Daily Profit Compass March 26

Tickers discussed: SPY QQQ IWM  AAPL FB TLT  NYMO NAMO   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.

Paul Tudor Jones on playing great defense

“The most important rule of trading is to play great defense”

“People often marvel at the money I made shorting Japan never realizing I was stopped out 8 times before the trade clicked”

In baseball, on any given game day, the pitcher is the most important factor in winning. In hockey it’s the goalie.  Both the pitcher and goalie are defensive positions. If the other team can’t score, they can’t win.  In tennis, minimizing “unforced errors” is a key statistic for winning. Again a defensive statistic.  The table shows the gain required to recover from a draw down and shows how hard it is to recover from a bad one.  The formula for winning long-term in trading is modest, consistent gains coupled with minimal draw downs.  This formula also enables the trader to side-step the psychological pressure to hit “home-Runs” to overcome large draw downs.  So if you’re a trader that sees your share of winning trades, but in aggregate, are going nowhere, focus on playing better defense. Be willing to get stopped out 10 times if necessary to avoid that big loss.

 

Earnings

News Flow

  • Senate passes $2T Fiscal Bazooka Bill
  • Unemployment claims at 8.30am; how bad will it be?
  • $CAKE notifies landlords it won’t be paying the rent because it can’t
  • Goldman says the oil glut will be so bad that not even OPEC and Russia can fix it.
  • In Spain doctors decide who lives and dies as the health system gets swamped by new virus cases
  • Gold market under pressure as mines close and snarled logistics make physical delivery almost impossible
  • $F credit rating cut to junk.  Expect to see an increasing wave of credit downgrades, even in household names.

 

Indexes flash a sell signal

We had a nice run on our long idea on the index bounce, but the rug pull in the last 15 minutes of Wednesday’s trade triggered a sell signal on short time frames.  I truly hope you did not get trapped in that. The episode illustrates why I often say for ongoing trades “manage risk”.  It also illustrates the last 30 minutes of a session are often the most volatile and unpredictable.  On a trending day, day traders are covering positions into the close and algos often find it irresistible to fade the close.  If you have embedded gains on positions you know you won’t be holding overnight, consider finalizing your trades by 3.30 pm. You’ll side step a lot of psychological pressure plus any market risk lurking as the market closes.

Today comes one of the first big headline economic prints of the Wave 2 data set I’ve been talking about. Unemployment claims are set to report at 8.30 this morning. Everyone knows it will be bad, but how bad is bad?  2M? 3M? 5M?   The only thing we need to worry about is the market reaction. We are trading modestly down in futures as I write this. I expect prices to tread water into the print and then we shall see.  Down below, I detail the downside targets if the current level of support fails.  That said, if we blast off higher, yesterday’s close will be forgotten as a one-off head fake. Given the amount of the sell off so far, you’d think the bounce would have been bigger so maybe there is more left in this kick back rally.  Time will tell.

Wave 2 Data Flow

  • 3/26  GDP / Jobless Claims  ( Big Day; Jobless claims may spike 2M ++ ) NatGas inventories
  • 3/27 Personal income / Consumer Sentiment

The Oscillators relax

The $NYMO and $NAMO oscillators during this recent upswing have gone from deeply oversold levels down at negative 125 to the upper half of the chart near 30. What this effectively means is that at least by this measure there is the capacity for further downside as the “rubber band” has relaxed. If the current advance continues and pushes these indicators toward 60 or higher then the likelihood of an overbought condition leading to a pull back increases.

Index Chart Review

SPY Daily

Price made a strong push higher intra-day but a punk close cast a shadow on the day. Bulls need a close above $250 to keep the advance underway. Bulls need to hold $235 at all costs or risk falling back to the lows.

SPY 30 min.

Yesterday’s close triggered a sell signal on the 30min chart. It is certainly possible to “save it” by holding $245.  30 min closes below $245 begin to tilt the scale to the bear case. Because price is set to open near $245 much will depend on how price handles the unemployment claims number.

QQQ Daily 

Like SPY, QQQ reached high intra-day to tag the pre-market high of $189 but closed back below $186. Price spent a good amount of time in and around $180. To my eye, if price can hold $180 bulls still have a chance to advance price further. Below $180 and it gets iffy.

QQQ 30 min

A very clean break of the rising wedge. The question now is if the bulls can hold the line. If price fades below $182 and certainly below $180 the bear case picks up steam. Be sure you alarm the $7.50 wide open gap below. Like SPY, this eventual gap fill offers the potential of a “magic erasure” trade if you get it right. It will make you forget a lot of boo-boos if you catch the gap fill.

IWM Daily

If you’re trading the daily time frame $112.50 is the key level to watch. Closes above open up possibilities for a continued advance maybe even as high as $125.

If price remains pinned below $112.50 the bull case weakens

$IWM 30min

As a technician it would just be so beautiful for the double bottom with bull divergence play out for a measured move to $120. Watch price carefully on the open. If it holds $109 I think you can be long with the hopes of the pattern playing out for a $10 move higher.  That scenario weakens with a move back below $109, especially if price falls to next support at $105

 

$AAPL

Refreshed levels and trade locations for those interested. $240 appears to be the most interesting level. A pull back that holds $240 offers a good R/R for a long.  Below $240 likely sees price go down for a test of gap support

$FB 60m

The chart still has a constructive bullish ascending triangle look pressing against $162.50. A breakout above targets a move to $170. If price however breaks below the triangle, lower price would be favored, possibly all the way to the most recent lows.

$TLT 60min

Reference the chart annotations. $166 sets up as a pivotal level with big potential moves on either side.

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