Weekend Profit Navigator June 14

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Tickers discussed: SPY QQQ IWM $NYSI $NASI  Put / Call ratio

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

Have you ever been on a trip with someone so hell-bent on getting there that much of the beauty and excitement of the adventure is lost?  The above is great advice for both travelers and those navigating markets.  Those intent on arriving at new lows or new highs are not open to seeing the nuances and clues unfold before them. They have their eyes glued to a fixed location but no amount of willpower or intent will make price go there. Stay fluid and flexible in your thinking. Just as a good traveler will occasionally pull over to smell the roses and survey the landscape, so too should we traders never lose sight of where we are and be open to new inputs from the market.

Fed Balance Sheet

Was it a coincidence that last week when the FED balance sheet expanded at the slowest rate since the crisis that markets fell apart?  Liquidity matters.

Now What?

Here are some emerging trends and themes I see for the week.

  • Consolidation:  The Thursday plunge slammed us to support on SPY that held. I see us consolidating that should be seen on the 60min charts as bear flags on the indexes and sectors.  The impulsive nature and severity of the breakdown have me leaning bearish but not gonzo bearish. We are at levels where bulls could save this.   If we see consolidation and get an opportunity to anchor some bearish starter positions I think we will be in good shape.  I expect a second leg down but too soon to go nuts. Bulls get benefit of doubt after relentless upswing and conditioned dipsters looking to buy any pull back.
  • Increased Volatility: I think we are moving into a higher vol regime. I am expecting lots of whipsaws based on re-opening headlines and Covid developments. We also have the potential run off of PPP and unemployment expanded benefits in late July. Congress begins a long break soon. Dont see them scrambling for 4th fiscal stimulus or extending existing programs before recess.
  • Bond Yield plunge is a headwind for Banks    Powell told the world bond yields are not going anywhere for literally years. Tough environment for $KRE and $XLF.  Also, default cycle is just beginning. Powell cant save everyone ( but they may try ).  Loan loss provisions are expanding.  I am bearish on Banks
  • Employment.   Most of the market has concluded the last payroll report was flawed and the BLS said as much in their footnotes. Powell told us it will take years to soak up the unemployment to pre-covid levels and that is if all goes well.  Persistent unemployment will be a problem for an economy that is 70% consumer spending driven.
  • Diversions.   Racial tensions and political season ramp will dilute focus on Covid recovery.  Not sure there will be an intense focus to jam through a fresh stimulus packege.
  • FAAMG:   These names have become a defensive haven. Watch closely if people keep piling in or if bears go after them.  Wholesale breakdown of markets will be hard to do if 20% of the market cap is sitting pretty.
  • Speculative Fervor:  Keep an eye on speculative activity. Airlines moving 20% a day is a good place to start. New traders who only know stocks go up got clipped pretty good Thursday. Let’s see if last week knocked down the pure speculation.

The Oscillators – Weekly $NYSI and $NASI

These are summation indexes of the NYMO and NAMO we’ve been looking at on a regular basis.  Notice they are both at the high end of the range. Tough to use these as pure timing signals but they are good to color and inform your positioning.

 

PUT – CALL Ratio 

Not even a 1800 point drop was enough to cause market participants to venture into extreme put buying. That is contra bearish or at the very least offers more room to the downside. THis indicator is pretty good at nailing bottoms on extreme put buying.  THe fact that we did not see extreme put buying tells me the market overall was not overly scared of the potential for more downside.

 

Index Charts

$SPX Broadening Top

The annotations capture the main points.

$SPY Weekly

SPY Daily

$QQQ Weekly

QQQ Daily

$IWM Weekly

$IWM Daily

 

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