#MarginDebt – The Reckoning has arrived…

You know those recaps that begin each new episode of TV shows with words like “Previously on Mad Men…Previously on Shameless…” or most appropriately in this case “Previously on Breaking Bad”?

For a year I’ve been watching for the end of this bull bubble and chronicled it’s slow rollover in the links in this link so let’s call this recap “Previously on Margin Debt”:

Margin Debt – the divergence that kills the bull

As has been noted before the trouble with this gauge from FINRA (it used to be from the NYSE) is that it is calculated and released always a month late. So during any given month one pretty much has to guess from price action what’s going on with the margin debt. Given how over extended it was, my guess October’s price action was probably finally killing the bull market (see the link above), and November would probably be the confirmation that the bear was out of it’s nine-year cave. Indeed, it was confirmation and the bear did emerge.

If one stares at the chart below for a while, it’s clear if history is any guide (at least based on the 2000 and 2007 bull bubbles) when margin debt comes apart it does not quit feeding on itself until the SPX declines 40 to 50 percent.

Ai-yi-yi, long-term holders!

But can this time be different? Of course it can. Margin Debt this time is coming down from higher levels than even 2000 and 2007. What if different turns out to be the same as 1929-1932? Talk about a “Presidential cycle” – the last “businessman” to be President was Herbert Hoover who presided over the worst bear market in history.

Different is never really different. It really means all things must change so that all can return to being the same.

America has had magnificent prosperity from 1945 to… Picking a time depends where one sits on the income inequality scale but I suppose for the vast majority of Americans the time was the 1980s when prosperity began to fray, the American dream began to fade. Read an telling opinion piece on this just yesterday – American Capitalism Isn’t Working. Needless to say it can be fixed but the fix is going to take a lot of year now. It’s going to be long climb back and we’ve not even hit bottom.

I could be wrong about this, of course, since market psychology can run amok even in the face of time and all sorts of fundamental foolishness.

In the meantime, as J.P. Morgan so famously put it “the market will fluctuate.” There will continue to be plunges to buy and bounces to sell. For those of us who actively play this game, that’s all that matters to make money.

(click on the chart for a larger view)

$SPY – Simple black candle tops…

Let’s call this a KISS moment as in “Keep It Simple, Stupid.”

Again and again, market upswings end in black candles – a hanging man, a shooting star, a dreaded doji, or just a sign after six days up and two blasts of nothing-much news the buyers get tired. Not always it’s a black candle ends the rally, but it happens often enough, me thinks, for swing traders to take notice.

On November 26th, it was suggested this market would rally in this post: If Santas’s rally is coming to town… and on the follow up in this post: Fast and furious the bear-market rally rises… it was suggested this swing has the speed of a bear-market rally and it was noted:

“If I had to guess, I’d pick the 281 neighborhood as a place where the SPY may settle this trip up (see the chart). Maybe even a bit higher. It may not take long or it may chop up until January. After that all indications are we have not seen the eventual lows of this bear.

Well, it didn’t take long. SPY came within 60 cents of that 281 number today and sold off. Hence the black candle.

So is this swing done?

Could be but maybe not… If not the simplicity of this looks truly stupid, if so I suppose it looks…smart? The key to these singular candle moments is what always comes nest. Looking back over the chart below, it appears, what comes next is the smart part but if it breaks that red line at 281 it will likely go considerably higher (more Santa gifts for bulls and those who want to jump out of the house from an upper-story window).

Must note that all of my bellwether stocks – NFLX, AMZN, NVDA MSFT, GS, BIDU, BABA, FB, TSLA, AAPL — were up today from yesterday’s close, and ALL OF THEM were down from today’s open. In other words, in one of the posts linked above it was suggested in a bear market there would be selling pressure nearly every day – today during the day it was obvious this was one of those days.

Tomorrow could another and it could bring more serious selling if the simple black candles have their way.

(click on the chart for larger view)

$SPY #Options – Year’s 35th trending day nets 200%

No surprise today’s rapid bear-market rally notched the 35th trending day of the year in what I call “the fool’s game” – buying calls and puts solely as day trades.

With SPY opening at 269.60, it was today’s expiration in-the-money 268 call that trended all day to a 203% gain on the close, $20,331 on each $10K traded (see the chart below on the left). Today’s at-the-money 269 call trended to a 336% gain (see the chart below on the right). The key to these gains is trading strikes nearest to expiration with the choice between in-the-money and at-the-money (or out-of-the-money for that matter) being entirely up to an individual trader’s risk tolerance.

