Daily Profit Compass June 11

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Tickers discussed: SPY QQQ IWM FB UNFI 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 – 

Have you ever gone to Vegas and built yourself a guard rail before heading to the slots or card tables?  It’s like taking only what you can afford to lose, or giving your significant other the wad of cash to protect you from yourself. Consider doing the same thing in your trading. If you are an active intra-day trader, you know a bad day can turn into a horrific day in a heartbeat if you get in a death spiral of trying recoup early losses in one fell swoop.  Try this. Call your broker. Give them a daily loss limit and tell them to lock your account if you exceed it. It’s like your wife telling you your day at the casino is over.    At pro trading firms when a trader begins to get into a death spiral, they’ll get a tap on the shoulder by their risk manager asking “WTF are you doing?”  Problem solved. You don’t have the luxury of that fail safe; you’ve got to build it yourself.

Earnings

Earnings season continues to wind down, but still some notable names report this week.  PLCE, ADBE, LULU, PVH

News Flow

  • Powell paints long road to recovery but vows to keep the FOMC’s pedal to the floor on accommodation
  • Indexes  drop 1 – 1.5% as fears mount about a Covid Wave 2 as new cases spike. TX, FL, AZ, CA see big spikes in cases
  • JUST EAT foils $UBER as it nabs $GRUB for $7.3B in an all stock deal.
  • Gold and Treasuries bid after FOMC outlook for near zero rates into 2022
  • AMZN suspends police use of it’s facial recognition software for a year.
  • EU to issue formal anti-trust charges against $AMZN
  • Jobless claims at 8.30am will be closely watched.

Sector Summary

Cyclicals destroyed;  Banks may revisit it’s doom loop as near zero interest rates throttle outlook.

 

$NYMO / $NAMO Oscillators relax

Both oscillators have moved to a neutral reading. Both about plus 25.  Now neither is that predictive of future moves.  You may wonder how the $NAMO could be relaxing as QQQ goes higher. Well, its because the majority of the Nasdaq stocks have actually been red the past 2 days. THe mega caps are holding the index up.

Second Wave?

A couple of observations over past few days………..

  • FOMC “The First move is always Fake”  Day.   Pop n drop falls into line with a common head fake move.
  • Powell shares nothing we don’t already know ( yet many seem surprised about long road to recovery, high unemployment will be long lasting, etc )
  • Market “surprised” about growing Covid cases and possibility of second wave of infections.
  • Overnight surprise rug pull highlights the strategy of continuing to harvest profits and limit downside risk on the way up.

If we were green this morning, the headlines and narrative would be totally different.   Narrative FOLLOWS price, it does not lead.  We’ve been noting the growing bearish divergences for weeks. We’ve been ratcheting up stops; we’ve resisted the strong temptation to go “full retard” on long exposure; We were cautious into the FOMC print knowing the propensity of it to be a market pivot event; we’ve noted how close the indexes have been to sell signals.   Look, given the run we’ve had a 1.5% red day is nothing in and of itself, but trend line breaks matter.  Time to pay attention, respect stops, clean up loose longs, and be fluid and flexible in our mindset as the potential exists for a downside reversal / pull back.

Green VIX / VXN  being up on consecutive green SPY / QQQ days were trying to tell us something.

 Strategy and Tactics  – New Posture

  • If the drop in the indexes sticks, sell signals will be triggered on SPY / IWM  and QQQ close.
  • Clean up loose longs.  Respect stops. Be open to short ideas.
  • While we obviously did not top tick short entries on the cyclical rotation unwind, there will still be plenty of trading opps if we are open to them.
  • 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.  Plan to hold at least until longs are cleaned up.
  • 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
  • Continue to watch FAAMG. If Bears can’t crack big cap tech, it will continue to be tough to truly crack the market and downside would be limited.
  • Despite I still think Tactical shorts ok, but overall bias remains and should continue to be bullish.
  • Stay mentally flexible here.

FAAMG Update & Trading Guidance

Given the gap down; I will send you an early update on the key levels here.

  • FB –  Prices above $221.71 keeps the daily chart bullish below iffy
  • AAPL – $325 was the prior ATH. Anything above is vulnerable to pull back to back test the breakout.
  • AMZN – Honor your raised stop if you’re in it
  • MSFT  – Needs to hold the prior ATH at $190.
  • GOOGL – Disappointing price action. After a promising move well into the $40 gap, price faded in afternoon trade to close barely green.

Charts in Focus: 

$UNFI

We will have to see the open to determine if this is remains a good set up. If it gaps down 10% we’ll need to re-assess.

$FB 60 minute

Highlighted this double top set up yesterday. I am not in this but its a good learning opportunity. If you were not sure and you were stalking this, the massive bearish engulfing candle on the impulsive rejection of the prior high was an igniting downside candle. Still work to do to the downside, but this is what you want to see on the set up. So now with with price at $237ish, you can either go short w/ a $3 stop to make $11 at $225 target, or sit tight to see if $225 breaks for a short entry. The $15 wide structure would target $210 on a break of $225.

Index Chart Review

SPY Daily

SPY 2 hour

QQQ Daily

QQQ 2 hour

IWM Daily

IWM 2 hour

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