Weekend Profit Navigator February 2

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Tickers discussed: SPY QQQ IWM TLT TNX GDX GDX

The Weekend Profit Navigator takes a look at the big picture and provides the stock market analysis for the week. Key levels and trading locations are provided, along with trading plans and timely commentary to keep you on the right side of the trade

Supplemental Companion Video

 

Trader’s Couch:

Fear:  It’s price and antidote

 

 

 

 

Fear can and often is a paralyzing and debilitating affliction. Like a child being tucked in at night, we often see monsters we create in our own minds that truly are not there. For most of us, once fear sets in, it isnt too long before a death spiral of thoughts set in. The topic does not matter. We could be petrified of a market moving against us or a big project at work going south. Regardless of topic those fears weigh on us and saps energy.  But here’s the good news.  There is a sure-fire antidote to fear.  That antidote is ACTION.  A quick story for you. Back in college I was way behind in my final exams in my final semester. I had already accepted a job so things were falling into line.  The problem was that I had convinced myself that there was no way I was going to pass the classes. My death spiral was fully underway. One day I shared my crisis with my girlfriend. After listening to my sob story for an hour, I asked her advice. Quite calmly she said “Why don’t you start studying?” That was it. Take action. Once I buckled down and started making progress, I could feel the fear lifting. It wasn’t easy, but I lifted myself out of my hole of despair and passed my classes.

If fear grips you, break it down logically, piece by piece. List the things you can do to take DECISIVE ACTION on your fear. Don’t delay. Jump right on it.  If you think you’ve got too much risk on your positions, close them after the opening bell. Problem solved. If your PnL is in a tail spin, find out why. Take a month off if you have to.  If you identify the source of fear, create a detailed action plan, then take action, I guarantee you that your fear will subside.  If your fears are completely imaginary and are not rooted in anything actually happening in your life, I suggest you seek professional help. Being fearful of things that are not real is a problem and is likely sapping the life out of you.  Seeking help is an ACTION in and of itself.  With the help of good council, you’ll be able to tackle what’s going on and conquer it.

Earnings Calendar

$GGOGL is the last to report for the FAAMG names.  Other marquis names include DIS / SNAP / CMG / GM / QCOM / TWLO / TWTR / WYNN / UBER.

Change of Character

Last week we asked if the decline was one n done or something more?  At the time I said we needed more information, this week we don’t. Evidence points to a change of character for the market. They didn’t buy the dip this week, they sold it.  By doing so, key technical levels were taken out. Thus in my mind the bears took short term control this week and now it’s up to the bulls to prove they can recapture those key technical levels. Change of character. ( Note: on longer time frames and with SPY above $300 the charts remain bullish )

We’ve talked ad nauseam about the asset bubble the Fed has created with its “not QE” program and that the rapid advance of stocks have made them vulnerable to a pull back. So has excessive bullish sentiment. We’ve also noted that the FAAMG names are the market. Well FB tanked. AAPL reported a stellar quarter, now they’re fading the move.  AMZN had a blast off and opened almost to the penny of the prior high and they faded it from there. MSFT had a great quarter but is $6 off the earnings high. GOOGL reports Monday. So FAAMG mostly reported nice results but have not held their earnings gains so far. That’s new and a change of character. as well. Despite the soggy post earnings price action, the FAAMG names have yet to give up the ghost. Until they do, the downside for the market will remain throttled.

Can the market pull back be pinned solely on the Corona Virus?

  • IWM began pulling back well ahead of the first reports about the virus
  • So have bond yields. The “reflation trade” never got off the ground
  • Chicago PMI of 42.9 reported Friday is the worst since 2015. Nothing to do with Corona
  • The market, fueled by FED liquidity, has had an epic run that has left in it’s wake poor market structure with lots of gaps that have yet to be repaired.
  • China has been teetering on economic contraction for a while. The  recent PMI’s don’t include any Conona effects.
  • Base Metals are down 7%, Copper is down 13 days in a row, and the Baltic Dry shipping index has collapsed. These are likely driven by Corona fears.

While certainly Corona fears have helped to accelerate the downside, the media have conveniently pinned it as the cause of the turn down.  This again shows how news flow and narratives follow price.

Corona Virus Outlook

We are still in the very early stages of this story and no one knows how or when it will end. Here are some facts.

