Daily Profit Compass Oct 1

Tickers discussed: SPY QQQ IWM, FATMAAN names, GLD, SLV,  WYNN

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

Failure as a catalyst to growth

It certainly feels good, but we learn nothing at all from winning. It’s only when we lose do we have the opportunity to learn something and grow in the process. In your trading, every time you lose, commit to writing something down about it. Your though process going into the trade, your sizing, the technical set up, the market conditions, your adherence to your process / stop ….something , anything.  Those thoughts are the seeds of an opportunity to grow.  If you don’t commit to learning from your losses, it becomes wasted money.  No different than paying tuition for a class, then never going.

Companion Video

Last night’s Market on Close video provides a solid recap of the price action and key levels of the indexes and FATMAAN names. Commentary and potential upside and downside scenarios are discussed for each ticker. If you missed the video last night, watching it will be a good way to get in sync with these important, market leading names.

Tickers: SPY, QQQ, IWM, FB, AAPL, AMZN, MSFT, GOOGL, NFLX, TSLA,  Additional coverage on SMH, MU, GLD, SLV, WYNN

 

Earnings

News Flow

  • AAL / UAL  to cut a combined 32K jobs even as they vie for more loans;  Is this what a V-shaped recovery looks like?
  • Trump signs stop-gap funding bill to avoid Govt shutdown
  • Trump 2016 campaign mastermind Parscale steps aside from Trump 2020 team after psychological episode and police encounter.
  • Pelosi and Mnuchin still talking.
  • JPM investigates over 500 cases where employees may have improperly rec’d Covid relief monies across several programs
  • Palantir PLTR  closes at $9.50 vs a ref price of $7.25 on its first day of public trading.

Market Snapshots

Market Narrative

Both the SPY  ( $322-$341.50 )  and QQQ ( $260-$280 )  have been in trading ranges  for the past 3 weeks as price consolidates / digests the fast move lower in the first week of September. During this time the FATMAAN names which were at the epicenter of the sell off have largely stabilized. Despite the sell off and hi-vol environment of the past month, we never saw any measurable fear in the market. Certainly none expressed as PUT buying as traders simply backed off from extreme call buying.  Now, they are back to excessive call buying.

As we enter October we’ve got SCOTUS nominee Barret hearings and likely confirmation, Covid relief funding battle, and Presidential campaign turmoil against a backdrop of an economy that even while the recovery has clearly slowed, continues its grind higher toward normalcy.  We’ve seen fits and starts in the “return-to-normal” / cyclical trade with Travel / restaurant and other beaten down sectors suddenly surge, then get pummeled a week later.  Money Center and Regional Banks look terrible. A bright spot is the home construction / home improvement complex that continues to shine.  The solar / renewable energy space is burning hotter than a solar flare. Semi’s have been remarkably resilient and Tech as a whole seems to be finding its footing and will likely  be the train that leads us higher at least in the short term.  As a technician, for me its all about breaking above the trading range and holding that breakout. If price can do that we can be more confident in transitioning from “trading the Vol tactical mindset ” to a more strategic mindset with longer-lasting directional trades.

INDEX CHARTS

SPY 2 Hour

SPY 30min

QQQ 2 Hour

I added 2 additional minor levels of resistance above $280 to the chart that were not previously shown. $283 and $285 are locations where price may pause / stall if price advances that far.

QQQ 30 min

IWM 2 hour

IWM 30min

Pulling it all together – Strategy and Outlook

  • NQ Futures poised for a breakout.
    • QQQ is trading above $280 in the premarket. $280 is the top of the recent range.
    • A break above $280 opens the door to higher prices and a run back to the recent highs.
    • That said, SPY is still about $2 shy of its breakout. In a perfect world you’d like to see SPY confirm the QQQ breakout.
    • And what about IWM? Not even close.  Still $9 below the recent high of $160 and $20 off the high set 2 years ago in the summer of 2018.
  • Don’t dismiss higher vol regime
    • There is still stress under the surface and the market will be subject to rips and dips driven off the headlines.
  • The Lead in to Earnings Season is usually bullish
    • The kickoff to the next round of earnings is about 2-3 weeks out.
    • The run up to earnings is usually bullish.
    • We can look to take advantage with either broad market net long exposure and / or individual names that may run toward their date.
      • As is our normal plan, exit any stock prior to its earnings release to avoid getting wiped out on a negative surprise.
      • If you want to “play earnings” a much better way to do it is via an ETF.   For instance, you could use KRE Regional Bank ETF to gain exposure over the whole bank earnings season. If you were bullish get calls, and if you were bearish buy puts.  THe ETF should accurately reflect the earnings season as a whole.
  • What would bearish price action look like today?
    • QQQ breaking above $280, then falling back below
    • SPY being stuck in the mud and not participating in the upside push.
    • FATMAAN names losing their 60min uptrends and / or the key levels of support detailed  the video.
  • Set preconceived narratives aside.
    • Regardless what happens today or later on, adopting a cautious, tactical view while price was in “chop zone” was the right call
    • If price provides new info, listen to it. 
      • Price breaking out from a 3 week long $20 trading range is significant. 
      • If we see that, we should be transitioning our thinking toward objective, strategic long set ups.
      • If those long set ups fail and price returns to the trading range, our thinking will transition towards bearish. Once price breaks out, it should not re-enter the range or else the move was fake.

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