a “risk-on” group. It should advance with QQQ.  Any weakness in Semi’s is cautionary for QQQ.  A breakout here would be supportive of a further advance in QQQ.

$AAPL 60m  Another nice triangle. From the technicals, Buy the breakout if you get it.  Price action is a little weaker than other FAAMG names as china supply chain worries are an over hang. Prior dips for those reasons have been gobbled up.

$FB 60m  Price has entered a big $12 gap. If the market continues higher, I’d expect traders to “get over” the recent ER report. Look at it this way. Get long against the rising 20ema at $211.50. The stock is $213. You are risking $1.50 to possibly make $10 on a gap fill. Risk / Reward does not often get much better.

$AMZN 60m  Offered plenty of low-risk entries if you were paying attention. We highlighted the 2000 / 2050 bracket trade post earnings.  Water under the bridge, now the entry will be trickier. Short term traders could use 2120 as a line to shoot against long.   Weekly Chart A better trade might be to take a long term view and use the prior high at $2050 to shoot against. Your $50 of risk will look like a pinprick if the stock takes a massive leg higher following its breakout from a 18mo consolidation.

 

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