Daily Profit Compass July 21

Tickers discussed: SPY QQQ IWM  Active trades and set up review  FAAMG Update   Strategy & Tactics

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

Sounds a lot like Peter Brandt never taking a losing position home on a Friday.  Also, key on Tudor Jones emphasis on staying relaxed. A stressed out trader is one prone to mistakes and burn out. Work hard on techniques to calm your mind and body throughout the day.

Earnings

Marquis names  MSFT, TSLA, INTC headline a busy week of earnings releases as the season swings into full gear. 

News Flow

  • EU clinches 750B Euro covid relief bill after 4 days of contentious negotiations
  • EBAY sells classified ad unit for $9.2B
  • AMZN confirms Prime Day delay
  • Biden proposes $775B plan funded by real estate taxes
  • $1T glut of bonds is dwarfing central bank demand

CEO Outlook – The Fog of War

Cam Hui of “Humble Student of the Markets” put together a nice summary of CEO commentary.

The main theme of earnings calls is uncertainty.

As an example, CNBC reported that JPMorgan Chase CEO Jamie Dimon remarked that the outlook depends mainly on the course of the pandemic. “The word unprecedented is rarely used properly,” Dimon said this week after JPMorgan reported second-quarter earnings. “This time, it’s being used properly. It’s unprecedented what’s going on around the world, and obviously Covid itself is a main attribute.”

The economy would be in shambles without the safety net of the CARES Act.

That’s because the $2.2 trillion CARES Act injected billions of dollars into households and businesses, masking the impact of widespread closures. As key components of that law begin to phase out, the true pain may begin. As many as 25.6 million Americans will lose enhanced unemployment benefits by the end of July, and it’s unclear if Congress will extend the $600 per week in additional payments that has buoyed so many households.

“In a normal recession unemployment goes up, delinquencies go up, charge-offs go up, home prices go down; none of that’s true here,” Dimon said. “Savings are up, incomes are up, home prices are up. So you will see the effect of this recession; you’re just not going to see it right away because of all the stimulus.”  The bank has provided forbearance on 1.7 million accounts; so far, more than half of credit card and mortgage customers in the programs have made at least one monthly payment. But these vulnerable customers could stop paying altogether as their federal benefits lapse.

The Transcript provided more color with themes from last week’s earnings calls:

  • The economy rebounded in May and June (JPMorgan Chase, Carnival, Johnson & Johnson, Bank of America, Delta Air Lines)
  • But the recovery is slowing down as infections rise (JPMorgan Chase, Goldman Sachs, Delta Air Lines, Domino’s Pizza, Fastenal)
  • Businesses are beginning to plan for this slowdown to last much longer than initially expected (JPMorgan Chase, Bank of America, Goldman Sachs, Citigroup, Wells Fargo, Carnival)
  • Government stimulus has softened the impact of a major blow to the economy but what happens when it runs out? (JPMorgan Chase, PepsiCo, Citigroup)
  • The moment of truth is approaching quickly (JPMorgan Chase, Citigroup, Wells Fargo, DBS Group)
  • Markets are betting on more stimulus (Citigroup)
  • There’s a big disconnect between markets and the current reality, but remember markets discount the future (Citigroup)
  • The election cycle is not playing a big role yet (Goldman Sachs)

The New York Times summarized the views of other CEOs. All had similar cautious outlooks.

  • “I’m less optimistic today than I was 30 days ago,” said Arne Sorenson, chief executive of Marriott International. “The virus is in so many different markets of the United States.”
  • “Most C.E.O.s today believe that until there is a more effective treatment or a vaccine, that work and life are not going to go back to normal,” said Julie Sweet, chief executive of Accenture.  Ms. Sweet said even in Europe, where the virus is largely under control, business leaders are anticipating flare-ups that could disrupt the economy again. “In Europe, we have clients saying, ‘We want you back,’ and in the next breath saying, ‘Of course, that will change,’” she said.
  • “It’s going to be one step forward, two steps back,” said Julia Hartz, chief executive of Eventbrite, the ticketing website.

Covid Benefit Fiscal Cliff looms 

As has been well publicized, Covid benefits begin to roll off in just a couple of weeks. Congress has a short window of opportunity to put together Covid 4 relief package before the schedules August recess and the political conventions.  Most have the package at $1.5T – 1.75T but some sat $3T at the high end. This is for sure. This is the last shot before the election.

