Daily Profit Compass Sep 24

Tickers discussed: SPY QQQ IWM $USD GLD  FATMAAN names

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

Hide your P and L

In the mentorship group we’ve been working hard on things we can do to actively reduce “noise” from our trading. One big reason is that it calms the mind. Markets in turmoil demand a calm mind so that fortitude, courage, discipline and focus can shine.  One big distraction is keeping one eye on your P and L  every 15 seconds.  You tell your new teen driver to keep both eyes on the road because distracted drivers can die.  The same is true for traders. Keep both eyes on the charts.  If you size your position properly ( well within your comfort zone and account size) then set and honor your stop, why do you feel the need to watch your P & L?  If you trade well, the P&L will reflect it at the end of the day.  Find a way to hide your P&L on your platform. Predetermine your trading size. Once done, you don’t need to look at the money.

Trade the Charts, not your P&L

Earnings

News Flow

  • Trump refuses to commit to orderly transition of power post election
  • Dollar steadies, Futures flat and well above overnight lows
  • $JPM set to pay $1B fine for “spoofing”.  Spoofing is the fine art of submitting fake orders into the system that you never intend to fill.  It can and does trick the market into moving the direction of the spoof.  Years back, they blamed the “flash crash” on a spoofer in a basement in London. The practice is very common. If you spend anytime at all watch Level 2 order flow. You see big bids / asks appear, then disappear in seconds.
  • Jobless Claims at 8.30am
  • $COST reports after the bell.
  • TikTok asks for China’s ok on Oracle Deal.
  • SPAC madness.  New SPAC $SPI goes from $1 to $46 back to mid-$20’s on parabolic ramp and collapse intra-day

Brokers are reeling in Margin

In a widely circulated note yesterday. Interactive Brokers issued it’s second notification of the month to clients that margin requirements are being increased due to “market volatility”.  That’s a code word for “we don’t want to be the one’s hung out to dry when they pull the rug”.  Why does it matter?   The people that typically use margin are either very active, sophisticated traders or newer traders wanting leverage to “catch the wave”.  A little extra juice for the FOMO.   A lot of this money flow has been directed at the FATMAAN names and other high flying names in software, cloud computing, SPAC’s and fresh IPO’s.   When margin calls or margin increases happen, it means clients are forced to sell ( or come up with more cash ).   Most people sell or their broker does it for them.  Additionally when a bottom in the market is made, there is less money at the retail level to fuel the bounce.  Pay attention if you see or hear about other prime brokers increasing margin requirements.

Fear / Greed Sentiment

 

Sector Fund Flows

The chart comes via Macro Charts and shows Deutsche Bank’s analysis of sector fund flows.  By their work, funds are still flowing into tech and healthcare, the very sectors, especially tech, that are getting hammered the most.  Conclusion:  Trader’s are trying to buy the dip and view the pullback as an opportunity.

PUT / CALL Extreme-o-meter 

Reminder. Histogram bars above the red line denotes excessive CALL buying. Below the green line is excessive PUT buying.  This chart has a great track record of calling bottoms but is poor at calling tops.

Despite all the selling over the past few weeks, the chart has seen no evidence of panic / fear whatsoever. In fact yesterday, the meter registered marginally excessive call buying. The “we are here” annotation points out yesterday’s reading.   Can you have a market low with people buying CALLs?  I don’t think so but I think we will be finding out pretty soon.

A rising Dollar fuels jittery markets

SPY does not like a rising Dollar.  Neither do precious metals, industrial metals like Copper, and the commodity complex as a whole.  In recent week’s I’ve called attention to the fact that $USD positioning by traders was at MAX Short and that there was a good possibility of a short squeeze. That appears to be underway. Adding fuel to the fire is $USD safe haven buying as markets become more volatile.  It’s why we stayed away from a potentially bullish gold set up and even turned bearish on metals with the $USD breakout. You can see, there is room to run with not much technical resistance until 26. ( USD 96 )

 

Watch $TSLA as a Sentiment Gauge 

Tesla had a case of “battery drain” after its big event Tuesday night. Traders obviously disappointed voted with their dollars with a 10% sell off.  It also triggered selling in most if not all of the EV darlings like $NIO, $WKHS and others.  The sell off tripped a SELL signal on the daily chart. Even if you don’t trade it,  the name is a good proxy for risk appetite. Price looks destined for a tag of the 50ema at $364 which is about $15 lower.  A 50 ema tag is probably healthy for the stock, but if price slices through it could really damage sentiment.

Also watch GOOGL.  It is the first FATMAAN to reach it’s 200ema.  If risk appetite remains bullish, it is a place where buyers should step in.  If they don’t and GOOGL slices through the 200ema without a bounce, that would be a sign of bear market price action.

SPAC’s gone wild

Active Trade set ups / Positions

++++++++++++++++++++++++++++++++++++++++++++++++++++

Sept 24 ( Today )  $SCPL lost $16 into the close.  Our position in Nov 15 Calls can be closed out for either a scratch trade or a slight profit. I will add that the big buyers in Nov 15 Calls and Nov 20 calls remain in open interest.  I leave it up to you whether to hold as a speculative position or to simply close it out.

$NTR.  If $NTR loses $39.50, close it.  A strong $USD will weight on commodity complex and basic materials sector.

Sept 22 – Exited PDD and AAPL shorts with upswing underway.

Sept 18  rolled AAPL to oct 2 105 P and booked 100% on the 112.5P;  Bot PPD oct 75 P; Bot QQQ sept 25 268P at the close per mid-day note. 

Sept 16 AAPL Sept 25 $112.5 puts at 3.25

Sept 15  Followed unusual options activity and promising chart into  SCPL NOV 15 calls at 1.95.   Speculative Trade

Sept 14   Entered NTR Nov 40 Calls

Index Charts 

If you’d like commentary and charts of the Indexes and FATMAAN names at a more granular level, you can find that in last night’s Market Recap Video HERE

$SPY 4 hour

$QQQ 4 hour

$IWM 4 hour

Pulling it all together

For me, the backdrop still says Risk Off.  Here’s why.

  • FATMAAN names, aside from GOOGL, are still way above their 200 ems even after the recent pull back.
  • We have not even had a 38% Fib retrace of the March  – September advance. Technically speaking There is still more to go.
  • Until proven otherwise by price, I am not buying that we can put in a durable bottom with excess call buying and zero fear in the market.
  • Sentiment is far from washed out. Dipsters still very active, especially in tech.
  • Political turmoil from here until November does not lend itself to piling in long. ( Tactically maybe, Long-Term no )   Expecting increased Vol through election.
    • If DC can come together for a substantial Covid Relief Package, that would be a big boost for markets but IMO would only come after a market dump as a catalyst.
  • We have daily sell signals across the board on the indexes and the RSI / PPO indicators are all in bear territory for the first time since March. THat is a change of character that should be respected.
  • Weekly hi-level PPO bear crosses are pending for major indexes and FATMAAN names and could be confirmed tomorrow. These signals would favor lower prices for longer and a deeper pull back. For reference, we had weekly sell signals in March, Q4 $2018, and for “Volmageddon in Feb 2018.  They don’t happen every day.
  • In the Bulls favor is the FOMC.  If there was a big market dump, Powell & Co. would likely bring out the bazookas but it would have to be a big drop. I dont think the Fed wants to step in weeks away from an election to save everything for fear of being accused of partisanship.

 

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