  • The Virus has a 14 day asymptomatic contagious incubation period.  The reported cases are people who caught the infection up to 2 weeks ago.
  • Virus outbreaks and contagion follow an exponential growth curve.
  • Some 26 countries have reported cases. THe first reported death outside China was just recorded in the Philippines
  • The graph showing the profile of Corona vs SARs is staggering. If Corona continues to follow the exponential growth curve, we could easily have 100,000 cases in a week or so.
  • I expect the number of reported cases within China to become less and less accurate over time as their health system become swamped.
  • I do not want to sound alarmist, but the idea that we will see the Corona cases bend lower in a week or so is wishful thinking IMO.

Let’s Dive into the Charts

Triple 90% down days imply turbulence ahead.

Arthur Hill of StockCharts.com published a look at the last occurrences of 90% down days across $SPX, $MID, and $SML.   The broad-based selling across all market segments suggest a period of at least choppiness if not an outright decline.  Back in May 2019 the signal led to a 4 week decline. In August, the signal led to a month of sideways trading with high volatility.  With this latest signal coming at / near all time highs, I place higher odds of the signal producing a decent pull back lasting into early March.  Traders can use the same set up to look for a triple 90% up day to signal a possible reversal.

Index Deep Dive.

SPY Monthly

After blowing out of the gates in early January up 3% and a new high, SPY finished red for the month and put in a gravestone doji.  THe reversal candle requires a follow up red candle for confirmation but is certainly flashing a big red flag for bulls.

SPX Weekly

This view shows the broaden top that was in focus months ago. Support comes in at the trend line and at the 40ema. Breaks below those levels would signal a more sinister pull back. All bets are off if price breaks $3000. Keep in mind, on these longer timeframes, Bulls remain in control of the tape.

SPY Daily

As we discussed earlier in the week, the 50ema was our technical target. We tagged that area Friday and it held.  A potential location for a bounce. We have a nice downtrend line to shoot against. A break below the 50ema to fill the gap below would open up more downside. Note all the open gaps below still in need of repair.

SPY 4 hour

I am becoming fond of the 4 hour view. A clean look at the “Value” areas and where key support lies. From this view we can see price at support near $320. A break below puts price in a thin zone where not a lot of lateral support exists. If you are not already short, a break below would be a great place to locate a longer term short w/ a stop just above with the fib retracement zones and 200ema as technical targets.

QQQ Weekly

A follow up red candle to last week’s doji suggests a trend change underway. Price closed right on the uptrend line. A break below opens up further downside.

QQQ Daily

They closed price right on the channel low to keep us guessing. A break below confirms a daily sell signal and a likely appointment with the 50ema and support $213 – $212 area. I remain convinced that as long as price is below $222.50 the QQQ’s are a sell.  A break below $218 confirms it.

QQQ 4 hour

This view shows how important $218 is with both trendline and lateral support converging there. A break below $218 opens up a lot of running room to the downside.

IWM Weekly

The double top scenario presented last week seems to be in play. Price seems destined to back test the breakout at $159. I’d expect buyers to defend that area. If they dont, it is a sign how weak the market is and that strong selling pressure persists.

IWM Daily

IWM has been leading to the downside. We have a well-defined downtrend to shoot against. Breaks above the DT line signal a bounce / potential trend reversal. I’d look for a bounce off the initial tag of $159 which was the breakout level. I will be covering IWM shorts into $159 and look to reload on a healthy bounce.

IWM 4 hour

Great view of the $2 wide support level between $159 – $157. If price were to break below it would open up a lot of potential downside as it would indicate a failed breakout. The technical target would be the lower side of the wide consolidation range down towards $145 – $144

$TNX 10 year yields

Yields have broken sharply lower and have fallen from a huge bear flag. Price seems destined to re-tag the September lows. If yields break below 1.40% all bets are off and could open the door to flash 1.2% or even 1% if things get ugly. I’d expect at least a minor re-action at the prior lows.

$TLT Daily

Price continues to run as yields fall. I am long TLT and will look to add on dips.

$GLD and $GDX

Gold has taken out the Iran high of a few weeks ago and is running. Wish I could say the same for $GDX which I am long. Although nothing bad has happened technically, it should be leading gold, not lagging. Disappointing price action so far.

 

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