Daily Profit Compass March 20

Tickers discussed: SPY QQQ IWM  GLD Strategy and Tactical Update

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.

Quad Witching

Expect added volume and volatility as all the monthly and quarterly index and futures options expire. Additionally there will be fund re-balancing happening as well. There will probably be a massive volume spike at the open but in my experience most of the frantic activity occurs in the last 30 minutes of the session.  If you have any options expiring , I’d try to get them taken care of before 3.30pm to avoid the possibility of a massive print going against you as algos do what they must do.  Also during the day, keep FAAMG names in focus.  Because AAPL , MSFT and others are in every index and portfolio in every institution on the globe they are subject to out-sized moves. For instance, if the recent events tripped a rule to “take down risk in tech”  Apple and Microsoft get sold and they dont care what the price is or was; it just gets sold.  If there is a level where you want to buy some of this stuff, you could put in a stink bid and hope to get a lucky fill on a sell-side algo spike.  Not my cup of tea but I know guys who do it.  You get either filled or you don’t.

Friday surprises are becoming a trend

Paul from the group contributed this interesting look at the last few Fridays. Lot’s of “rip your face off ” rallies into the close. Don’t get all hung up on the why’s and what- for’s of these bizarre moves; focus on keeping your head in the game and your finger on the trigger after a long hard week.  Catching a 1200 point rip in an hour is the kind of “magic eraser” trade we all need every once in a while.  It erases all those boo-boos during the week and it’s like they never happened.

 

News Flow

  • $1.2T Corona-relief bill, complete with helicopter money, close to passage
  • California gets shut-down notice. If CA was a nation, its GDP would be 9th in the world.
  • Italy’s corona death count surpasses China and is now the world’s no. 1 Corona hotspot
  • NY Fed buying $32B of mortgage backed securities today
  • IG Bond Fund outflows of $35B on March 18 were 5x the prior record and dwarf anything ever recorded as traders try to get ahead of the IG bond downgrade tsunami
  • Ford withdraws guidance and cancels divvy
  • Texas considers throttling oil production for the first time in decades

Whoops!   Unemployment Claims Pop

Usually when this gets on an upward trajectory, it doesn’t look back. We know the unemployment wall is coming. We just don’t know how bad it will be or how long it will last.  This is data for week ending March 14.

Peak Corona Long Index Trade followup and Trade Plan

Yesterday we surmised that we might have seen a short-term “Peak Corona ” panic low during non-stop bearish news flow on Wednesday. That, coupled with bullish falling wedges across SPY / QQQ / and IWM, favored long. We also said to dial back shorts as the risk / reward for maintaining short exposure was diminishing.

The 3 bar dump off the open set up perfectly as price dropped to support across all 3 indexes. This yielded low-risk, objective entry locations where tight stops could be set just below multi day support.  From there price advanced most of the day as it seemed like some vol came out of the system.

Today price is set to gap up and over some pesky resistance price encountered yesterday. For me, the key to the trade is SPY.  QQQ and IWM are well on their way higher but will be held up or even reversed if SPY cant clear $250.

Trade plan

  • Price set to gap up on the open.
  • The gap up across all the indexes leaves them vulnerable for a gap fill lower off the open.  Since the gap is about 4% its nothing to sneeze it.
    • If we break lower traders can get short as you would on any other gap fill lower trade. Set your stop just above and target yesterday’s close.
    • If you get that move, flip back long after the gap fill.
    • This isnt my base case but the scenario could very well play out.
  • The key for the day is SPY clearing $250 and holding.  If it can do that, QQQ / IWM should continue higher.  If SPY cant clear $250, the breakout likely stalls.
  • Today is OPEX.  Decide early if you are playing for today or holding over the weekend.
    • If you decide to use today’s option chain, keep in mind that any stall in price movement will hurt because time decay is working against you in a big way. You could lose money even if you are right.
  • End of Day Planning
    • Finalize your plans / actions by 3.30 to avoid op-ex and quad witching risk
    • If going over weekend you may want to consider an at-the-money call spread to stabilize the position and give you a cushion on volatility and time decay.
  • Rip your Face off Rally?
    • We tagged the Dec 2018 low on SPY and key support on QQQ.  Important technical events
    • We are oversold and sentiment seems washed out.
    • Big rallies start by being a little rally. Shorts dont realize their face is being ripped off until it starts hurting.
    • The start of this rally looks promising and could push much higher but no guarantees
      • The backdrop is bearish price action with hi-vol. ; Dont get married to anything; it could reverse or fizzle out at any time

Index Chart Review

SPY 60 minute

$250 is the Rubicon.  Either add to or initiate a long position on a break above $250.  Yesterday price got close before they sold it off.    Another objective place to try a long is at the bottom of the range against the prior lows.  If we were to break below the prior lows of this week of $230 you can be short for a day trade but I would not “load up” on short exposure for over the weekend. My prior comments still apply.  Risk / reward favors being long.

QQQ 60 min 

QQQ needs to hold $180 to be constructive and needs to clear $185 in conjunction with SPY above $250 to clear path for a more meaningful advance. Upper targets shown in annotation.

If somehow QQQ fell to $170 I’d be a motivated buyer there with a stop just below. Excellent trade location for a long.

IWM 15min

IWM outperformed yesterday and may lead again today if the advance continues. Price needs to clear $111.75 / $112 OH resistance zone to open the door to $117.50.

$102 is a key support level. Price below $102 chips away at the chances of a nice advance. Prefer to see $106 hold and build from there.

GLD Daily

Gold has been battered as institutions have used the ETF as an ATM to raise liquidity.  Gold has also been throttled by the $USD moonshot. That said, gold is still in a bull market. Currently price is caught between support at $136 and resistance at $140.50 / 200ema. Think about nibbling at either location with eyes wide open that a drop to $130 is certainly possible. At a certain point after this liquidity crunch is over, folks will realize the FED is on QE infinity and the rest of the world is too. You’ll begin to wake up to $40 moves on a regular basis. I am bullish gold.

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