Trending days obviously are the days when all the profits get booked. The rest of the trading days have resulted in net losses overall. Losses on their own that are rather huge.

This is a highly risky strategy that takes extreme measures of persistence, discipline and experience to execute.

(click on the chart for a larger view)

$SPY $TQQQ – Fast and furious the bear-market rally rises…

It was noted in the post below from the day before yesterday that bear market rallies tend to be fast and furious so we would have to see how this one goes.

And now, so far, it has went exactly as expected. Both short-term and long-term breadth, measured by the McClellan Oscillator and Summation Index, gave buy signals for yesterday’s open.

Despite a somewhat squishy start to yesterday, the rally (or maybe it should be called a “bounce”) clicked in strongly today. The fast move up midday was probably due to a speech by Federal Reserve chairman Powell which turned out to be more dovish than expected on future interest-rate increases. Funny how often news comes along to agree with what market breadth is saying already.

Notable moves in the rally so far include TQQQ up 12.% in two days; UPRO up 9.1%; FNGU, the 3x-leveraged ETF of the “FAANG” stocks, up 9.7%; tech ETF TECL up 13.4%. In two days…

So what now?

Both SPY and TQQQ are up more than two standard deviations of an average advance (“fast and furious”) and SPY is about to smack into an obvious down trend line (see the chart below). This is not sustainable. It is likely too much too soon. In addition my nifty-50 stock list has 45 stocks on buys (this current turn to the upside started with 39 of those 50 stocks on sells). Consequently, it’s likely the general market will either go sideways for a time now or take a quick dip…maybe only one day. Given past history, those who did not jump on the buy signals yesterday are probably itching to buy any dip so the rally should go on. Only 11 of my 50 stocks are overbought. Usually there will be many more of them overbought before this upswing stalls out completely.

If I had to guess, I’d pick the 281 neighborhood as a place where the SPY may settle this trip up (see the chart). Maybe even a bit higher. It may not take long or it may chop up until January. After that all indications are we have not seen the eventual lows of this bear.

(click on the chart for a larger view)

$SPY $TQQQ – if Santa’s rally is coming to town…

It appears it started today and triggered the likelihood of more to come tomorrow…

This should be a rally all the way to Christmas and possibly a bit beyond.

Why?

Because the market has been pounded hard to the downside since, in some index cases, early October. But more importantly short-term and long-term breadth, measured by the McClellan Oscillator and Summation Index (see the chart for today below), has simultaneously given buy signals for tomorrow’s, Tuesday’s, open. And they have done it with a telling divergence – see on the chart how deep the breadth plunge was on the lows in late October, and how the breadth numbers failed to confirm the price lows at the same levels last week.

In addition, my nifty-fifty stock list had 44 sells on the first plunge (usually the sign of a swing bottom) but could not muster more than 39 on sells during the last sell-off. Forty-five of them are now on buys.

I have major 3xleverage ETFs giving new individual buy signals for tomorrow’s open – FAS, SOXL, FNGU, TNA, TQQQ, UNPRO — and major bellwether stocks doing the same – AMZN, NVDA, TWTR, GS, BABA, FB. But neither TSLA nor NFLX can be ignored on any market bounce.

While AAPL missed an individual buy signal today by a whisper, this market is not going anywhere without it. However, I see, it closed at 174 and is down to 170 after-hours (a better bargain?). That AAPL has an after-the-close sell down raises the possibility the downside is not yet done.

Highly likely we are now in a bear market with Finra (NYSE) margin debt unraveling. If so, there’s going to be downward pressure on this rally almost every day. This is the time for traders to take advantage of sharp upside bounces like today and for long-term investors to lighten up on their holdings if not to get out completely. Every time margin debt has come apart (and this time it is from a higher level than both 2000 and 2007) the SPX has lost 40% to 50% before the bear market ended in 2003 and 2009. See this LINK – the divergence that kills the bull.

Bear-market rallies tend to be fast and furious so we’ll see how this one goes, but if it is truly a bear-market rally, it will as time goes by take a lot of time to recover from the its eventual bottom whenever it comes and at whatever price level.

