Daily Profit Compass May 12

Tickers discussed: SPY QQQ IWM  BAC C GS  JPM MTB WFC   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

Resistance to change and the pain it causes

 

Fighting the tape is a perfect example that proves the proverb.  Price is going along in a nice bull run, then decides to roll over and go down. Because we are long, have made a lot of money, and love the company, we hold our position. As price declines further, we may add to the position, thus increasing losses.  The lower price goes, we agonize further when all we had to do was recognize the change, and either exit or get short.  When you feel emotional pain in the market, it usually means you’re on the wrong side of the trade and are resisting some type of change.  Use emotional pain as a signal to re-assess what your’re doing and why. It’s usually a signal to get out.

Earnings

 

News Flow

  • The FED, with the help of BlackRock, begins buying ETF’s today
  • $BA CEO sees a US airline collapsing in 2020
  • Fauci and other top Doc’s head to Capitol Hill for Senate Hearings on Corona
  • $SKT / Tanger Outlet REIT suspends divvy
  • Sweden tweaks Corona strategy as deaths of elderly spike.
  • TSLA re-opens Fremont, CA facility; resumes production

Big Banks in Focus

This morning I focus on money center banks. Tomorrow or possibly later today, I will tackle the regional banks.  This sector, as reflected in their stock charts, are more accurately reflecting the struggles ahead for the real economy than the rest of the market. Here, most charts look alike. A deep plunge followed by a bear flag type structures that are in the early phase of a breakdown. Financials ( XLF ) are the 3rd largest weighting within the S&P at 14% so its a big chunk. Hard to see massive upside in SPY with the financials not participating or going down.  If you’re looking for a hedge to longs or a name or two to short, I think this is a good hunting ground.

Today’s market posture is exactly the same as yesterday with price in nearly the same location. The key levels are below. Maintain a bullish mindset. Bearish efforts have been weak and mostly unproductive. Dips have been bought.  The levels to be concerned are marked in the charts. All that said, the indexes are running out of options here at the top. Unless we simply go sideways for a while, they will either pop price or roll over. I think we’re getting close to seeing a bigger, more decisive move. Stay tuned!

Sector Summary

Terrible day for banks. I review the money center banks below.

Wave 2 DATA

5/12  NFIB survey / CPI / Redbook / 4 FOMC speakers

5/13 PPI – FD, Oil inventories

5/14 Jobless Claims / 20 yr bond announcement

5/15  May Option Expiration /  Empire State MFG Survey / Industrial Production / Retail Sales / Business inventories

Strategy and Tactics 

Staying tactical. Not piling in at the top. Taking selected shots.

Many of the trade ideas have been working well. Managing risk with markets at the top end of the range.

 

FAAMG Update & Trading Guidance

These names are 22% of the market. Even if you don’t trade them, they collectively dictate in large part where the market goes.

  • $FB – No changes; Stay long against 209.50
  • $AAPL – Gap Filled. Stay long. Move stop to $310 or higher. Looking for $325 now…the  All time highs
  • $AMZN – Price took out $2375. Raise stops / Stay long against $2375 and look for $2450.
  • $MSFT – Raise stops to $182 and stay long. Price seems destined to tag the prior ATH at $190.
  • $GOOGL – Raise stops to 1380. Stay long. On the doorstep of 1425.

Charts in Focus: US Money Center Banks

As a group the bank charts look terrible. The low interest rate environment combined with growing loan-loss provisions as consumers and businesses alike fight for survival make for a tough operating environment. If you’re loaded with longs and are searching for a hedge, or simply shopping for a short, the banking sector looks like fertile fields.  My next project is regional banks. They were off 4% yesterday.

$BAC

To my eye it looks like a giant bear flag. The measured move on a bear flag breakdown points to around $10.

$C

Another giant bear flag structure but with price breaking below the flag. Being short against $46 seems like a worthwhile effort.  There’s no way I’d touch this to the long side while price is below the 50ema in green at $48

$GS

One of the few charts that look materially different than the rest. Here, price is chopping around in a $15 range between $175 and $190. Traders can alarm that range and set it up like a bracket trade. Follow price out of the range.

$JPM

America’s flagship banking brand is breaking down out of it’s bear flag consolidation. Not an optimum trade location but I’d sure rather be short than long.  THis looks like its headed for a March low back test at $77.50.

$MTB

Price testing the lower part of bear flag support. A clean break below sends this one to the March low for starters at $87. A full bear flag measured move target points to $50.

$WFC

So Warren dumps airlines but keeps $WFC. It’s ok, we’ve all got junk in our closets that we keep for sentimental value. We look at them every once in a while and recall a fond memory or two. I think Warren keeps this one for the fond memories. Currently price is already testing its March lows. Anything much below $24 and this is gone. Given the technical structure, a full measured move breakdown points to a stock going sub $10.  Hard to fathom but it is what it is.  Even if it only goes to $15, its a great trade.

Index Chart Review

SPY 2 hr

SPY 30 min.

QQQ 2 hr 

QQQ 30 min

IWM 2 hr

For some reason I lost all of my prior annotations, so here is a fresh look. Boiled down to its essence, bulls are fine above $125. Below it gets harder.

IWM 30 min

 

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