Weekend Profit Navigator July 19

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Tickers discussed: SPY QQQ IWM BHP TSLA TAN NFLX  BKX  KRE   Strategy update

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.

Trading Advice from Dodge, 1930 

90 years later, nothing has changed. Trading is trading, markets are markets.

Earnings Onslaught

Earnings really begin to ramp up this week with critical reports due from MSFT, TSLA, INTC, CMG, many regional banks and others.  Be sure to check your holdings to make sure you know when your names report.  $NEE for example reports Friday. I do not hold my trades through earnings.

Gaps and Bracket Trades

Earnings season produces lots of out-sized reactions in the form of gaps. These gaps, either higher or lower, can often produce great trading ops for both the intra-day trader and swing trader. Intra-day traders can scope out the pre-market movers to create a tight list of potential names on the move, then create a trading plan for each. One of my favorite set ups is the second day bracket trade. We’ve discussed and used this set up to nice success. FDX being the most recent.  The strategy is to let the first day post earnings play out. Once done, yo bracket the high and low of the day and alarm both. From the second day going forward, you then “follow” price either higher or lower out of the first day’s trading range with a stop near your entry.   You can scan for these gaps at the end of each day and create a watch list to follow going forward.

Post OPEX Inflection Point

The week following a monthly option expiration often is an inflection point for the market as all of the July positioning rolls off. Watch carefully this week. Low summer liquidity means a relatively small amount of money can have an over-sized effect on market moves. Earnings for MSFT, TSLA

Bank Earnings

Big Money Center Banks

$JPM, $C, and $GS reported better than expected earnings, largely bolstered by capital markets and trading revenue. $WFC and $BAC, with more consumer facing businesses, were not nearly as robust and some would say they were horrid. Looking at the relative performance of the KBW bank index vs. SPY we can see we are close to testing the recent lows.

Despite better than expected results from JPM and Citi.  CEO’s Dimon and Corbat sound cautious.

JP Morgan CEO Dimon said “This is not a normal recession. The recessionary part of this you’re going to see down the road,”  “You will see the effect of this recession. You’re just not going to see it right away because of all the stimulus.”

Citi’s Corbat said   “I don’t think anybody should leave any bank earnings call this quarter simply feeling like the worst is absolutely behind us and it’s a rosy path ahead,” . “We don’t want people leaving the call simply thinking the world is a great place and it’s a V-shaped recovery.”

Loan Loss Provisions Explode

What about Regional Banks?

Going forward we will have a ton of regional banks reporting. Unlike their big brothers, the regionals are consumer facing and do not have capital market / trading revenue to offset traditional banking losses. Given their direct exposure to the real economy and mostly small to medium businesses, I expect loan loss provisions to do a moon shot. Price appears to be flagging. A break below $34.50 or so should favor lower prices.

Rotation Game

  • The week after OPEX can be an inflection point for the market.
  • Earnings Sentiment.  MSFT and TSLA earnings will be important sentiment tone setters.  INTC as well for semis.
  • Price needs a catalyst to take out SPY $323. If it can, then price can run to $329. THat said, bearish divergences persist and there is a good chance for a pull back and reset.
  • Rotation to Value:   There has been a pull back in growth in favor of value. I am not so sure it sticks. Banks are a major cyclical sector and I am having trouble seeing them performing. The charts are neutral to bearish.  Covid cases will soon be 100K per day. I think you’ll see more re-opening rollbacks heading into August and the fall.
  • Fiscal last chance:  I think there will be some kind of fiscal stimulus by the end of July but it will be the last one before the election. How big or how far reaching remains to be seen.
  • Politics:  The election is 100 days out.  There is historical precedent for a market sell off leading into the election if the incumbent is expected to lose. The factoid holds irrespective of which party is the incumbent.
  • Fed Balance Sheet rate of change:   After the initial surge, the rate of Fed balance sheet growth is slowing.  It’s like when your allowance is dialed back week after week. A slowing rate of change can’t be a positive

Charts in Focus

$BHP – Iron Ore Miners are moving

$XLB names have been strong and outperforming. Iron Ore monster $BHP is threatening to break out.  It’s peer, $RIO has already broken above recent highs and the group has been strong. I like $BHP above $55. Set yourself an alarm and get long on a breakout.

 

$NFLX – Second day Bracket trade set up

Nice set up for a second day trade post earnings. There will be a ton of these set ups on earnings reaction gaps. THe annotations datail the trade set up.

$TAN – Solar Tail Winds

It’s not often that I would feature a monthly chart but in the case of the solar ETF $TAN I think it’s warranted.  With the economics of solar coming into line as an alternate energy source and the demands of ESG investing surging, solar has some big tailwinds. Technically, price is emerging to take out a huge level on the monthly chart. If price can hold the breakout at $44-$45ish , I see price being able to find $60 to $80 over time.   Something to consider for an IRA or longer term hold.  Maybe look out to Jan 2021 with some LEAP calls, then roll them out to Jan 2022 once that expiration is listed. If you are more into individual names, look at BE, CSIQ, RUN, ENPH, SEDG, SPWR, FSLR, JKS, PLUG among others

$TSLA 60 min

TSLA reports Wednesday after the close. I expect price to hold between 1450 and 1550 before earnings. Several gaps below are open but if TSLA blows out earnings and is included in the S&P 500 index, all bets are off.  Too risky for me to do anything ahead of earnings but afterward may take a look. I expect a decisive move, especially considering the bollinger squeeze compressing vol into the earnings print.

Index Charts

$SPY Weekly

SPY Daily

$QQQ Weekly

QQQ Daily

$IWM Weekly

$IWM Daily

 

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