My base case is that they pass a bill at the low end of the range. $1.5T ish.  Why?  Because it is in both parties interest to do so. Neither side wants to be the reason the economy tanks. THis is also true….we might get a real scare / dip in the markets as the politicians use brinkmanship and play hardball. If that happens, I’d be inclined to buy the dip.  They will get a deal done because they have to. However If they do not act , we should expect a GIANT RED BAR.  Fiscal and monetary stimulus is keeping the market and the economy afloat. Without it bad things begin to happen more quickly.

Covid Relief Runoff timeline

 

Bulls Dominate

The Bulls, primarily led by FAAMG and tech, took charge to ramp markets higher and for SPY through an important technical level at $323.  QQQ has new highs in sight and SPY is gunning for a run to $329. IWM lagged as the back-to-normal trade faded. Cyclical bell weathers airlines, hotels, banks, cruise ships were destroyed.  While as good as this looks, yesterday’s gains came on negative breadth and with only 3 of the SPDR sectors green.   The SPX equal weight was also down.   Troubling yes. Cautionary yes. Sell signals, NO.   We are going to lean on price for our signals. If a level breaks, we can talk about selling or shorting, but until we get visual evidence in price that there is a problem, I want to stay long and ride the bubble if that is what it is.  Keep your eyes open; your head on a swivel, and stops / exposure within reason.  A giant red bar is out there, but until it shows up, we can make Money.

 Strategy and Tactics 

Benefit of doubt remains with Bulls. 

  • Junk breadth yesterday is cause for concern but not a reason to sell.
  • Watch the FAAMGs.  They alone have the market cap to lift the market by themselves and if they run into earnings we could be set for a blow off top
    • Remember Soros the “bubble hunter”…..”When I see a bubble I buy it”
    • QQQ – looking for the prior high now at $270.  $265 should be support.
    • If you are a short term QQQ trader, make plans to be out ahead of MSFT earnings print Wednesday AH. 
      • Why risk being a bagholder if MSFT and TSLA both whiff?
  • Bears have had so many chances and have done nothing. Make bears prove they can take, then maintain, control.
  • Staying bullish does not mean complacent
    • Stay vigilant! Ratchet stops / Strikes higher on your winners and keep exposure at manageable levels.
    • Mark clear levels on your holdings for exits; honor those levels on a pull back.
    • You know they can pull the rug at any time for no reason at all.
  • SPY broke above the wall at $323……Massive OH gap to fill on SPY to 329.
  • Stay Fluid and flexible in both positions and thinking; Dont lock in on Narratives.
  • Expecting a hi-vol summer with Covid and political headlines whipsawing markets

 

FAAMG Live Annotated Charts

Annotations updated  Tuesday July 21

Click on the Links to view my annotated live charts

FB                  Daily

AAPL            Daily

AMZN          Daily

MSFT           Daily 

GOOGL       Daily 

Charts in Focus

Active Trade set ups

$GWPH – Price attacking $140. If it clears, move stop up to $137.50

$NEE – Most took profits yesterday, but if you are still in, be sure to exit prior to earnings Friday.

$JMIA – Entered long yesterday at 8.50 on the breakout. Looking for $11 as T1

$YETI – Bought the Aug 45 Calls, looking for a pre-earnings run. Closing position ahead of earnings on Aug 6 no matter what.

$PZZA – We are $10 to the good on out $85 entry and just shy of the technical target at $95. Roll higher and protect / raise stops.  Earnings date not posted yet.

$FDX – long against either 155 or 162. depending on entry. Room to move higher. Respect stops depending on entry.

$GDX – I sold the low tick but hopefully you’re still long. Stay long. Suddenly looks great. No patience, no payday.

  • Traders can also look at Gold and Silver miners for individual names.  PAAS, WPM, KL, NEM, GOLD etc

$NFLX – Bracket trade with price still inside. No trigger no trade. Watching

$CHGG – Still like it long above $77 breaking to new highs.

$BBY – Alarmed $90 for a breakout to ATH’s and hoping for a flash move to tag $100

$SYNA – Like it on a breakout above $72 for a 2 week trade into earnings Aug 5

$WKHS – Set an alarm at $13 support.

$IBM gapped higher last night on earnings. Potential trading op for nimble and active traders

Index Chart Review

SPY 2 hour

SPY 30 min

QQQ 2 hour

QQQ 30 min

IWM 2 hour

IWM 30min

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