Daily Profit Compass May 25

Tickers discussed: SPY QQQ IWM   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 – Will return

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Earnings

THe season is winding down, but still some names to watch. WDAY, ADSK, NTNX, TOLL, COST, OKTA , ULTA, VEEV among others

 

News Flow

  • China warns of “new cold war”
  • HTZ files for BK; Fleet liquidation threatens to throw used car market into chaos.
  • Sanofi to shed 20% stake in REGN
  • Japan lifts state of emergency
  • IBM begins layoffs but remains dark on specifics; Workers begin to be notified last Friday

Sector Summary

Oscillator Watch

Nothing to see here; no changes; oscillators in middle of range

Extreme Call buying persists

Call buyers keep pushing into extreme levels; so far, has not had any consequences.

Searching for a Bull catalyst?  This might work. AAII bear sentiment spiking to 2009 levels.

Graphics to think about ( Courtesy of themarketear.com )

Set up for a FOMO rally?

As we wrap up the Memorial Day holiday, here is a quick snapshot of where we stand heading into this holiday shortened week.  Heading into Friday’s session, the price action, indicators and the fact that large gaps loomed below price across the indexes, the expectation was for some downside follow through. We did not get that. Lower prices were rejected in the overnight session and price rallied for the rest of Friday’s session. When something should happen and you don’t get it then it is noteworthy and must be respected.  Price should have made some progress into the gap. Since we didn’t get it, check mark for the bulls. Since Friday, the Sunday night futures session add 1% +++ across all the indexes. We have another futures session before tomorrow’s cash open, so it’s too soon to formulate a trading plan. We’ll wait to see if they build on the gains or bring it back a little. Until then, browse the charts and re-familiarize yourself with the levels and we’ll hit it hard in the morning.

Several factors set up for a potential FOMO rally. 

  • Many bears have been trying to fade the 200ema / 61.8 Fib retracement
  • Sentiment, by most measures, remains bearish
  • Pro long exposure still low with lots of cash on the sidelines.
  • Increased retail participation is well documented and subject to FOMO trading
  • Technical breakout on SPY above $300 would provide a psychological boost plus would likely force die-hard shorts to cover.
  • Failure to move lower into the gap on Friday is bullish; Shows underlying bid remains strong and defying bearish technicals
  • Low volume environment allows price to be pushed around more easily
  • There’s plenty of bearish factors one could list but they are more macro related and not price related. Price says higher
    • The one factor that could quickly change the picture is something dramatic with Hong Kong. That is something longs will have looming in the background but not something to preemptively sell on IMO

Index Chart Review

SPY 2 hr

SPY 30 min.

QQQ 2 hr 

QQQ 30 min

IWM 2 hr

IWM 30 min

 

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