(click on the chart for a larger view)

$SPY #Options – Trending day trade 34 for 121% on the close

The day-trading strategy developed here and dubbed in earlier posts “The Fool’s Game” has now had 34 trending days like today since the start of this year.

I define a trending day as any day the SPY calls or the SPY puts or a combination of both gain more than 100% on the day trade. All trades are long only and closed out at the market’s close.

The 274 in-the-money put for today closed the day trade up 121% on each $10K traded (see the chart on the left below). There were no trades triggered in the calls.

Today’s at-the-money 273 put closed the day trade up 166%.

See the white flags on the lower right of each chart below for the return on each $10K traded and recorded in real time on Twitter.

(click on the charts for a larger view)

$FB – run amok and tumbling down…

Facebook (FB) has been able to run on its own since being founded and going public.

So what, as it turns, does the company do? It runs amok.

As the NEW YORK TIMES INVESTIGATIVE REPORT revealed this week the company has been reckless and irresponsible and instrumental in the Russian invasion of the US 2016 elections, and its executives have “delayed, denied, and deflected” criticism through the entire controversy.

We’re talking sheer greed here, capitalism as its ugliest.

But it appears its time of running unfettered is up as Congress focuses on bringing regulations to finally make it responsible for the harm it has done and to insure that it does not do it again. In the end Facebook will be better off for it…or it will be dead (hard to believe? remember MySpace?).

As a result the FB stock (see chart below) has proved once again in financial markets’ store there all always both escalators up and escalators down,

Regardless, to state the obvious, while investors may see profits evaporate in fleeting time, traders can make money on both the ups and and the downs.

(click on the chart for a larger view)

$UNG – Natural gas may flame out here but what a run!

Today looks like a blow-off high but…

But UNG (US Natural Fund) sure has given a lesson in what can happen on a technical breakout from a flat base, from 27.5 to 39.5 in eight trading days (see the chart below). Kind of crazy.

I guess it’s a weather report for a cold, cold winter.

Regardless, it’s going to be a buy-the-dips play for some time to come. One would think has to settle down some first or there is going to be a lot of risk, either long or short.

On a contrarian note: aggressive traders might want to look to short it as soon as it stalls, for at least a scalp and possibly a worthwhile dip, with a stop loss to cover at the high of the move at whatever level that is when the time comes.

(click on the chart for a larger view)

$SPY #Options – Trending Day-Trade 32 for 166% in the “Fool’s Game”

When something looks too good to be true it usually is.

But so far not this year.

The day-trading strategy developed here last November and dubbed in earlier posts “The Fool’s Game” has now had 32 days like today since the start of this year.

Thirty-two trending days.

I define a trending day as any day the SPY calls or the SPY puts or a combination of both gain more than 100% on the day trade. All trades are long only. The 276 in-the-money put for today closed the day trade up 166% on each $10K traded (see the chart on the left below). There were no trades triggered in the calls.

This was one those great trending days that goes one way all day.

And by the way, the market, with today’s hard sell down, is now wildly oversold so the chance of bounce tomorrow is very high. I say that chance is about 85%, but that’s mostly a guess based on the past six months market action. No telling how high. There’s also about a 75% chance the bounce will be a one-day wonder.

For fun, I’ve included a chart of the “at-the-money” 277 Put for today below on the right just as a comparison between one strike and another on a day of expiration. The gain per $10K traded, $25,384 (also the percentage gain, 253%) is in the white flag on the lower right of the chart.

Obviously, the greater the risk the greater the reward.

Remember these posts are meant solely for entertainment purposes and for the educational purpose of showing what the possibilities are in options if one has persistence, experience and discipline. They are in no way be construed as any kind of direct or indirect trading or investing advice.

(click on the charts for a larger view)

A falling $BID takes its toll…

Sotheby’s (BID), the art-auction house, has always been a telling market indicator.

It often confirms the market’s direction when the stock and the indexes are in sync but more importantly it sometimes leads at the turns, not at the exact turns in the shift from bull to bear and back again but as a warning, often far in advance (see the chart below).

When BID is no longer in sync with the general market, it is time to question the market’s current direction.

I have written about this before in this link:

$BID and $TIF – What do the rich folk do?

If the question is actually relevant, one could argue that when the rich quit buying art, it won’t be long before they are selling stock.

(click on the chart for a larger view)