Tickers discussed: SPY QQQ IWM GLD GDX NEM 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 – Renewal
Most spiritual traditions speak of, in one form or another, the importance of renewal. In that regard, Buddhism is no different. If you’re really not into spirituality, consider that in business guru Steven Covey’s seminal book, “The 7 Habits of highly effective people” he outlines a habit called “sharpening the saw”. Covey describes that if you use a saw continuously, over and over, and never take time to sharpen it, it becomes dull. It takes twice as much effort for the same result. Covey maintains we’re the same way. If we continue to burn the candle at both ends, crowding out family and fun, it does not take long before we’re burnt out. Our output efficiency goes to near zero and our error rate spikes. That’s a deadly combination for a trader where sharpness, efficiency, and clear-minded execution are everything. May I be so bold as to recommend that you formally incorporate Renewal into your life. hat could mean a daily meditation or 30 minutes reading uplifting, inspirational books. Maybe it means you will not look at a single chart on Saturdays and do something fun instead. Maybe it’s a physical workout to get the sweat and blood flowing. Find something that gives you pleasure and energizes you. As your regenerative renewal takes hold, you’ll rediscover your “old self”; alive with possibilities. Without that renewal, you’re a dull saw and not of much benefit to yourself or anyone else.
Earnings
News Flow
- US – China trade tensions centered on Huawei and semiconductor sales flare up pre-market sparking a rug pull
- House Dems plow ahead with plan to vote on $3T aid bill despite critics calling the package a political document
- $TSM confirms plans to build $12B chip plant in Arizona that should employ 1600 high-end jobs
- WH plans executive order to require certain drugs and drug input components to be made in the US
- Covid clusters grow in Asia; Italy begins to relax travel restrictions within the country
- Office Depot’s restructuring plan includes laying off 13,000 workers
- “Stealth Bailout”program shovels millions to oil and gas companies; Bloomberg
- Case counts of Inflammatory Syndrome linked to Corona mount in children
- US Companies who opted to switch to a foreign domicile for tax reasons could yet qualify for aid
- Seth Klarman buys 300,500 shares in GOOGL representing 5% of his Blaupost fund making it his 5th largest position
- $JCP expects to file for bankruptcy today. They employ almost almost 90,000 workers
Bounce: how high and how far?
OK, we called for a bounce and we got it. We reduced short exposure and / or covered all our shorts and are now long. Now we look overhead and keep our eyes peeled on the potential reversal zones. Lots of individual names along with SPY and QQQ reached their 38% fib retracement zones which is the first layer of resistance. More technical and Fibonacci resistance wait overhead. While others will guess at where this rally ends, we’ll wait for price to tell us when its over. After all, buying the dips has worked for 10 years. Who are we to say we dont blast to new highs? We want to remain mentally flexible and open to all potential outcomes. Market rip? No problem, we’re long. What if the rally fizzles out and reverses? Perfect, that’s our base case; we’re ready. What if the market decides to chop around for a week or more? That’s ok too. It would likely make for frustrating trading, so we’d likely back off until the market resolves itself up or down.
Now if you pressed me for a prediction I’d say the 61.8% fib zone. If that plays out it would mark the second “lower high” since the top. That would keep our emerging downtrend thesis in tact. THe hardest thing we’ll have to do today is decide how to handle the weekend. A lot will depend on how the day plays out. It’s op-ex day which will add some volatility and potential drama.
Sector Summary
New Bull Market for Financials? No. Oversold dead cat bounce. Revisit both the region and money center banks I highlighted this week. The rally put some meat on the bones on some names that we before thought were too far gone to take a position. Those may now be good candidates for a fresh short. Or you can go the XLF / KRE route and make a sector wide bet.
Oscillator Watch
$NYMO and $NAMO barely moved. No Changes. Both remain in negative territory but not close to oversold.
$NYHL
On a day we were up, you’d think new highs – new lows would be positive. It actually dropped and as it sits at neg 89 it is right at the level that starts sending up warning flags.
Wave 2 DATA
5/15 May Option Expiration / Empire State MFG Survey / Industrial Production / Retail Sales / Business inventories
Strategy and Tactics
- Bearish engulfing candles on Tuesday followed by a healthy dose of selling on Wednesday put us on a sell signal
- We anticipated a bounce yesterday and were prepared for it
- So our base case is that this bounce is just that, a bounce within an emerging downtrend. We are looking to fade this rally and are therefor looking for a reversal.
- We’ll watch for price confirmation at likely reversal zones
- Once confirmed we plan to re-enter short positioning.
Don’t forget; Today is May options expiration. Be sure to take care of any forgotten positions expiring today to avoid unwanted assignment
Closed the majority of shorts; Long SPY via ES
FAAMG Update & Trading Guidance
If you’re a bull and you think the bounce will drive higher, FAAMG is the place that’s been working. If this bounce has legs, I’d imagine these will at least perform in-line if not outperform.
- $FB – found support where it should have at $202.50. That level is your bull / bear pivot as it lies at a prior breakout level
- $AAPL – 38% fib bounce, inline w/ market
- $AMZN – recaptured $2375; not my cup of tea but if you’re adventurous you can be long against $2375
- $MSFT – Recaptured $180 by 50 cents; 38% fib bounce.
- $GOOGL – failed to recapture $1360.
Gold, Gold Miners, and Newmont Mining in Focus
Gold and the miners are activating again. Comments are in the chart annotations
Index Chart Review
I’ve made a subtle change to the chart annotations that I hope you’ll benefit from. On the 30 min charts I am going to formalize the plan for the day in a section called “Trading Plan”. I will bullet point key locations and planned actions. I hope the formality will improve clarity for you and give you specific, actionable market keys and levels that you can incorporate into your own plan.
I hope you’ve been quite pleased over the recent weeks. We ratcheted up stops on winners that preserved nice wins and got us out near the top. Then we quickly switched gears to catch the downdraft. We then reduced short exposure on over sold conditions and anticipated the bounce, which we got. Through foresight, skill and a good dose of luck, we’ve stayed a half step ahead of the trick, trap, fool, and frustrate crew and that is a good place to be. It doesn’t always work out that way, but we’ll keep trying.
SPY 2 hr
SPY 30 min.
QQQ 2 hr
QQQ 30 min
IWM 2 hr
IWM 30 min
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