#MarketTiming – Long-term breadth says sell the rally

MARKET TIMING SIGNALS FOR 7/18/2019.

Long-Term Breadth (NYSI): Sell DAY 1
Short-Term Breadth (NYMO): Sell DAY 3
Price: Sell DAY 2
Nifty-50-Stock-List: 13 BUYS, 1 NEW BUYS, 4 OVERBOUGHT; 37 SELLS, 11 NEW SELLS, 12 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 46, falling, NEUTRAL LEVEL.
Bellwether Stocks: 6 UP, 9 DOWN.

WHAT?

The market took the tumble that been brewing for the past couple of days.

First short-term breadth turned down after a sequence of highs below highs, then price triggered a sell on today’s open, and now long-term breadth has given a sell signal for tomorrow’s open.

That last part is the most significant. Long-term breadth (the NYSI) is the primary context behind the entire market. If it is going up the bulls have the ball, if it is going down the market will tumble too. Maybe not right away — it can whipsaw like anything else, but if it keeps going down most stocks will follow.

Technically the sell signals are on tomorrow’s open but at today’s close this upswing, which began on the open of 6/28 (13 trading days ago), took TQQQ up 8.2%, UPRO up 5.1%, FNGU (the FANG ETF) up 12.4% and TNA remarkably was flat. Among notable stocks TSLA advanced 15.1%, SHOP 7.3%, TWLO 6.1%, WYNN 99%, FB 5.9% and AAPL lagged at up 2.3%.

The Nifty-50-stock-list was a mixed bag with as many stock down double digits as those up double digits. In retrospect that was probably a read on the raggedness of the rally.

However, INS, the number-one stock on the list coming into the upswing vaulted a spectacular 49.4%.

Interesting to note the divergence that registered on the overbought Fear-and-Greed Index, kept by CNN Money, called the exact top two days ago in SPY and in QQQ (see the chart below) and was telling across the board.

WHAT NEXT?

With the NYSI declining, one can only assume swing traders will be looking for short entries, options traders playing puts predominantly (see the post below), and long-term investors should tighten stops to their individual risk tolerance or just hold their breath and hope not to die.

Of note: NFLX after the bell reported earnings, a shortfall in expected subscriptions, and is getting clobbered in overnight trading. That may set a tone for trading tomorrow. Intriguing how often news comes along from somewhere to agree with the NYMO/NYSI breadth indicators.

Nothing much more to say. The market will go down until it doesn’t (and granted, that could be even as early as tomorrow).

(click on the Fear-and-Greed chart below for a larger view)

$SPY #Options – walking the put path in the day trade

The end-of-the-day results: a 116% gain on the two entries, first a cumulative 50% gain on today’s 301 put and finally a 66% gain on today’s 300 put into the close.

$SPY – trudging higher but watching for a reversal day

MARKET TIMING SIGNALS FOR 7/16/2019.

Long-Term Breadth (NYSI): BUY DAY 12
Short-Term Breadth (NYMO): Sell DAY 1
Price: BUY DAY 2
Nifty-50-Stock-List: 20 BUYS, 4 NEW BUYS, 13 OVERBOUGHT; 30 SELLS, 4 NEW SELLS, 11 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 57, falling, GREED LEVEL.
Bellwether Stocks: 11 UP, 4 DOWN.

WHAT?

The market moved sluggishly higher today.

In the case of SPY it was five days in a row, and except for a minor blip in the middle of the advance, TQQQ would be the same. SPY, by my measure, has been overbought for three trading days, which is often all she wrote, but not always.

During this entire move up, my nifty-50 stock list has never had more than 25 stocks on buys. The last time I saw above thirty was two weeks ago (37 on 7/1). Those stocks are trudging through a muddle. That might or might now mean something. Notably TNA, the 3xLeveraged ETF for the Russell small caps has gone nowhere.

Still SPY has managed to make new all-time highs, which is either ragingly bullish, or it’s about to die on the first down day.

WHAT NEXT?

Let’s consider that first day down for a moment, especially since short-term breadth, which has been putting in highs below high (see chart below), turned down today with SPY overbought and up five days in a row (see this many times before a dip).

Trader Vic Sperandeo noted one time that any time a major index goes four or more days in one direction at the end of an intermediate advance or decline the first reversal day is the change of trend. Trouble is I don’t think he ever quite defined what constitutes an intermediate advance or decline. One can look at charts and see he has been right again and again and again but then there is that one time…and that one time can kill anyone who doesn’t play defense. This advance is essentially five weeks old with a minor drop in the middle, projected here in this post below :#MarketTiming – a black candles Thursday leading to….

