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Tickers discussed:  SPY, QQQ, IWM, TLT, SMH, AAPL, FB, XEC

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

Losing often means you’re playing the wrong game

  • You’re a momentum trader stuck in a low-vol market
  • You’re a trend trader in a range bound stock or market
  • You are good at figuring out the big picture, but you let short term noise cloud your judgement
  • You’re a good counter-trend trader but you’re stuck in hi-volume direction moves
  • You’re a good independent thinker, but you get distracted and thrown off track by the opinions and views of others.

In Vegas, you are great at playing black jack in Vegas but if you find yourself at a Poker table you’ll lose. The key is knowing yourself and knowing the game that you are playing well. Recognizing a particular game does not suit you and choosing not to play is half of winning ( maybe more ) As an example, we have several traders in the trading room that sell puts and calls all day long. It’s what they do and I can only imagine that this strategy suits them and the style of game they like to play.

Improving your discipline and all of that will only help if you’re playing the right game to begin with. Find the one that suits you best and stay in your lane.

** adapted from an article by Dr. Brett Steenbarger

Earnings Snapshot

Earnings really ramps up this week and it could not come at a more critical time. Key FAAMG names headline the week along with several marquis names in other sectors. AMZN and V after the bell.  XOM / CAT /   CVX / HON / PSX tomorrow.

Headlines

  • Asian markets off 1.75 – 3% last night. That sentiment washed over European Bourses who are seeing 1% declines. US Futures off 0.5 – 0.75% in the premarket.
  • Global Airlines are either eliminating service or doing deep cuts on flights to mainland China until Corona settles down.
  • Earnings: MSFT / TSLA shine along with QRVO / LRCX also trading higher post earnings.  FB rocked after weak guidance. ALGN also making a meaningful move down.
  • Treasury yields continue to fall along with the rest of the commodity complex ( especially copper and oil ) as demand picture comes under pressure.

Market Observations & Technical Developments

Markets return to Roil

So we had the Friday – Monday plunge followed by the turnaround Tuesday bounce.  Yesterday, price on QQQ / SPY for all intents and purposes closed the Monday gap and failed at the 61.8 fib retracement levels as suspected. The levels identified in yesterday’s morning note were money.  I hope you used them to your advantage. Now, if everything proceeds according to Hoyle, we should see a continuation lower with the next leg down. On the Q’s specifically, AAPL lost $4-$5 into the close and $FB tanked on earnings. While MSFT did fine, we will need to wait and see how things play out today. The FAAMG names comprise 50% or so of the QQQ weightings.  How they  trade determines the direction of the whole market, including SPY.

Jay Powell did his best yesterday in the FOMC presser but there seems to be something about him that the markets don’t like.  Price gave folks the “fake spike” right into OH resistance and then saw that faded right into the bell. I can’t tell you I gamed all these moves intra-day, because I didnt. But, the trading plan was spot on.   As far as FOMC content goes, same ole crap, different day. The economy keeps humming along with no inflation. REPO liquidity injections to continue until April. ( don’t be surprised when April rolls around and they dont wind it down )  Powell completely dodged a couple pointed questions about the REPO program being linked to blowing asset bubble. I’m sorry but I just don’t get much out of the FOMC. I realize their actions are important, but I think it’s easier to watch price charts in various asset classes rather than parse words in a presser.  TLT  rose all day and accelerated higher on Powell. Gold was higher. THe VIX was higher and equities lower. Price action is where we get paid.

Wall of Worry

  • January 28-29 FOMC Rate Decision –   Powell said next to nothing new.  Market sold off.
  • Big Cap tech / FAAMG   All report over next couple of weeks; These names dominate the cap-weighted indexes. Hiccups or disappointments will be felt.
  • February 3: Iowa Caucuses –  Bernie surges in Iowa; Politics will be a destabilizing factor in all of 2020;
  • Geo-Politics:  Iran isn’t going away.
  • Round Numbers:  Markets love round numbers.  NASDAQ 9000 check    Dow 30,000 close.   SPY 3500              Ring the Bell, pull the rug?

