Daily Profit Compass June 1

Tickers discussed: SPY QQQ IWM TLT VIX  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 –

Envision yourself as an Airline Pilot

Since it’s inception, the airline industry has accomplished an impeccable track record of safety. It is literally safer to fly in an airplane, than drive to the grocery store.  In large part that record of safety has been the result of detailed check lists and protocols. Pilots, no matter if they are greenhorns or veterans with 35 years of flight experience, all do the pre-flight, in-flight, and pre-landing checks.  When protocols are ignored, forgotten, or are confusing to the point of causing pilot error, bad things happen.

I think the airline pilot framework is a good one for traders. What if you created for yourself a pre-trade checklist that you force yourself to complete prior to every trade rather than simply firing up the engines and roaring down the runway. How many times would you abort the trade even before it happens?  Think of it.  Technical pattern, check. Stop set , check, Targets identified, check. Earnings date check. RSI and PPO indicators check. Trading plan written and reviewed, check. Risk / reward 3 to 1 or better, check.   A checklist that incorporates all the elements you deem essential that is filled out before EVERY trade will save a lot of lives. If you went to the “trouble” of doing this it will slow down the over trading, side step dumb, self-inflicted errors of oversight, and definitely improve your results. I encourage you to give it a try.

 

Earnings

Hi-flyer $ZM, $CRWD, $AMBA Tuesday, $DOCU, WORK, $AVGO Thursday

 

 

News Flow

  • China suspends US Soybean Imports in escalation – Bloomberg
  • Riots pound key cities thus throttling the emerging re-opening
  • Semiconductor industry lobbies for $37B in aid.  #WhyNot
  • SpaceX stages successful manned launch and docking with Space Station
  • OPEC + discusses extension to output cuts
  • Target closing 175+ stores after riots
  • $FB employees hector Zuck on non-response to Trump

Sector Summary

Dash for Trash was faded for a second day as prior leaders in tech and healthcare re-emerge at the top of the sector winner list.

Fun Fact: Overnight or Nothing

For the Month of May $SPX gained 134 pointing during the overnight sessions. During regular trading hours it lost 22 points.  The low liquidity in the overnight session make it relatively easy for pajama traders to push price higher. At a minimum, it’s interesting that the big boys who trade in volume did not add to overnight gains in the regular session. 

$TLT 1 hour; Bonds not confirming recent rally

Bonds remain skeptical of the recent rally as they have held support throughout the recent advance.

$VIX 30min.   Showing relative strength; Protection looks cheap; Long VIX trade Idea

So we’re making new relative highs in the Q’s, SPY is advancing yet the VIX remains “stuck in a box” and refusing to break to new lows.  For traders that either have a decent sized long book and are looking for protection, or for traders looking to make a directional bet on some Summer Vol, the VIX looks cheap.  In fact it’s at the low end of the range since the March Rug pull.

Trade Idea: I like the idea of getting long VIX calls, 1-2 months out against $27 and playing for a pickup in Vol. At a minimum a pop up to the top of the box at 30. A pop above 30 and you might have a runner on your hands.  In my view, this is offers a really nice Risk / Reward profile given all the uncertainty out there and with price at the low end of the range. Give your stop a little extra room if you’re using the trade as protection against along book.

Graphics to think about

Housing inventory at 30 year lows. Question is whether the fact is a supply issue or a demand issue. 

 

Dash for Trash in perspective: The “great rotation” has only brought price nearly back to the YTD downtrend line. If you open up the chart to a longer time frame, the rally is almost imperceptible.  Remember Livermore’s observation ” The first eighth is the most expensive eighth you’ll ever buy”

Country Roiled; China Tensions rise; Markets docile and resilient

Despite 1% drops in futures on the open followed up with a drop on news China is halting soybean purchases, the market has eaten up those losses and now are just fractionally red. That said, as mentioned above, the regular session has not built on overnight action. It will be interesting to see how the big boys, ( not pajama traders ) handle the news flow.   Until charts change however, bulls remain in control. Trade level to level and ignore the news flow.  Maintain your stops and ratchet up if we get a break higher.

 Strategy and Tactics 

  • IWM – I am short against $140 and favor the dash for trash fade to continue. THat said, a price move above $140 and i am out.
  • SPY $300 and QQQ $229 are the key short term levels to watch. Above and bulls have no immediate worries. Below things get more iffy.
  • For longer term traders, bulls still in control. No immediate worries but further downside will test uptrend lines / channel lows.  Seems like a time to pay a bit more attention.
  • Continue to watch FAAMG. Even if you dont trade them, sheer cap size will move QQQ and markets in general.
  • I still think Tactical shorts ok, but overall bias remains and should continue to be bullish.  A tactical short I am focused on is IWM.
  • Stay mentally flexible even though your heart may urge you to go “all in”
  • Keep ratcheting up stops if you have nice runners. Have a plan to get paid.

FAAMG Update & Trading Guidance

  • FB – Prices above $221.71 keeps the daily chart bullish
  • AAPL – $316 and $313 are your key downside support levels. Breaks below $313 favor a move to $302.50ish. Price needs $320 to get going to the upside
  • AMZN – Price continues to backtest the broken 60m trend line.  Simple set up. Above 2450 gets the chart more bullish; below 2450 price is vulnerable.
  • MSFT  – above 183 and bulls are ok with an eye on 186.50; Below 182 re-opens path to 176.  Needs 187-187.50 to open up higher range / prices
  • GOOGL – above 1410 ok for bulls; gap between 1440 – 1480

Index Chart Review

SPY 2 hour

SPY 30 min.

QQQ 2 hour

QQQ 30 min

IWM 2 hour

IWM 30 min

 

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