Daily Profit Compass May 4

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Tickers discussed: SPY QQQ IWM  LLY REGN SMH SBUX   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 – 

In the trading room, I am often direct messaged by traders who are, for one reason or another, having either a bad day or are caught in a losing streak. The potential reasons run the gamut. One reply that I often lean on and is a good first step for traders having a problem is “Do more of what works”.  So often, we as traders drift away from core competencies and wander into the unknown as we seek more answers or techniques to bolster returns. Before we know it, the trades we do best are in the rear view mirror and we become lost.  If this is you, return to your core competency and do more of what has worked for you in the past. This also holds true for individual trades.  If you are shorting a stock and it keeps going down, stay short until price gives you a signal to exit. Its working, keep shorting it.  Same for longs. Stay long with price rising.  Sounds simple but we often ring the register and congratulate ourselves, then revisit the chart 3 mo later only to discover the stock moved an additional 15% without us.   Stick with trades that continue to work.

Earnings

 

News Flow

  • Trump ramps rhetoric against China on Corona cover-up
  • Buffett bails on airlines while his  “Elephant Hunt” was cut short when Fed Intervention screwed it all up; Berkshire’s cash hoard grows to $137B
  • Hong Kong posts worst Quarter in history as wealth fund drops $11B  / 9%
  • J. Crew files for BK as retail dominoes begin to fall
  • U.S. looks for ways to facilitate pulling supply chains from China ( Resilience now more important than efficiency )
  • Cuomo warns of “false comfort” as Corona ebbs
  • Pompeo says “enormous evidence” connects Corona to Wuhan lab

The Risk Rooster returns

When you see the Risk Rooster it means sellers are out there.  As price moves lower, it is bringing back into play prior levels of resistance on the way up that are now support on the way down. One way to get a read on the selling intensity is if these support levels are sliced through with little push back. When you start seeing hesitation and or large bounces it shows bulls stepping in where they are supposed to ( Buy the dippers ).  If they dont step in its a sign of hesitation and reluctance to step in. If you see that the risk-off sentiment is still strong.

As we move lower, the “re-test the low” crowd will re-emerge as the narrative of the “new bull market” get pushed off the desks of the financial media people. All very predictable. Let’s not buy into that stuff. We do not yet know whether this is the beginning of a “re-test the low ” move or a pull back after a wicked move higher.  Price will let us know.  Trade level to level while not getting wrapped up with labels or destination.  If price continues to break support levels, the path of least resistance is lower. If price begins to reclaim over head levels, then we have to respect that and take it as new information.  Trade like a 5th grader and block out the financial media.

Sector Summary

Generally a bad day at the office on Friday with broad selling.  Watch AMZN as it relates to XLY.  Big gap to fill on AMZN as we’ve discussed. With AMZN being 23% of this index, XLY is a cheap way to play AMZN indirectly.  If AMZN decides to fill the big gap, XLY will be dropping right along with it.  Dont forget our other gap plays on $FB and GOOGL

Wave 2 DATA

5/4 Auto Sales / Factory Orders

5/5 Redbook / PMI Services / Non-MFG ISM / 

5/6 Mortgage Applications / ADP employment /

5/9 Challenger Job cuts / Initial jobless claims / Productivity & Costs

5/10  April Jobs Print

Strategy and Tactics – Short term bearish 

The charts have flashed sell signals. Short term bearish posture. We’ll need to suspend judgement about intermediate view until more evidence presents itself.

Positioning Update:  Short ES    QQQ May 8 $214 P   XLF May 22P Long GLD May 160 C. and  GLD May 165C ;  Rolled GDX  May 31C to May 35C ; long DHT Jun $8 calls;

Overnight Ranges

Price often “finds” the high and low of the overnight session. Here are the ranges as of 6am

SPY  277.63 / 281.50    QQQ  209.50 – 212.25    IWM  122.14 – 124.19

Charts in Focus

Healthcare has been an out-performer during the recent rally. Here are 2 names that recently broke out but are now pulling back for a potential back test of the breakout. Let’s alarm their previous breakout levels and be ready for a potential long entry at these low-risk, objective trade locations.  The thing I really like about getting long on a back-test is that once this common technical is complete and the level holds, there is no reason for price to revisit the level. On the flip side it’s also a potential location for a short. If price moves below the breakout level, then all the prior price action was a false breakout / bull trap.  We saw this on IWM.  Anyhow, that is the rationale behind the importance of the breakout location.

$LLY

$REGN

$SMH

A big $4 gap below. A move below 127 opens the door to a gap fill down to $123.

$SBUX

Our short idea keeps working. Still at an objective location for a new position.

Index Chart Review

2 hour sell signals remain across all the indexes. With price trading down pre-market dont dismiss the possibility of a flash gap fill higher to fill the open gap above.  As the likelihood  of further downside increasing, hopefully you’ve respected your stops for your long exposure.

SPY 2 hr

SPY 30 min.

QQQ 2 hr 

QQQ 30 min

IWM 2 hr

Price is sitting at $133 in the premarket, close to the $132 gap support level. That is a troubling sign. Be hyper aware. Below $132 you need to be out if long. A move to $130 or full gap fill to $129 would be favored on a break below $132.

IWM 30 min

 

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