Daily Profit Compass January 23

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Tickers discussed:  SPY, QQQ, IWM, TLT, GDX, SIL

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 –    Will return

Earnings Snapshot

Headlines

  • Asian markets roil as China locks travel on 20 million people as Virus fears widen.More cases reported
  • TSLA now has a bigger market cap than VW. Now only Toyota stands in the way of TSLA being number 1.

Market Observations & Technical Developments

Holding Pattern?

As the Virus scare widens, the US markets are doing well just to tread water. With FAAMG names yet to report and with INTC reporting tonight it will be interesting to see if we can maintain a holding pattern or money comes out of the market. Another reason for a pause is the FOMC meeting next week.  FOMC member Kaplan said last week he is concerned about the asset inflation.  If the FOMC backs off the REPO funding program, that can only be a negative for markets. That isnt my base case, but the possibility is out there.

Expect more pain in the Travel, airline, hotel cruise line space today along with the China names.  I will be reviewing charts to find the key levels in these names / sectors. I will pass along when I get it done.

From Yesterday, re-emphasized today…….Gold Miners and Treasuries perk up

$GDX and $TLT are really looking productive.  $TLT is actually about to breakout. A move above $140 gives it running room. Neither TLT nor the Precious metals complex are buying the equity rally as they are holding their bids.  Even if only as a hedge against your long book, I can think of worse things to do than initiate some starter positions in TLT and GDX. Look out to March if you’re going to use options. Give the trades time to work.  If equities fade, you should see big green bars on both.

Potential Market Top Event Horizon

  • January 13 :Earnings Season ramp –  Added pressure on earnings because multiples have expanded; Misses will be brutally punished  ( $FIVE for example )
  • January 15:  Phase 1 Trade Deal Ceremony –  How come no one knows what is in this deal; Where is Xi?
  • January 17:   January Op-Ex – Op-Ex weeks are typically bullish. Op-Ex also often act like market pivot points
  • Week of January 20:  Impeachment Trial to begin;  World Economic Forum in Davos all week
  • Corona Virus scare
  • January 28-29 FOMC Rate Decision –   Rates stable; policy shift regarding REPO liquidity injections would be a game changer. Powell always has the potential for an unintended gaff.
  • February 3: Iowa Caucuses –  Bernie surges in Iowa; Politics will be a destabilizing factor in all of 2020;
  • Geo-Politics:  Iran isn’t going away.
  • Round Numbers:  Markets love round numbers.  NASDAQ 9000 check    Dow 30,000 close.   SPY 3300              Ring the Bell, pull the rug?

Bullish Counter-balances

  • AAII Sentiment: Bearish sentiment is at a 6 week high.  Markets usually peak on euphoria, not pessimism
  • Village Idiot Gauge: Every village idiot knows we’re over-bought and extended.  Lots and lots of bears; When your UBER driver give you a stock tip, be afraid
  • FED Liquidity:  If the FOMC is hell-bent on blowing a SPX 4000 monster bubble, they have the money to do it.
  • Too many spectators:  Tons of cash remain on the sidelines; The Black hole needs to suck this money in before it implodes.

Remain vigilant.  The recent vol expansion is a sign things are changing. Liquidation and overnight risk remains elevated. The trap door can open at anytime for no reason.  Take risk down to a level you’re comfortable knowing that if another overnight episode occurs, no lasting, catastrophic damage will happen to either your account or your trading psychology.   If you’ve been waiting for a market top, remain patient and wait for a sell signal confirmation. If you’ve been front running the sell signal, you’ve been losing. Trade small if at all. Bulls remain in control.

Strategy Update:   The daily time frame charts are still bullish; No major levels have been violated.  If you’ve got long positions, simply respect your stops and don’t be married to anything. If we get a decent pull back, you can re-buy at lower levels.

 Stay tactically Bullish.

  • RAISE stops to first support on the indexes.
  • Pre-earnings season is typically bullish; FED liquidity is bullish;
  • Op-Ex can often be pivot points for the market. Next week will be really important. If you are loaded to the gills long, make sure you at lease roll higher and / or lighten positioning.
  • Set tight stops depending on your time frame; trim n trail
  • Keep long exposure in balance with your risk tolerance.
  • Keep some dry powder ready; to take advantage of any one n done pull backs.
  • Be aware of the yellow flags; ( low volume climb, ultra low vol, poor market structure loaded with gaps; bearish divergences; collectively they simply mean to be careful.
  • Nothing truly bad can happen unless SPY $301 fails or QQQ $194 fails. That said, those key support levels are getting farther and farther away.

 

Pre-Market review of Indexes, Gold / Silver Miners and Bonds ( 15min Video )

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