Daily Profit Compass March 31

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Tickers discussed: SPY QQQ IWM     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.

 

 

 

 

Something to think about if you’re drifting into the V-bottom crowd.

 

Earnings

News Flow

  • White House & Congress begin contemplating next round of stimulus even before the first ones take effect.
  • China reports a sharp spike in it’s divorce rate following the lock down ( You’ve been forewarned )
  • $AMZN fires worker who led push back on virus safety concerns.
  • VISA reports sharp declines in consumer spending, even online ( we talked about people cutting discretionary spending to zero during crises )
  • $USD global funding stress beginning to abate

 

Will the Risk Rally continue?

The markets failed to read my “reverse now” memo as it continued to advance. That said, the advance was on low volume and with less that 2:1 advancers to decliner ratio. Technology  and defensive sectors like healthcare led while banks and small caps under performed. Oil got trashed and dropped to multi decade lows. Even though the $WTIC oil benchmark is hovering around $20 there are many inland categories of oil going for well under $15 a barrel. The “Canadian Select” grade produced from the oil sands is now around $5 a barrel. There’s 42 gallons per barrel. You do the math.  I am still of the opinion that this risk rally is running short on time. That said, the point of a bear market rally is to inflict pain and self-doubt. It’s quite possible not enough bulls have been sucked in and not enough bears squeezed out before a reversal takes place.

Managing Risk and Identifying Upside targets

With yesterday’s rally, there is a good possibility that the stocks you track and possibly trade have exceeded their 38% fib retracement level. If this is the case, look above to the 50% fib level and overhead resistance to locate your next potential target. Other important relationships to watch are the declining 20ema and 50ema.  These often act as resistance when approached from the bottom after a decline. If / when price moves above these benchmark emas, they should act as support.  Because bear market rallies are often fleeting and not to be trusted, its usually a good idea to ratchet up stops periodically and / or take profits when you have them.  You gotta get paid on these winners.

Wave 2 Data Flow

  • 3/31   Case Shiller / Chicago PMI / Consumer Confidence
  • 4/1     Mortgage applications / ADP employment / PMI MFG / ISM  / Construction Spending / Oil inventories
  • 4/2    Challenger Job cuts / unemployment claims / factory orders / nat gas inventory
  • 4/3    March Employment number / PMI services / ISM non-mfg index /  Rig count

Numbness to Bad News Flow

I was thinking about the Wave 2 thesis I’ve been advancing. For those that don’t know, its the idea that after the panic low, we’d get a “rip you face off, false hope, rally”, followed lower prices after the market realizes the depths of the damage that has been done to the economy.  That realization comes as “Wave 2 ”  data from companies wash over the market.  The fly in the ointment may be that market participants don’t care. Death rates spike ( yawn ), credit downgrades ( we knew that was coming ) Bankruptcies ( tell us something we don’t know ) and so it goes.  Market participants become numb to the constant bearish news flow and facts to the point they do not react.  Throwing this out there as a possibility.  As always, price will be the first to know and will be the final arbiter of market sentiment and everything else.

 

Index Chart Review

SPY 2 hour

Price punched through prior resistance at $260 and opened the door to the possibilities of a run to $272.5.  Stay long above $260 but a price move back below $260 gets iffy for bulls. If you’re long, keep things on a short leash. If you took the risk of holding long n strong into this rally, you simply have to get paid. Think about backing off the gas pedal , leaving a couple runners then seeing what happens.  Bears, stay patient.  Wait for price to drop below $260 before trying anything cute. Weird things can happen on month-end. If you get short on a break of $160 set a stop and honor it if they reverse and want to finish March on a high note.

SPY 30 min.

Follow the levels and chart annotations if you are an active trader. They’ve been working well and should well-inform you of the key levels during the day.

 

QQQ 2 hour 

$194.25 was the pre-market high. Be open for them to make a run to back-test that level in the regular session. Per the chart annotations, use $192.50 as your bull / bear pivot. Additional levels, details and targets are in the annotations.

 

QQQ 30 min

A break of the rising wedge and / or break below 189.90 will trigger a sell signal . Get short and look for $186 as T1. For bulls, as long as they hold $192.50 they keep door open for $197.50 and possibly even $200. I favor lower prices from here, but that’s just me. I thought that yesterday and was 100% wrong.

 

IWM 30 min

Price has carved out a relatively narrow 2 day trading range that I’ve boxed in. Bulls are ok above $112, but could get dicey below.  A break below $112, should bring in sellers as it is an objective trade location for a short entry.

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