Daily Profit Navigator February 18

Tickers discussed: SPY QQQ IWM EEFT SLB GPC

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:   

Be Present; Be Flexible

 

 

This is a phrase often used by Steve Spencer of SMB Capital ( @sspencer_smb ).  He says the phrase characterizes the mindset of the best traders he’s observed.  He says being a good long-side trader or a good short-side trader may very well make you a good living but the best traders switch between long and short biases with mental ease and with great fluidity. The first task is being fully present and “in the moment”.  You will never “see” anything if your mind is wandering all over the place. For many, getting into, then staying present is a big obstacle.  Once in the moment, the next hurdle is complete mental flexibility. As a thought experiment, let’s look at $AAPL.  Some of you may have been trading $AAPL to the long side for years. Maybe its been a core holding for years. $AAPL is down some 4% this morning. What would it take for you to close all your longs and go short “your baby” ?   $300?   $275?  $230?   Selling a stock that has been a gravy train is tough stuff. Mental flexibility sounds easy until you put it to the test on your favorite stock.  BTW, “Be Present; Be Flexible” is also a great aspiration on how to tackle life. You’ll miss out on a lot if you’re often thinking about the past or the future. Life happens in the present.  Being flexible in your mindset also offers great rewards “outside the charts”

Earnings Calendar

Headlines

  • $AAPL warns on guidance citing Corona Virus impact on both demand and its supply chain.
  • China now both disinfecting and destroying cash that may harbor and transmit the Corona Virus
  • $HSBC “re-do” to result in layoffs for 35,000 employees; 15% of its workforce
  • $BEN near a deal to take out $LM for a 23% premium
  • US still considering limiting Chinese access to chips and chip-making equipment
  • German ZEW sentiment was a disaster   8.9 vs 20+ prior and estimate
  • Mike Bloomberg qualifies for debate tomorrow.

Risk comes home to Roost

As I write this in the pre-market, $AAPL is down about 4% and is dragging down $QQQ by about 0.66% and SPY by about 0.40 %.   Regardless of whether the robots or even living, breathing humans buy up this “dip” as they have every other time in recent memory misses the point.  So now, for at least a brief moment, some risk is coming home to roost. The point is that many have discounted these risks as almost non-existent.  Last week the narrative was that Corona has peaked, the virus was contained, no worse than a really bad cold, and all we had to do was wait for the wall of liquidity and the “V-shaped” recovery.  This morning its “OMG! Apple has China risk!”   In Apple’s statement, they could not / would not even speculate revised numbers or guestimates. Now everyone is scrambling to find companies with supply-chain risk and potential exposure.  We’re told the case count has moderated but yet Millions upon millions are still on lock-down and nobody is going back to work.  The puzzle pieces are not lining up. We just don’t know people. China does not know. I think their ability to truly get a handle was swamped weeks ago.

Our philosophy here has and always will be trade price, not the news.  If you’ve followed along even for the last few weeks, we’ve talked about hedges, we’ve talked about raising stops, we’ve talked about knowing key levels, and we’ve talked about closely monitoring our over-all exposure.   This morning’s pre-market move is honestly nothing. We could have easily been down 1-2%.  If you’ve been floating along, time to start acknowledging the risks that are out there and adjusting your position sizes accordingly.  Successful trading is just as much about not losing a lot on a draw downs as it is about what you make on the plus side of the ledger.

We will figure out what’s what by watching price and not getting too far out over our skis.  Liquidity may end up ruling the day and quashing the volatility. We’ll have to wait and see.

Index Chart Review

SPY Daily

For those on the daily time frame, absolutely nothing to do unless price loses the daily pivot and first support  at $332. The rising 8 and 20 emas will also act as support on any draw down.  SPY is currently trading $336 in the pre-market. Not even to the 8ema.  Sit taller in your chair when / if price reaches $332. Could end up being a place to buy if it holds.

SPY 60 min

Bulls –  To my eye,  $335.50 is the first meaningful level short term. A break below that opens the door to $334. I’d expect $331 / $332 to be well defended at least on the first touch. Worth a long try if we get that low.

Bears – Traders can short a break below $335.50 and add below $334.  Understand any down move is counter trend. Bulls in control. Also be ready for an attempt to back fill the OH gap on the open.

 

QQQ Daily 

Price will be testing $232.50 / $232 zone of support on the open. Traders who are long can look forward to the 8ema at $231.50 as a support level. Otherwise $230.30 may be tested. It is a key level due to the large open gap below it. I’d expect $230.30 to be defended on at least the first touch.

 

QQQ 60min chart

Bulls – Look for support at $232, $231.50 , and $230.30.  IMO $230.30 would be a high probability entry for a bounce play. Below $230.30 bulls need to step aside as a gap fill to $227 would be favored.

Bears – An opening bounce to $234 would be a great short entry, but setting that aside, breaks of $232 and ultimately $230.30 are your shorting locations. Keep stops tight.  Keep in mind, these are tactical shorts. Trend is higher.

 

IWM Daily Chart

Price needs a break above and hold at $168 for higher prices. In the pre-market price is around 167.25.  THe 60m pivot is $167. $166.50 is a prior level of support. THose levels should provide some support on any down move. To my eye, the big level is $164.  Halfway between $168 resistance and the prior low at $160.  Moves below $164 favor a back test of support at $160. A hold at $164 keeps hope alive for another run at $168 / $170.

 

$IWM 60 min

Bulls – Price will probably start getting flaky below $166.50. Below $166.50 let the bears run with it. $165 may be a place to look for a bounce. It is where price found support before. As always, keep stops tight. If you see SPY / QQQ falling apart, no need to try and be a hero on the long side with IWM. Price will likely follow SPY / QQQ.

Bears – Breaks below 167.50, 166.5, 166, and 165 are places to initiate / add to new short exposure when / if those levels break. If the snowball gets rolling, a back test of the prior low at $160 would not surprise anyone.

 

Trade Ideas and Set-ups

$EEFT –  Bracket $150 and $144 with alarms. Follow price on a move outside the box. Nice gap overhead, mostly nothingness below.

$GPC – Auto parts maker GPC has a well defined downtrend working with price on the high side. Price also has the falling 20ema to contend with as resistance. I think it makes its way lower to the bottom of the channel.  Get short against the falling downtrend line. Any break above and exit the position.

 

 

$SLB  Looks like a text book bear flag. The measured move on a breakdown sends it back to the prior lows near $30 which makes sense from a technical standpoint. The trigger would be a break below the flag at $34.

 

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