Daily Profit Compass June 4

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Tickers discussed: SPY QQQ IWM  $NYMO  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

Information isn’t knowledge

Have you ever been awestruck by the fact that despite a world’s worth of information about trading and markets at everyone’s finger tips that more aspiring traders don’t find lasting success? The key of course is that information isn’t knowledge. Acquiring knowledge takes time and personal experience in the chair trading.  The problem comes when aspiring traders associate book skills with trading skills. When they have trouble, they go back to the books to gather more useless information or to learn a new system.  Break that chain. Work on yourself. Work on your execution. That is where you’ll turn your information into practical knowledge. In the meantime, de-clutter your mind by shielding it from distorting information flow. If you are not learning from the information you are consuming, let it go.

Earnings

$DOCU, WORK, $AVGO MDB PD Thursday

News Flow

  • The ECB adds 600B euros to Covid QE program.
  • Initial jobless claims at 8.30.
  • AMZN secures 10 additional planes to support it’s logistics efforts bringing it’s fleet to 80. It also is opening 2 new hubs in Lakeland, FL and San Bernadino, CA
  • ZoomInfo  $ZI prices its IPO at $21.  Another “Zoom” company to keep track of.
  • The UK offers citizenship path for 3M Hong Kong residents
  • SNAP decides to no longer promote / feature Trump content in it’s Discover Feeds.

 

Sector Summary

Strong day for Cyclicals; Soggy day for Tech, staples and healthcare as the “great rotation ” remains bid.

 

$NYMO Oscillator hits extremes

This “rubber band” oscillator moved higher to 92 yesterday.  As we’ve discussed many times, anything above 60 and the yellow flag starts going up the flag pole. It does not tell you exactly when the pull back is coming, just that it is close.  Notice the bearish divergence in the chart. Lower and lower peaks in the indicator as price goes higher and higher.

Market Graphics 

Sugar Daddy

Jay Powell has to be feeling pretty proud of himself.  8 weeks ago less than 5% of SPX companies were above their 50ema; now 98% are. He may be well on his way to proving that if you throw enough money at a problem you can ether solve it or make it look like you have. The market is increasingly exhibiting panicky buying behavior as all of Jay’s liquidity seeps into the system offering an underlying bid with retail adding fuel to the fire. Panic buying isn’t necessarily a bad thing. We’re here to trade right?  Still, we need to call things by their right name. Don’t let yourself be talked into a re-opening narrative or valuation narrative or whatever. This is all about liquidity and the belief that if bad things happen, the Sugar Daddy will be there. As I pointed out yesterday, Apple for example is 30% more expensive today on a Forward P/E basis than it was 3 months ago. I am not a valuation guy but the same can likely be said of lots of other companies. I’ve heard in multiple places that it will take 3-7 years to recover the job losses and earnings power pre-covid. Time will tell.  Happy to be long, but eyes are wide open and keeping my head on a swivel.  Narrative follows price and if/when we ever get a week’s worth of selling, the narrative will shift back to “what letter will the recovery look like?  V, U, L , I or W”   Be ready for it!

 Strategy and Tactics  

  • IWM – THe bias flip to bullish yesterday worked with all targets hit. Now with price at top of range and massive OH resistance present, downside from here is favored.
  • VIX – I own Jun 30 calls.  Using as a hedge for long book.
  • QQQ – approaching the ATH. Manage risk here. I dont think price just waltzes through this level. Favor consolidation or price reaction after the initial tag of the ATH level at $236.93
  • NYMO is 92.  Sure it can go higher, but the rubber band is stretched tight. Risk is to the downside at this level.
  • Keep ratcheting up stops if you have nice runners. Have a plan to get paid.
  • 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.
  • Stay mentally flexible even though your heart may urge you to go “all in”

FAAMG Update & Trading Guidance

Soggy trading for the FAAMG names yesterday. Not much movement. These will need to participate to take out the QQQ ATH and put it in the rear view mirror.

  • FB – No changes; Not much between price at 232.75 and the prior high at $240.  Prices above $221.71 keeps the daily chart bullish. That said, momentum has flatline.
  • AAPL – Tags ATH but w/ bearish divergence on 60m chart ; A break of $322 opens door to $316 then $313. Breaks below $313 favor a move to $302.50ish. Tenuous technical posture.
  • AMZN – No changes; Price recaptured $2450 and is consolidating in a tight 60m bull flag. A break above 2475 opens path to 2530.
  • MSFT  – No Changes; still needs 186.50 for run at ATH 190ish;
  • GOOGL – Soggy. Price showing little energy to enter the $40 gap above at $1440

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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