Daily Profit Compass Jan 19

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

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.

Morning Inspiration

The Amount of money you start with isn’t that important. Grow it from there.  Starting with a small account is actually a blessing because it forces you to find a process that works for you and one that ensures losses are kept to the “paper-cut” variety rather than wholesale blood-letting.

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

News Flow

  • Yellen confirmation hearings begin today
  • TSLA Model Y deliveries begin today in China; To date, TSLA has opened 720 super-charging stations in China representing 5700 Superchargers
  • LME proposes closing it’s open outcry trading pit; one of the last ones of consequence in existence
  • Trump leaves DC as town readies for Biden inauguration
  • Markets set for “Buy Everything” open as equities, oil, gold, silver, all green

++ Repost from yesterday for those the missed it.  +++

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.
  • All this is against a backdrop of bullish sentiment that has been at extremes for months.

$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.

Sobering charts on Valuation

“The Ugly Truth”  by Northman Trader

In early 2021, Sven Henrich put together an 80 min video that is a broad treatise on his view of the macro landscape.  The presentation focuses heavily on the scale and effects of the FOMC’s interventions and it’s effect on financial assets. Sven does a nice job with this kind of stuff so I decided to share it with you.

That said, I share it with some reservations. It would be very easy to watch this video and upon it’s conclusion liquidate all of your long holdings and either go short with massive leverage or buy gold, crypto and supplies for your doomsday prepper bunker.  And that would be a huge mistake.  Accept that our market is in some type of bubble and that it is likely that the extended nature of it will not last forever. Forever is a long time and who knows how long the FOMC can keep all the balls in the air.  Our job as traders is to trade the environment we are in. In order for the doom loop Sven implies, price must first lose the 20ema, then the 50ema, then the 200ema etc.  Point being we will most definitely see corrective price action when ever it may occur.  You cant have a crash without price losing those key moving averages.  The March Covid crash was a perfect example. So bottom line, it’s fine and probably good to understand downside scenarios Sven presents, but continue to trade in the moment.  Lastly, note that Sven doesn’t offer a trade idea to go with his good work. That in itself,  may be one of the most important takeaways from the video.

The video is not time sensitive. Listen when you have time and are interested.

Find the 80 min Video HERE

Trades about to Happen

$JMIA Weekly

JMIA, the Amazon of Africa, has made a roundtrip from it’s IPO high of $49 to $2 back to near $49.  Keep the name on the radar and alarm $49.  If price can take out the prior high, $49 will become a huge level of support from which traders can anchor a long for the next leg higher.

 

FATMAAN Names

In the companion video, I cover off the FATMAAN names using the daily timeframe. Some very interesting trade locations are on the horizon that will set up well for swing traders on the daily time frame.

INDEX CHARTS

A detailed walk-through of the levels and trading strategy for the indexes is given in the video ( link above) . The static charts are provided for reference. The FATMAAN names are also reviewed in the video

SPY 2 hour

SPY 30 min

QQQ 2 hour

QQQ 30 min

IWM 2 hr

IWM 30 min

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