Daily Profit Compass Oct 9

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Tickers discussed: SPY QQQ IWM  RUN, UBER, 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.

Earnings – None for today

Technicals flash the Green Light

Triple Breakout & Implications

  • SPY, QQQ and IWM have ALL broken out above their wide trading ranges that they’ve been in for weeks.
    • That makes me more confident in adding long exposure.
  • We have well-defined, objective levels we can now shoot against. ( SPY $342 / QQQ $180 / IWM $160 )
  • Small cap and value names are not only participating, but leading.
    • This has broadened out the rally and has kept the advance – decline readings healthy
  • Calendar Seasonality
    • Although we’ve certainly had Q4 nightmares in the past, Q4 has been generally bullish.
    • Once the election risk subsides, I think we can look forward to some Vol being drained from the system, which would be bullish.
  • The Lead in to Earnings Season is usually bullish
    • We will do our best to catch some of these runners in our swing trading
    • Once earnings unfold, there will be plenty of GAPS for us to work with Bracket Trades.
    • There’s an ETF for that.
      • ETF’s are great vehicles to trade during earnings season, especially if you have a fundamental view on a sector / sub-sector.
      • ETF’s eliminate the single stock risk
      • For example, if you’re bullish on regional Banks, you can sit in $KRE as earnings unfold.
      • For those who are not yet comfortable with options, there are lots of 2x – 3x ETF’s that will get you some added leverage if desired.

FATMAAN turns soggy 

  • The price action in mega-cap tech has been soggy ever since they pulled the rug in early September.
  • We may be entering ( or already are ) in a period of under-performance as money flows toward beaten down cyclicals and value.
    • This mostly applies to FB / AAPL / AMZN / and MSFT.   NFLX and TSLA  still have bids and price action has been more constructive.
  • Implications: 
    • Let’s find sectors and stocks that are working rather than continuing to stare at these names through dormancy.
    • Being flat is one thing; going down is another.  If we see another wave of  Bear Raids in these names, it will pull indexes down and would likely shift market sentiment

Pulling it all together

  • Price has confirmed it wants to go higher; we have great lines to shoot against.
  • Add long exposure in a managed, reasonable way
  • Market risks remain.  Elevated VIX, Headlines, Tweets, Election are all still out there.

Hedge Fund short Bond positions hit an extreme

Sentiment trader published this Commitment of Traders ( COT ) report on Oct 2 showing hedge funds holding a record number of short  positions in the 30yr Treasuries betting on higher rates. This is contrarian bearish for rates ( Bullish Bonds ).  If this idea pans out, it would likely take the steam out of the financials who have benefitted form the recent rise in yields.

Trade Ideas

Did we just see a parabolic blow-off top in Solar?

Solar has been on an insane run in the past few weeks. Visions of a Green New Deal have been washing over the sector as prospects of a Biden win have risen. Like AAPL and others in August found out, parabolic runs are not sustainable and are subject to sharp pull backs, even collapses.   Yesterday we saw some significant Green to Red reversals in the sector despite a largely bullish day in markets.

Many charts in the group look like they would make for an interesting speculative short. I would not go wild trying to short names all over the place in a hot sector, but a well placed one has the potential for a rapid, significant gain.  In general, a few ways to play.

  • Short now against the high; Short on a break of trend; or Short on the break below either the 20ema or the 50ema.
  • As with any strategy, set your stop and honor it if the market does not agree with the thesis.
  • Names you can research in the sector.   CSIQ, VSLR, SPWR, SEDG, RUN, JKS, TAN, PLUG, REGI
  • I would not hold the position past the election, in fact if there is some sharp profit taking in the next few weeks, it may prove to be a good entry for us on the long side.
    • We are likely in the beginning stages of the golden age of alternative energy. This coupled with the ESG trends and solar seems likely to have a stiff tailwind for years and years to come.

Big money thinks UBER is going higher

Yesterday UBER saw $1.5M in call premium bought on nearly 2x call volume.  Most were targeting the Dec 40 call strike but there were others scattered across the option chain. You can see that taking out $38 is the key for bulls to open the door to higher prices. Earnings are Nov 2.  Alarm $38 in your platform. On a break above, I like the October 30 $38 Calls


SPY 2 Hour

If price holds $341.50 and the trend line, the chart stays bullish.

QQQ 2 Hour

Pretty simple here. Prices above $280 are bullish, prices below $280 are bearish. Would like to see price take out $283 with conviction to negate a double top look w/ bearish divergence.

IWM 2 hour

Unlike SPY and QQQ, IWM is extended to the upside. I would not be surprised if either some sideways action happens to burn off the excess, or a gentle pullback to the trend line and / or $159. A break of $159 would be a bright yellow flag. A break of $158 and the yellow flag turns red with price moving back into the prior range.

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