Daily Profit Compass Oct 7

Tickers discussed: SPY QQQ IWM  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 

Over time most people fall into routines that include non-productive, even counter-productive activities or associations.  Periodically make a clear-eyed assessment of your activities and associations that provide no positive expectations for you.  That may mean upgrading your friends. That may mean switching one activity out for a new one.  The sense of making progress is important in one’s life. I think you will feel it in your gut when you come to the realization that the path you’re on is a dead end alley. If / when you get that feeling, change course.

Companion Video

A brief look at the technical levels for SPY, QQQ, and IWM.

If you want added detail on the indexes, FATMAAN names, along with gold / siver and other market movers, please watch last night’s Market on Close Video.  HERE

 

Earnings

News Flow

  • Trump slams door on covid negotiations be fore re-opening it with a tweet storm
  • VP debate scheduled for tonight
  • Futures get slight lift from Trump tweets; lets see if it lasts.
  • House Subcommittee releases study that find AAPL / AMZN / GOOGL / FB have monopolistic powers.
  • Fed Minutes released today

Market Snapshots

USD positioning remains a crowded short

2020 has been a world -record year for both HY and IG bond issuance

Asian Hotel bookings roll over

German industrial output disappoints 

Is an Inverse Head & Shoulders forming?

More speculation than anything else at this point, but 2/3 of the structure is built.  A move to tag $330 or even a gap fill to $329 then a reversal and the possibilities increase.

INDEX CHARTS

SPY 2 Hour

On the shorter time frame, I’ve labelled the 50ema off the daily chart. That will be a big level to hold for bulls.  A break below $332 would put price in the unfilled gap and favor a move to $229.

SPY 30min

QQQ 2 Hour

The daily 50ema comes in at $272. That aligns perfectly with a fill of the lower unfilled gap that begins at $274. At that point $272 would need to hold on price would have an open path to $268.  For bulls, recapturing $277 would be a positive first step. Otherwise, anything short of a breakout ( and hold ) above $280 keeps price within the wide choppy trading range we’ve been in for weeks.

QQQ 30 min

IWM 2 hour

It’s not marked, but the daily 50ema comes in at $150.  It will be interesting to see if IWM can hold up. Much of the recent rise hinged on stimulus and back to normal trade that included a rising rate environment.  Key off of $155. A break below would open the door for a run to $150. Holding $155 keeps price at the upper end of the range

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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