Daily Profit Compass January 29

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Tickers discussed:  SPY, QQQ, IWM, CHRW, OKTA, W, WDAY, SQ, DISH, XLNX, AMD

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 –  Accountability

 

 

 

Why do you think Wall Street trading firms pay big money to employ Trading Floor Managers and Risk Managers?   Because traders can’t be trusted.  If the world’s best traders can’t be trusted, what makes you any different?  Wall Street traders are accountable to their firms.  Who are you accountable to?  Sorry but “I am accountable to myself”  doesn’t work.  We all have those dark little secrets that no one knows about. You know, the trades where you lost a ton of money because you broke every rule in the book. Trades that would either put a Wall Street trader on probation or be fired.  Do yourself a favor.  Be accountable to someone for your trading.  It can be a significant other. It can be a trading buddy or even a friend. Once accountable, you won’t put on half the trades you do now. You’ll cut losses quicker. You won’t put 20% of your trading capital on 1 trade.  You’ll get better and improve faster.   We have a bunch of people in this group. Consider pairing up and become each other’s risk manager.  If you’re interested let me know and I will act as match -maker.

Earnings Snapshot

Earnings really ramps up this week and it could not come at a more critical time. Key FAAMG names headline the week along with several marquis names in other sectors. AAPL / AMD / BA / TSLA / MCD / SBUX / MSFT / FB / AMZN / V / XOM / CAT /     Lots of market cap here that will most assuredly move the market one way or another.

Headlines

  • Hong Kong market off almost 3% as the Corona Virus dominates.
  • Virus related deaths climb to 132 as cases muchroom
  • Post Earnings reactions: Up – $AAPL  Down: SBUX / AMD / XLNX / EBAY
  • FOMC rate decision 2pm; Presser 2.30pm  No rate change expected; Key aspect is guidance on REPO liquidity program ( not QE )
  • JPM said to be planning layoffs in its Consumer Banking group.

Market Observations & Technical Developments

FOMC Liquidity vs Corona Virus

We know by now that the explosive run higher beginning on October 3 has largely mirrored the massive liquidity injections made by the FOMC’s Repo operations. ( above $500B so far ).  This run has been all about multiple expansion.  So now we are dependent upon this liquidity to keep the rally going. The Corona Virus is an overhang and headwind.  So if Powell gives forward guidance or somehow implies winding down / cutting back on Repo liquidity I think that will be a bitter pill for equity prices. We’ll see how AAPL handles its earnings reaction.  It’s up about $7 / 2% .  Basically nothing for a $300 stock.

Today we have BA, MCD, GE, TSLA, MSFT, FB, PYPL, LRCX, LVS, ALGN, URI so we’re loaded as the earnings avalanche continues.  Aside from those companies reporting earnings before the bell, dont be surprised if the broad indexes drift ahead of FOMC this afternoon. After the Fed announcement, expect the EKG knee jerk reactions both ways as Jay Powell works his way thru the presser.

Wall of Worry

  • 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.
  • Big Cap tech / FAAMG   All report over next couple of weeks; These names dominate the cap-weighted indexes. Hiccups or disappointments will be felt.
  • 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 3500              Ring the Bell, pull the rug?

Bullish Counter-balances

  • FED Liquidity:  If the FOMC is hell-bent on blowing a SPX 4000 monster bubble, they have the money to do it.

 Strategy –  Wait and See to slightly bearish.

  • I don’t want to be loaded with longs or shorts here; we could easily go either way.
  • 60 minute charts are bearish; Daily charts are still bullish
  • Yesterday, at this point, was simply a fib bounce into the gap.
  • If bulls can recapture the big breakdown candle high, then the pull back was a one n done.
  • If bears rolls price over at a key fib level or upon the fill of the gap above, we most likely head down
  • A break of Monday’s low would seal the deal and favor a 50 ema test on SPY.

$SPY Daily

If price closes above the gap fill level of $328.75 it would be very bullish. Otherwise look for reversals at the fib locations shown on the 60min chart. Expect choppy action after the Fed while keeping in mind that the first knee jerk reaction is usually wrong. Trade small if at all this week. Lots of moving pieces.

 $SPY 60min chart

Bear Set up: Watch / wait for potential rejections at overhead fib levels and / or upon a fill of the OH gap). Breaks below $327 are bearish. Breaks below the Monday low near $323 favor a deeper pull back to the 50ema at $319.60

Bull Set up: Prices above $227 are short term bullish. Prices above $327.57 and $328.75 ( gap fill ) would be places to add with tight stops below. Prices above $331 confirm one n done pull back.

$QQQ Daily

Swing Traders  For me, $222.50 remains the key pivot point. It coincides with the 61.8Fib level and the Monday gap down. Above is bullish, below less so. Anchoring longs or shorts above or below $222.50 wont hurt you if you maintain a tight stop and respect it.

 

QQQ 60 min

Bear Set up:  Bearish below $222.50. A break of Monday’s low opens the door to much lower prices.

Bull Set up: Long above is fine with a tight stop. A move above $223.60 would be a place to add or initiate a new long position.

$IWM  Daily 

To my eye, $165.50 is the short term pivot. Above ok for bulls; below favors bears.  On the daily chart, recovering the breakdown candle high at $168 would put price on solid ground. Prices below $162.50 favor a back test of the breakout at $159.

 

$IWM 60 min

Bear Set up: $165.50 and / or $166 may offer stiff resistance and therefore would be logical places to try a short especially if price action seem weak. Keep stops tight and position sizing reasonable.

Bull Set up:  a move above $165.50 favors $166. A move above $166 favors $167.25.  If you catch a runner, raise stops as you go.

 

Trade Ideas and Set ups

$DISH – Still have $37 alarmed for a breakout. Energy building below.

$SQ  – A big breakout into the gap yesterday that I missed.  If you’re interested, set a stop $1.50 to $2.00 below entry. $6 of upside to gap fill.

$W  Still looks great. Back test of the 20ema was successful. Stayed strong during 2 big red days.  Needs to clear the 200ema to get going. Still like it long.

$WDAY – Emerging breakout. Stay long against $185

$OKTA Held up well over sell off. Still like it on the break above $130.

Bracket Trades

SBUX / AMD / XLNX / CHRW  May provide nice trading ops on breaks above or below the opening range after gaps from last night.

 

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