Tickers discussed: SPY QQQ IWM TLT NYMO NAMO Strategy and Tactics
The Weekend Profit Navigator provides a big picture stock market analysis for the week just past with a look ahead. 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
Synergy, collaboration, and teamwork in trading
It’s been decades since businesses discovered the massive benefits of formally creating collaborative teams to tackle big problems. Bringing diverse viewpoints, levels of experience and backgrounds to bear on a problem yields robust and novel solutions; way more than a single person could contemplate or likely even imagine. If businesses are leveraging the power of teams, how come traders are not? Well it turns out some are. Trading firms are increasingly using team collaboration to dissect trade ideas and to come up with new ones. My question to you is “Are you part of a trading team?” For most the answer in no. Although we may have a number of people in our trading circle nothing is formalized into a meeting-like structure. In addition, it’s hard to find traders whom you trust while working as an independent trader. In the weeks ahead think about if you’d like to be part of a trading team. Who would you like to be in it? What would you discuss? Can you see a collaborative , team approach helping your trading?
Earnings
A steep ramp in earnings reports this week.
Balanced on a Knife Edge
There are so many people gunning for a re-set to January 2020. They are desperate for it. Trump surely wants a return to January 2020. The FED, businesses, 401K holders, Wall Street…everyone wants this whole Covid thing to disappear. The Hopium plus a massive dose of liquidity has the Nasdaq within a stones throw of prior highs. We have apparently not learned much since from those bubble days.
The FAAMG names now represent a higher percentage of the index than the top 5 did in the 2000 bubble.
So we again see narrowing breadth against a backdrop of disastrous economic data. Aside from the liquidity surge, I think most of the hope lies in a rapid uptake in economic activity once states re-open their economies. Unfortunately history lends support to the case that the recovery will be longer vs shorter.
Look at the duration of the recessions and the peak to trough decline in GDP. During GFC1 we had a 5% GDP drawdown and the recession lasted 19 months. In COVID, informed economists and ever $GS is talking about a 15-25% GDP shock. Simply said I dont think this is a 3 month thing.
As for asset prices, the FED has remarkable powers to create bubbles. And they have a lot of folks cheering them on, I get it. That said earnings are here and we will learn a lot either way. It feels like we are on a knife edge here at the highs. We may go higher but aside from very short term trades, I am going to step aside and let this rally run it’s course. As you’ll see below, the oscillators are running hot and significant resistance is above. Not a place I want to anchor long positions.
The Oscillators; Buyer Beware
After burning off the extremes early last week, both $NYMO and $NAMO are again running hot. For me this is a “step to the sidelines ” moment for all but tactical, ultra short term trades. Just not willing to hols swing longs from these levels in the oscillators. While in and of themselves are not sell signals, they do say risk is tilted to the downside.
Short interest has been squeezed out.
The graphic from TheMarketTear shows short interest ebbing to the lows. From a positioning perspective, with nearly everyone on the bull side of the boat, its a time where a rug pull makes sense.
Bonds – TLT
TLT has been trading within the range 164-170. Price has held its bid even thru this up cycle in equities. If / when equities pull back I’d expect an even stronger bid in treasuries.
Equities
$SPX Broadening Top
Price moved higher as it approaches a multiple convergence area of resistances. 61.8% fib level, Weekly Pivot point and the 40 week ema. That convergence will be tough to punch through.
SPY 2 hour
Follow the chart annotations for specific levels and commentary.
$QQQ 2 hour
Price close to erasing all the COVID losses!
$IWM 2 hour
Price remains below $125 and to my eye, as long as that remains the case, I want to lean bearish, especially here at the top of the range.
Pulling it all together
With the recent moves higher I was forced to cover shorts on several positions. I still have a small short on IWM. Although I will be happy to take tactical short -term long positions if the rally continues, I wont be chasing this rally with swing trades. I want to be patient here. I want to be ready for a reversal where I’d be more inclined to position in longer-term short positions.
Earnings season should be revealing to how the market views things at this juncture.
Cash remains king. If you have cash you have the privilege of trading. Remain defensive in your trading. Once your cash is gone, you are out. There are very few, if any, ALL-In Moments. Commit yourself to the idea that “if I am 100% wrong, I will still have enough reserves to keep trading”
Trying to keep you in the game guys
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