Tickers discussed: SPY QQQ IWM FB SPOT 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 –
I can attest that in my own trading that greed, anger and delusion have menaced many positions over the years. The good news is that for me, those afflictions are far less prevalent today than they were years ago. The catalyst for my improvement was, and always will be, pain. If something is causing you pain, stop doing it. If a position is causing you pain, get out. If your emotions are causing your pain, learn to control them. It isn’t easy but you can change. If fact it is essential that you do in order to improve in your trading.
Earnings season continues to wind down, but still some notable names report this week. PLCE, ADBE, LULU, PVH
- OECD paints grim picture as it forecasts a global 6% contraction and warns of a second wave
- Fauci says Covid is his worst nightmare; Covid is still with us
- CrossFit CEO and Co-founder forced to resign after BLM and George Floyd tweets
- Media companies are scrambling to review their content for “political correctness” after protests. HBO Max is pulling the 1939 epic “Gone with the Wind” which is on many “top 5 movies of all time” list. IMO, very sad and I will leave it at that.
What rotation? They flipped the script yesterday by rushing back into FAAMG and abandoning the cyclical darlings of the past few weeks. Time will tell if they continue to fade the cyclical move but we need to be ready if they are.
JPY / SPX Disconnect
As if you didn’t have enough to watch already, the JPY – SPX “alligator jaw” disconnect is getting rather pronounced. THe question is does SPX catch down, the Yen catch up, or do they meet in the middle.? The disconnect does’t look sustainable.
$NYMO / $NAMO Oscillators relax
It only took a day but both oscillators have come in to take the immediate pressure off.
PUT / CALL Extreme-o-meter
They’re still pushing
Jay Powell needs to thread the needle today and it’s a tricky set up. I bet deep down, he wishes last Friday’s Job Report wasn’t so strong. As it stands he needs to rationalize a stock market near all-time highs, an improving job picture, and a re-opening that appears to be going smoothly with no Covid second wave, while at the same time plowing ahead with extraordinary monetary measures. So in effect he needs to say things are better, but still grim. He will do his best to remain vague ( in plain talk ) to keep FOMC optionality in tact. One of the big policy risks to this market is a reduction in liquidity ( either hinted at or factual ). An while it isn’t within Powell’s jurisdiction, if the perception in Washington is that the worst is behind us and things are getting better, they’ll be a sense of fiscal funding fatigue. Why do we need to extend all these benefits if we are on an upward trajectory? That’s the risk.
Nothing against Powell, but he has a tendency to disappoint the market. I am in a wait n see mode ahead of this binary event. I have some long exposure but with a hedge. I’ve seen the FOMC day turn into a pivot point too many times to be loading up on positioning. I’m content to let the market figure it out and then follow price. Dont forget, the first move on the FED release is often fake. It will take a day or two for the market to sort it out. So dont think that whatever happens between 2-4pm as the final word.
FUN FACT: Both VIX and VXN ( Nasdaq VIX ) were up 7% yesterday. You don’t often see that and something you should both watch for and pay attention to.
What to watch this week.
- FOMC Meeting and Policy statement Wed 2pm
- Massive bond auction with bonds prices on a ledge of support. Big 10 yr Auction at 1pm today followed by a big day on THursday.
- Ditto Gold with price on a big price ledge. Do we see a safe haven pop?
Strategy and Tactics
- Wait n See mode ahead of the FOMC
- IWM – A move back into the gap at $149.55 would be bearish and worth a short entry. Lots of thin air below.
- VIX – I own Jun 30 calls. Using as a hedge for long book.
- Key Support
- SPY $300 is the “gotta hold” longer term bull / Bear pivot.
- For the Q’s, ATH’s are bullish. Price should have no reason to drop below the prior ATH at $237
- NYMO and NAMO have relaxed from extremes but are still elevated. Still watching closely.
- Keep ratcheting up stops if you have nice runners. Have a plan to get paid.
- 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.
- Stay mentally flexible even though your heart may urge you to go “all in”
FAAMG Update & Trading Guidance
A big day for FAAMG names as traders abandoned cyclicals and piled back into Tech.
- FB – Big 3% move lifts price near ATH at $240. Potential double top on the 60min chart ( see below ); Prices above $221.71 keeps the daily chart bullish.
- AAPL – Monster 3% move lifts price to $345. Needs consolidation or pull back to buy. Chasing here. . Blue Sky overhead.
- AMZN – 3% move here as well as price closes on our $2625 measured move target.
- MSFT – Price marginally higher as it wrestles with the prior ATH at $190. A break above would offer traders a nice line to shoot against.
- GOOGL – Disappointing price action. After a promising move well into the $40 gap, price faded in afternoon trade to close barely green.
Chart in Focus:
A follow up post to yesterday’s featured chart. Price broke out of the pennant set up and was up about 2%. The next technical hurdle is to clear $195. On a break above $195, traders not already long have a chance at a bite of the apple. Get long against $195 and look for a technical measured move to $230. For those who got in yesterday, if price breaks above $195, its a perfect and prudent time to move your stop higher to just below $195 to lock in a winning trade if things get soft.
$FB 60 minute
No denying yesterday’s 3% move was impressive and welcomed by longs. Now however, the chart looks suspiciously like a potential double top. Notice at the second peak, the positioning of the PPO momentum. Dramatically lower than the first peak. This is a classic double top set up. If you have no position, you should wait to see the ATH print, and then get long against $240 with massive support below. For those already long, you gotta watch this closely. No assurances this double top structure plays out but that is not the same as assuring that it won’t. Make sure you get paid if you’re long
Index Chart Review
SPY 2 hour
SPY 30 min.
Entry for the $6 gap below is $317.16. Be sure you alarm it if you plan to try and trade it.
QQQ 2 hour
QQQ 30 min
IWM 2 hour
IWM 30 min
$149.55 is the entry for the big $5 gap below. Make sure you have an alarm set if you plan to trade it.
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