#MarketTiming – tricky, tricky, tricky…

So the market did not go down Friday as expected here.

And it may have switched gears to rally some more to the upside.

While long-term breadth, as measured by the McClellan Summation Index ($NYSI), continues to decline, short-term breadth ($NYMO) turned up Friday with a low above a low on its chart (see the green circle on the charts below). In bullish times, that is an aggressive traders buy signal. In bearish times, not so much.

Now if the Summation Index turns up, which it needs to do in short order (like Monday…), it could be the start of several weeks of rally. And if it doesn’t, and the low above low on the NYMO is canceled out, which seldom happens in bull markets but is common in bear markets, we will again, immediately be looking at a likely down swing again. One that could be big.

A lot hinged on Friday’s market action and now more may hinge on Monday’s.

The the first chart on the left below is based on the long-term breadth signal year to day. Because of this monster rally that ended at the end of February, TQQQ, the leveraged ETF for the Nasdaq is up 48% for the year. It is flat now but will go long if the NYSI turns up. TQQQ on the center chart is riding the short-term breadth signal and is currently up 14% for the year. It will go long on tomorrow’s open (Monday’s open). The chart on the right is a purely a price-base signal (I say “buy the yellow, sell the blue”). It has booked 3.1% profits and is currently up 5.1% on this latest on-going upswing.

If the market rallies tomorrow again, it is likely all three will be long at the same time. That is truly bullish.

IF not, then it won’t be bullish. As I said, much hinges on Monday for now. Tricky, Tricky, Tricky.

(click on the chart panel for a larger view)

#DayTrading $SPY and #Stockoptions…

The contents of this blog entry was first posted here last November about trading SPY options on the long side. I have added “stock options” to the title above because the strategy basically works with weekly stock options.

There are so many options strategies in the stock market the head spins – a straddle, a strangle, a naked and/or a covered put and/or call, a calendar, a condor, an iron condor, an iron butterfly (isn’t that a rock band?) and any combination of any of these for hedging purposes, for capital appreciation or preservation, for gambling. Mind boggling.

But buying options… Buying options, just plain buying a call or a put, everyone will say is a “fool’s game.”

Regardless of whether a trader buys calls or puts on index ETFs like SPY or QQQ or IWM, or buys options on stocks, there are only three things that can happen – the option goes the trader’s way (good), or the option goes against the trader (bad), the option goes sideways with price decay over time (also bad).

Two out of the three possibilities for the option buyer are losers. What fool would want to play that game?

But is it really a fool’s game?

Doesn’t have to be. Not for day traders.

Let’s take SPY options as the prime example — very liquid across multiple strikes, tight spreads, hardly any time decay on a trade for only a day, a stop-loss is close by and immediate, and the profits, if there is a trend for the day, can be substantial, even rather astounding.

Also great for scalping on any time frame intraday.

The key, as always, is persistence, discipline, experience, and an entry signal the trader is comfortable with taking.

Oops! $SPY rallies again into a black candle top

Okay, another day up as the rally keeps going, but…

But there are now simple black candles everywhere.

Back on December 3rd I started looking at black candles on StockCharts.com just for the fun of it and discovered a simple black candle at that point on the SPY might be the top of that up swing.

I wrote about it and posted the comments and a chart here:

$SPY – Simple Black Candle Tops

As it turned out it was the exact top of the late November market bounce. Given that it is believed that it is impossible to consistently call tops in the market, that might have been pure luck. However, looking back over many charts (see those below for examples) those black candles appear to be telling. Just focus on the black arrows on the day after, and the moves from there in the current environment.

In Japanese candlestick charting there are names for these patterns — dojis, shooting stars, abandoned babies, etc. — but I’m trying to be as simple as simple can be. The black candles I’m talking about here occur when an index/ETF/stock/future closes higher than the close the day before but also closes below its open (again see the charts below), oftentimes on a gap higher than the high the day before.

