Daily Profit Compass Oct 6

Tickers discussed: SPY QQQ IWM  INTC, FSLY, BURL, CHGG  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 – Will Return

Earnings

News Flow

  • Trump returns to the WH as the virus ravages the staff; next steps unclear.
  • AAPL stops selling earphones of rivals Sonos, Bose, Logitech ahead of it’s launches
  • Lots of stimulus chatter but mostly noise as Pelosi – Mnuchin jockey for position but go nowhere
  • SCOTUS Nominee Barrett proceedings set to begin Oct 12.
  • Futures set to open flat after Monday’s solid gains.

Market Snapshots

Trades about to happen

$BURL –  A break above $222.50 should clear the way for this retailer to attack the prior high near $245.

$CHGG – Chegg

Price re-captured the moving averages which will now act as support. Price also punched through a resistance level. I like this long against $72.50 with a stop below. T1 = $80ish and T2 at the prior high at $90

$FSLY  Fastly

Price has been in a 4 month consolidation after a massive ramp.  A breakout above $100 would target a measured move of $125.  Set an alarm at $100 to get long on the breakout.

$INTC – Intel

Don’t forget about that gap.  A few weeks ago price made a run at the gap that ultimately failed. Now after more consolidation, price has popped above the 50ema which is a bullish development. I see 2 potential plays. If you have an expanded time horizon I think you could get long now against $51 and see if price can advance and push into the gap.  Others can alarm $52.50 and wait for a gap entry to get long.

INDEX CHARTS

With overnight futures stagnant, we are set to open this morning mostly unchanged.  So, we watch and wait to see if price can breakout of the wide trading ranges we’ve been trapped within for weeks.  Those levels are SPY $341.50 and QQQ $280.  Ideally we’d want to see BOTH indexes clear those levels to give us confirmation and confidence in the breakout.  This is a big IF, but IF both indexes break out, this would give us a technical BUY signal and would open up a path for a potential re-ramp toward the prior highs.

Likewise, if both indexes breakout, then subsequently fall back into the prior ranges ( SPY below $341.50 and QQQ back below $280 ) then that would be a bearish technical event signalling a false breakout.

If you want added detail on the index and short-term outlook on the FATMAAN names, please watch last night’s Market on Close Video.  HERE

SPY 2 Hour

SPY 30min

QQQ 2 Hour

QQQ 30 min

IWM 2 hour

IWM has been outperforming in the past week as money finds its way into cyclicals and financials.  The lift in yields has also been a benefit to financials.  $160 has been a longer term level of resistance for IWM.  If price were to move above $160, the path would be opened for a move toward $170 near the highs of 2018.

IWM 30min

Pulling it all together – Strategy and Outlook

No changes.

  • 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 / restaurants / cruise lines / travel and hotel companies for follow through on last week’s early rotation into “back-to-normal” trade.

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