Daily Profit Compass Oct 5

Tickers discussed: SPY QQQ IWM  BBBY, SPCE, NIO  Strategy Review

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 –

Finding, then accepting, the rhythm

So many things in this world simply unfold to reveal themselves at their own pace or rhythm.  For example, a budding relationship may take many months to reveal itself.  If you try to make it develop at a faster pace, you’ll likely ruin it. Same is true for our interactions in and with the market.  The market goes through robust bullish cycles,  Bearish cycles, consolidation cycles, topping phases, bottoming phases etc.  As traders we need to recognize the market rhythm and let it unfold at its own pace.  If we try to force our favorite trade onto a market that is in the wrong phase, we will be disappointed.  Use your experience and power of discernment to identify where the market is at and accept it. Then you’ll be able to craft trades for that part of the cycle or simply step aside until the market is in alignment with your trading style.  The best results come when harmony exists between the trader and the market. Note: These market rhythms exist on any time frame so dont think that the idea does not apply to whatever time frame you prefer to trade.

 

Earnings

News Flow

  • Futures lift on Trump’s prognosis
  • On again / off again stimulus chatter flips to on again as optimism circulates
  • DKNG secondary offering has prices down 5%

Market Snapshots

Macau Visitation falling well short of expectations.

Update on the Dollar and the Euro

Charts in the Spotlight

$NIO – EV car maker NIO is emerging from a $4 wide, 6-week consolidation between $17 – $21.  The measured move target is $25.  Notice that RSI has been in its bull regime for months and has not dipped below. Also, all the ema’s are bullishly stacked.  I like this long against $20.  If you plan to buy options, go out in time and let this name work higher. Expect some volatility. +/- 5 % is not unusual for this name.

 

$SPCE – Virgin Galactic

After a 10 week pull back, price is re-emerging. Price is consolidating just below down trend resistance. Alarm $21.50 / $22 for a breakout.  With a break out, get long and look for $25 / $26 as T1. Above $26 offers lots of running room if it decides to go.

$BBBY Bed Bath and Beyond

After a massive week, BBBY is testing the upper range of its 4 year value range. Not prepared to take a trade here, but I want to watch it.   A break and hold above $20.50 would put price into a void and a new range. If price is going to get rejected, it will be right here.  Opportunities on either side of $20. Let’s watch it.

INDEX CHARTS

SPY 2 Hour

SPY 30min

QQQ 2 Hour

QQQ 30 min

IWM 2 hour

IWM 30min

Pulling it all together – Strategy and Outlook

  • SPY and QQQ in wide trading ranges.
    • QQQ has a range between $260 – $280.  Within the range is choppy, volatile action with a lot of headline whipsaws.
    • SPY is in a range roughly $320 – $340.   Choppy action within the range.
    • What you’d want to see on a range break is that SPY / QQQ each other’s move.  For instance, last week QQQ broke above $280 but SPY was no where close to its breakout. Then QQQ dropped back into the range showing the breakout was false.
    • Since the width of both trading ranges is roughly $20., the expected move on a break from the range is $20.   Traders can mark the levels on the charts for added reference points.
  • 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.
  • Watch FATMAAN names
    • Last week the market leading names were weak as traders appeared to use them as a source of funds for rotation into cyclical names.
    • Because of their sheer market cap, the direction of these names will shape the direction of the major indexes.
  • Final Thoughts
    • While inside these trading ranges, expect volatile, headline driven trading.
    • Watch IWM / cyclicals / industrials / reastaurants / cruise lines / tracel and hotel companies for follow through on last week’s early rotation into “back-to-normal” trade.

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