In addition SPY ended the day in a black candle. The black candle makes today’s high (301.13) and today low (300.19) key numbers, above the former there more rally to come, below the latter a dip to the downside, a easy read of price action. Those highs below highs on the NYMO (again see the chart below) are a warning. There is a divergence in CNN Money’s Fear and Greed Index not confirming the new highs. There’s the Russell stall so far… These things are beginning to pile up.

Five weeks of solid gains may not be the end of the upswing but it is worth guarding against Trader Vic’s “first reversal day.”

All that aside. until long-term breadth turns down, the long side will remain the side to play. Dips are to be bought in the indexes, the ETFs, stocks. Eleven of my bellwether stocks were up today with decent gains, see AAPL, TSLA, SHOP, BABA as examples. So there is still strong buying in big names, which is probably the place to focus most trades.

It always sounds stupid with one says it but it is the one simple, absolute truth — the market will go up until is doesn’t.

(click on the chart for a larger view)

#GoldStocks – talking trees when there’s a forest out there…

To state the obvious, most stocks move with the general market, and more obviously almost all stocks move like all stocks in their sector.

And this may be no more obvious than with the gold stocks.

I’m always surprised at the endless discussions of which gold stock to buy. Gold bugs, particularly, love this stuff — this one, or that one, or maybe that one. One stock picker or another has very good arguments for each of their choices, fundamentals, technicals, some buddy’s opinion, whatever, but they all ignore the obvious — they’re talking about trees when there’s a forest out there.

Take a look at the charts below.

Five of those charts are stocks and three are ETFs, but hide the symbols and company names for each chart and who would be able to tell which NEM and which GOLD, which is AEM and which is NUGT? The patterns essentially all look the same (like fir trees in a fir forest).

But actually they are not the same. I have the same swing-trading system on each of those charts. Now look at the numbers in the white flags on the lower left of each chart. Those are the total returns year-to-date per $100K committed to each swing trade (calculated also to easily show percentage gains for the system).

Obviously, there is a difference between the stocks and the ETFs. The leading stock in the sector, KL, is up 17%, while RGLD, lagging, is up only 1.4%; a prominent name like Newmont Mining (NEM) is up 14%. On the other hand, the leveraged ETFs, NUGT and JNUG, are both up 82% and even GDX, not leveraged, is up 25% – same time frame, same trading system.

The trading system here is not the point. It is just here to illustrate that too often traders and investors can’t, as they say, see the forest for the trees.

(CLICK ON THE CHART PANEL FOR A LARGER VIEW)

$SPY – Friday’s calls at the end of the bounce…

Friday’s 285 calls immediately vaulted as high as a 42% gain but wound down for the rest of day, hitting a breakeven stop along the way, and finishing down 52%.

If one studies the day’s bounce from the opening gap down and final reversal at the close (see final chart below), it’s apparent there was not much to do to capture some of the profit on the day before it was all gone on the stop loss. The bearish gap at the open might have given a hint to fast and nimble traders three days was all this bounce would have. Of note, it’s evident how important a stop is to avoid letting a profit turn into an outright loss.

Suspect Friday’s price action is a sign this little three day bounce has reversed and there will be downside next week, but we’ll have to see Monday.

There were no puts to buy on the reversal day since after the early run up SPY never quite fell back through its open.

(click on the chart for the full twitter thread)

(Click on the chart for a larger view)

$SPY – Long Friday calls on bounce day three…

The bounce continued Thursday…

(Click on the chart for a view of the final tweet)

(Click on the chart for a view of the initial tweet)

$SPY – Calls on bounce day two

The market followed through strongly Wednesday after a “turnaround Tuesday” on the current bounce signal.

(Click on the chart for the full Twitter thread)

$SPY #Options – Calls on the bounce day…

The great trader and “market wizard” Linda Raschke, talking about trading setups, once said “when you see what you’re looking for, jump all over it.”

As outlined in the post yesterday, I was looking for a market bounce, possibly as early as a “turnaround Tuesday,” and voila! The bounce began in the futures overnight and followed through on the open into an upswing for most of the day before selling off into the close (see the tweet and charts below).

The SPY in-the-money 281 call (SPY opened at 281.99), Wednesday’s expiration, netted a final 52% for the day trade, $5200 for each $10K traded.

(click on the chart to see the complete Twitter thread)

The Final chart:

(click on the chart for a larger view)

$SPY #Options – Puts on a put day….

This Tweet was made at the time today’s 284 put (282 on the chart is a typo) hit a 100% profit for the day.

The day-trading strategy, which I call “BUY THE YELLOW, SELL THE BLUE,” topped out up 144%. and even with the choppiness at the end of the day managed to register a 76% gain (see the final chart below).

(click on the chart for a full view of the Tweet)

(click on the chart for a larger view)