Tickers discussed: SPY QQQ IWM BA AAPL SMH
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.
“No, you can’t always get what you want
But if you try sometime you find
You get what you need” Mick Jagger
Daily, A Buddhist Priest goes out with his empty bowl and trusts his needs will be met. Balance comes when we trust that everything will be provided and when we know to turn the bowl over and be satisfied. The bowl becomes a metaphor for life.
How many times have you been up sharply in the morning, then given it all back and more in the afternoon? I have. It’s devastating; far worse than just having a losing day, at least for me. When you’ve had a great few hours of trading, consider turning your bowl over and be satisfied. The markets do not shine brightly on traders each and every day. They change on a dime. Being satisfied with what the market gives you seems to be an important element of winning long term. In short, you dont have to be trading every moment of every session to be a winner. Every once in a while, turn your bowl over and simply be satisfied with what you’ve got.
- Wild overnight session sees 1000 point swing.
- Stocks try to bounce on stimulus hopes. $GS sees 50 bps cut by March meeting
- Corona cases double in Italy and Iran; First case reported in Manhattan
- OECD trims GDP growth forecast by 0.5%
- 10 year bond yield tags 1%.
- Biden wins; Buttigrieg quits. Super Tuesday tomorrow will be critical with 1350 delegates at stake
Volatility takes center stage as fear ebbs and flows across the headlines and markets try to decide what FED actions might be taken to quiet markets.
No monumental new thoughts since last night’s Weekend Profit Navigator.
- Cash is king
- Trade small if at all.
- Be ready for swift 2-ways market action in the days to come.
- Super-stretched oscillators suggest a bounce, but multiple bounce attempts have failed thus far.
- Many regular technical indicators have been rendered useless as outsized fear driven moves swamp normal interpretation. Lean on support / resistance, trend lines, and fib levels for your trading signals.
- Narrow your focus to the liquid indexes, Sector ETFS, and a select number of stocks. The wild moves will demand focus and attention. If you stretch yourself thin, mistakes will multiply.
Strategy Overview and Key Thoughts
- Migrate from strategic to tactical thinking and trading. Near term, the days of sitting in positions for weeks and weeks is likely over.
- Expect added chop and volatility. Look at the period after the Jan 2018 and Summer 2019 rug pulls; possibly even like Q4 2018 if credit markets lock up
- Reduce position sizing. With the added vol and out-sized moves you can make good money with smaller position sizes.
- Flip your mentality from offensive to defensive if you have not already done so.
- Unlike Dec 2018, the FED wont be able to flip flop so the chances of a steep V recovery are diminished somewhat. Lower interest rates wont cure corona or repair supply / demand destruction. THey will do everything they can including QE4 or 5 to save this, but it will be harder than in Dec 2018 / Jan 2019.
- I expect a bounce into key fib and OH resistance levels that will ultimately fail. The range of possibilities are huge so trading becomes day- to- day, hand-to-hand combat keying of support and resistance levels
- In this environment, fundamentals go out the window as the technicals come to the forefront. Valuation guesses are not going to get it done. Both “good” and “bad” companies will get sold equally hard with the market on further rug pulls.
- Be ready for Wave 2: Wave 2 is when we start seeing Corona’s impact on actual data points like earnings and guidance, PMI’s, GDP’s etc To date the numbers have been pre-corona and honestly were not that hot to begin with. China just posted its PMI at 35…ugly Wave 2 may be the catalyst for price to roll over after a healthy bounce.
- Cash is king. A gun is worthless if you don’t have ammo. This is a time to protect your resources. Prevent losses first; Make money second.
Trading Tip: Mark Overnight highs and lows
Like any trader, I like to set my charts up a certain way. One of the first things I do each morning before the bell is to mark the overnight high( ON High ) and low( ON LOW ) on the index futures. ( /ES /NQ and /RTY ) I both draw a physical line on the chart in a specific color and set an alarm for each. I also go through the same process for SPY / QQQ / IWM. Why? These levels often act as magnets for price during the regular session ( RTH ) as the algos and human traders “double check” the overnight auction. Yesterday morning, with futures green , I had my eye on the SPY $309 overnight low. We did not get there in the regular session, but we got pretty darn close considering we were up 400 at one point. Consider the above as a tendency, not a rule chiseled in granite. I’d never go long or short based on overnight highs and lows. But they sure do come in handy as a potential target / support / resistance during the day. Try adding these levels to your intra-day chart. I don’t think it will take too long for you see the benefit. For traders on the Daily Time frame you’re only interested in the daily closing price so the overnight futures high and low does not take on any particular significance.
Index Chart Review
SPY bulls need to recapture $300 and then $305 to regain some positive footing. THe fact that SPY did not have any consolidation last week is somewhat problematic that it could foretell a further drop. Dont dismiss a pull back to test $285 low of last week or that level may break. A break below $285 would put bears firmly in charge with more downside favored. $285 is a hard stop for anyone who got long into Friday’s close. In the back of my mind is that we never got a true panic flush last week; just steady selling. While painful short term, a panic low could set a durable bottom. I think we will know it if we see it.
SPY 4 hour.
$280, then $270 are downside targets should $285 let go.
SPY 60 min
A break above the 60m downtrend line would be a short term buy signal with 300 and 305 being near term upside targets. Traders are always welcome to get long against the Friday low if we revisit those areas while holding. It’s an excellent trade location if you catch it right. Set your stop just below.
With a move above $206, $210 / $212 / $214 become the upside targets. Traders need to be keenly aware of the 200ema at 201.50. Breaks below are bearish and would favor price revisiting $198. If $198 does not hold, a back test of the original break out at $194 is favored. Remember that SPY already is below it’s comparable breakout level.
THe 38.2% fib level is $214 and is a good target for a bounce if we get it. The downside targets are clearly shown if the bounce plan fails.
QQQ 60min chart
Traders can get long either on a breakout above the TL or or a back test of Friday’s low that holds. THe premarket high was $211.50 so be ready for a move to that level in the regular session.
Very weak price action. $144 is the line in the sand. Bulls ok above; Below and Bears get emboldened to push much lower. If $144 is lost, longer term the target is the Dec 2018 low down around $126.
There is an open gap above. If we see a surge to fill it, I’d be inclined to try a short against the declining 20ema and / or $150 or $149 depending on where price stalls.
Price now finds itself on the wrong side of the chart. I’d be a motivated seller if price were to kick back into resistance at $300. Bulls need to recapture $320 to flip the chart bullish.
Bulls need to crack above $275 to get something going. The levels where reactions are likely are marked.
If price kicks back into $135 resistance and 38% fib zone, IMO it would be worth a short try against $135 ish.
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