However, as with all technical and price indicators, nothing matters unless there is follow through the next day or very soon thereafter. December 3rd signaled the drop from the top of a range in the newly-born bear market (see the first chart below).

There was money to be made on that decline just as there was on the subsequent bounce off the bottom. This is swing trading.

The general market has had a nine-day bear-market rally off the low. For many ETFs and stocks there have been spectacular gains which I noted here (the post below, yesterday) but now….

Now we are back to simple back candles at the top of more than one ETF: not only SPY, but also QQQ, and in the sectors, LABU, ERX, FNGU, TAN, FAS. These I’ve charted (see the panel below the SPY chart) but these black candles are all over other ETFs and many stock charts besides.

This may be a turning point. It may not. But like all great things in the stock market we won’t have to wait long to find out.

(Click on the charts 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 next. 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)

$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)

#SwingTrading – 3x Leverage for the short-term swings

If one is a swing trader in ETFs 3x-Leverage is the name of the game.

For example, the currently short-term breadth indicator I follow gave a swing buy signal last Thursday for Friday’s open and the market exploded to the upside Friday. While the Dow and the SPX stalled out today, the Nasdaq put on another up day, actually the seventh in a row. The same short-term breadth signal that gave the buy for Friday morning has now given a sell for tomorrow’s open.

I will not be surprised if tomorrow the entire market takes a dip, likely just a dip, not a tumble.

The sells on the ETFs are on tomorrow’s open but, in the face of today’s heads-up on the sell signal, let’s take a look at how the leveraged ETFs done and why they are the name of the game in short-term index and sector ETF trading.

Take a look at the charts below. The white flags on the lower left are the gains on the swings so far this year (longs only) and the white flags on the lower right are the current gains. Both numbers are calculated on buying $100k on each trade in order to not only give a dollar amount but also to correlate with the percentage gain.

We’re talking a mere two-day bullish trade, and TQQQ (the Nasdaq) is leading the indexes, up 5%, while SOXL (semiconductors), up 7.6%, among the sector ETFs, leads TECL (tech) up 4.5% and LABU (biotechs) up 4.3%.

Two days. Not a bad trade if one chose to close on the close today. Regardless, because of the signal, they all will be cashed in on the open tomorrow.

Consider for a moment the three charts in the column on the right of the panel. The top two are 3x-leveraged financial ETFs — FAS (big banks) and DPST (regional banks) – and the one in the lower right corner, NAIL, is a 3x-leveraged EFT for home building stocks. NAIL, down year-to-date, had a nice move on this swing, up 6.7%, but note where it is in relation to the two financial ETFs above… This is housing lagging the banks, particularly the regional-bank stocks.

I bring this up because of history — the action in those sectors looks a lot like, almost identical in fact, to how they looked in 2007.

With that I leave this post. As far as swing trading goes, will be in cash tomorrow.

(click on the chart for a larger view)

#MarketTiming – Swing signals swing profits on a down day.

Wacky.

Had buy signals yesterday across the board for today’s open. So the Dow closes down a 100 points, the Nasdaq down nearly 40, the SPX nearly 10, but all that I trade on these signals, XIV and TQQQ, and all that I watch, TNA and UPRO, were up from their respective opens. The signals are all profitable, at least on the close.

XIV up 2.3% from the open. TQQQ up .93%.

They will all be sells on the open tomorrow so I’d like to see a gap up to completely negate today’s gap down and put everything in cash for the weekend.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Sell (Day 18).

PRICE: Sell. (Day 1).
SHORT-TERM BREADTH: Sell. (Day 1).
VOLATILITY: Sell, (Day 1).

CONTEXT:

SPY CLOSE – 258.17
QQQ CLOSE – 175.88
CNN MONEY’S FEAR AND GREED INDEX: (54, falling, neutral level).
NIFTY-50 STOCK LIST: 16 Buys; 7 Overbought, 9 Oversold, 1 new buys today, 9 new sells.