Bullish Counter-balances

  • FED Liquidity:  If the FOMC is hell-bent on blowing a SPX 4000 monster bubble, they have the money to do it.

 Strategy –  Shift to bearish; looking for another leg down

  • I don’t want to be loaded with longs or shorts here; we could easily go either way.
  • 60 minute charts are bearish; Daily charts are still bullish
  • Yesterday, at this point, was simply a fib bounce into the gap.
  • If bulls can recapture the big breakdown candle high, then the pull back was a one n done.
  • If bears rolls price over at a key fib level or upon the fill of the gap above, we most likely head down
  • A break of Monday’s low would seal the deal and favor a 50 ema test on SPY.

$SPY Daily

The completion of the gap fill at $328.75 and rejection there, coupled with the down move in the premarket greatly solidifies the short-term bear case. My technical target is now the 50ema at $320. I would be surprised if we did not see a bounce there. I’d cover shorts heading into that zone be it today, tomorrow, or next week.pieces.

 $SPY 60min chart

Bear Set up: 

Anything below $327 is bearish. The unfilled gap from Tuesday at 324.50 and 323 are short term targets. You can add to shorts and move stops down on breaks below those levels. If price falls through $323, the open gap below is the target. Close your shorts on a move to 319.33. If by chance they try to fill the OH gap this morning, that would be a beautiful short entry if you are not already in. If you are in, beef up your position there.

Bull Set up: 

Nothing short term aside from the possibility of an immediate fill of today’s OH gap. Watch for tradable bounce at $323 or $319 50ema.

$QQQ Daily

Swing Traders  Price filled the OH gap and failed at the $222.50 level which we identified as the key pivot level. Stay short below. THe first target is the bottom of the rising channel near $218. Below $218 brings in more sellers. The 20 ema at $219 served as support on the first tag and may do so again.

 

QQQ 60 min

Bear Set up:

At a minimum, I think we at least tag the prior low at $217. Ultimately I think we find the 50ema at $212.50 which I expect will be well defended. Add to shorts on: fill of today’s gap, a break of 220 and a break of 217.

Bull Set up: Nothing short term aside from the possibility of an immediate fill of today’s OH gap.

 

$IWM  Daily 

Nice downtrend line has formed. Stay short against it. First target is a test of Monday’s low at $162.50, then a back test of the breakout at $159.

$IWM 60 min

Bear Set up: Price is sitting on support at 162.50 in the premarket. Get short on a break below. If price flashes higher off the open to fill the gap, all the better trade location. Targets are $161.50, $160.50, 159, 157

Bull Set up:  You can look for a gap fill higher and/ or bounces at support, but bears are in control and bull moves are counter-trend bounces.

Trade Ideas and Set ups

$SMH – The chart is a series of gaps stacked on gaps. Very poor structure that will need to eventually get repaired. Price below $141 would get the ball rolling. A very real possibility of price losing $15 very quickly as there is literally no meaningful support below.

$TLT  – A fantastic move on the breakout. Stay long if you got in early. Consider rolling higher and / or spreading your position to protect nice gains. Not unreasonable to think taking out the prior high is a possibility. If that happens equities in general, and banks specifically, would be feeling real pain as  yields head lower.

 

$XEC  Energy name has broken from a bear flag on the weekly. I think it finds the prior low in the $36 – $35 area.  I like the Feb 45Puts. Plan to be out prior to earnings on Feb 19

 

$AAPL 60min. Watch carefully to see if price drops into yesterday’s opening gap. Alarm 321.38. Get short on a break below and target a gap fill at $317.69. If $AAPL falls apart, a move to 308 – 307.50 should not be discounted.

$FB – Price got whacked and is not sitting on the 50ema . Traders may try to game a bounce if the move is viewed as “overdone”. If you see that, get long for a bounce against the open.  I dont see a compelling short entry unless price loses $205.

Second Day Bracket Trades

SBUX / AMD / XLNX / CHRW  Alarm the high and low of yesterday’s range. Go with price on a break outside the range. XLNX / AMD are the beta names. If they let go with the market and lose yesterday’s low, they could really move.

 

 

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