Daily Profit Compass Jan 18

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Tickers discussed: SPY QQQ IWM FB AAPL AMZN GOOGL MSFT NFLX TSLA

The  Daily Profit Compass provides stock market technical analysis for the stock market today and is focused on the indexes and FAAMGs. Key levels and trading locations are provided, along with trading plans and timely commentary to keep you on the right side of the trade.

Earnings 

Earning season kicks off in earnest this week.

Tuesday – Follow up on Big Banks with GS & BAC reporting with NFLX reporting after the bell which could and often is a sentiment gauge for mega cap tech.

Wednesday – PG should give a decent read on the consumer; FAST in the industrial space; UAL first airline to report; plus a slew of other regional financials

Thursday – INTC may provide color with new CEO in place; CSX first in rails and PPG industrials and yet more regional financials

Friday – SLB bell weather in oil services

Companion Video

The video is a detailed technical review of the indexes and FATMAAN names.  All the key trading levels are identified along with commentary and trade plans for each ticker. Trade ideas are also discussed.

Run the video at 1.25x to reduce run time.

Find the Video HERE

Pump the Brakes

Markets trade down on Good news

  • Friday saw an uninspired session with the big banks trading down across the board on positive earnings news.
  • Also, the Biden $1.9T stimulus plan announcement, was not greeted especially well.
  • Is all the good news baked in?  We got a nice Santa Claus rally to close the year which extended through the first week of January.  Biden gave us a more-then-expected stimulus proposal and the banks reported nice earnings beats but the market remained soggy.  What is the catalyst for higher?   Possibly the $600 covid monies will filter into the market. Certainly the upcoming earnings releases will loom large.  The market has lost some momentum so it will be important to watch the reaction to upcoming earnings announcements.  I think that will be especially true for high-valuation names that may be vulnerable to sharp sell -offs if enthusiasm wanes.

$USD Rally and 10 year Rates Watch

  • Over the past week, the $USD has put in near term bottom and has been rallying. A rising dollar, regardless of the reason, tends to favor a risk off environment.  Time will tell if this is simply a positioning short squeeze or something more but it should be on the short list of things to watch in the weeks ahead.  Positioning reports show that Dollar shorts are at 10 year highs. It will be interesting to see if that conviction wanes if price drives higher and weak hands are squeezed out.  A rising dollar should will throttle the surge in commodities.  I think we should watch the space closely and be ready to buy-the dip if given a nice pull back.
  • After a fast move from sub-1% to 1.2% on the 10 year, rates backed off in recent days.  This, combined with the move in the $USD threw some cold water on the reflation trade that has become the consensus view.  Any move back below 1% would signal a problem with the outlook for growth.  Moves back toward the upper end of the range would be welcome for those positioned in the reflation trades.

January options Run-off

  • As mentioned several times over the past week, the week following monthly options expiration often mark inflection points in market direction as  “call and put walls” roll off.  The week ahead is a time to remain nimble and be ready for a market sentiment shift. Depending on how you’re positioned, reducing some exposure via selling some upside calls against your longs might not be a bad idea. That will keep you participating on the long side but also stabilize your portfolio should the market see some turbulence. Bullish sentiment remains extreme but that is not an outright sell signal, just a cautionary yellow flag that has been in place for months.  I think being nimble and flexible is the key.

 

Order Flow Insights

Bull Flow Summary

$FB saw robust call buying as price tested and held it’s 200ema.

Bearish Flow Summary

There were net bearish flows across all of the indexes on Friday. Doesn’t mean these buyers are right but does warrant some caution.

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