#MarketTiming three tweets today from a yawn to the scream

THE YAWN TO THE SCREAM

END OF THE DAY

(CLICK ON THE CHARTS FOR A LARGER VIEW)

Reading history on the #MarginDebt chart

For anyone who pays attention to FINRA margin debt this market crash was no surprise.

If there was anything surprising about what is now 30% plunge in the SPX, it was that it took so long to happen.

I had a clear warning here as far back as six months ago in this post:

Margin Debt – setting up a S&P 50% plunge?

Now all I can say is anyone who was not paying close attention to margin debt or was disregarding its warning was asking to get their stock profits ripped apart.

Once margin debt starts down, it feeds on itself with margin calls leading to stock sales and more margin calls leading to more stocks sales with each jolting decline in the market. And besides the profits lost, there is time lost, sometimes a lot of time lost, before the market can even begin to recover.

If we take a look at the history on the chart below it’s pretty obvious the divergences between margin-debt and price of the SPX foretells the market sell-offs. In 2000 and in 2008 margin debt dropped down (the black boxes on the chart) while each time the market went higher for a few months before plummeting. Again these last six months (another lower black box lower than the previous peak), history repeated.

Granted it’s hard to believe as the market keeps going up and up the bull will ever end — earnings seemed good, the Fed was on board, Trump was bragging on Twitter at each new high — but long-term investors could not ask for a better advance notice it was their time to sell or at least tighten their stop-loss levels to preserve capital. All this market needed was one small trigger for the full unwinding of margin debt to usher in a bear market, instead it got a big one. But if it hadn’t been the Covid-19 pandemic, it would have been something else.

Now that the bear market has begun, margin debt is indicating it is not done yet.

History says, like in 2000 and 2008/2009, the S&P500 is going down around 50% before this bear market is finished. If history repeats again, there is another 20 or so percent more downside to go.

Margin debt during this long bull market went higher than either 2000 and 2007 so there’s no telling how that’s going to play out. From its 2019 peak it has a lot farther to fall – and if the news keeps getting worse — since the US, thanks to a lying President and his incompetent Federal administration is getting a late start on coming to grips with the pandemic it’s possible it could be more than 50%.

If the dire damage being done to the economy is not mitigated sufficiently by a Congress that was supposed to have a stimulus package out last week and hasn’t managed get one done yet or if the stimulus is too small or if it’s aimed at the wrong people, we could be looking beyond a historical 50-percent decline to something more like 1932.

You ask me, we’re at a point when we need a Franklin Roosevelt in the White House and instead we’re still stuck with worse than a Herbert Hoover.

But as history shows on the chart, whatever the final decline is to be, it’s likely it won’t be until after a big bounce any a week, any day, any minute now.

This market is massively oversold and it’s a positive sign that governors and mayors, allied with scientists and health-care providers across the country, have taken over the front-line fight against the pandemic as Washington goes on dithering.

The trouble with the margin-debt numbers is they are reported a month late so one pretty much has to guess, based the price action during the month, where the debt level might be in the current month. While we can see the SPX crash here in March on the chart, the margin debt line is only up to date through February. I would assume from the current price action in March it’s now a lot lower, probably akin to that drop in 2008 marked by the black vertical line.

If so, we may be closer to a bear-market bottom (six months or so) than the pattern in 2000 (which took about three years).

Regardless, the bounce, which could be spectacular, is not going to be a resumption of the bull underwater long-term holders are hoping for. More likely it’s going to be a bull to be slaughtered so severely by the next bear move no one, as despair sets in, will be looking to buy any stocks.

In despair is when a new bull market can be born.

But I could be wrong. It could be different this time. Uh, huh…

(CLICK ON THE CHART FOR A LARGER VIEW)

Reading history on the #VIX chart…

Ah, yes, I remember it well… In fact I’ll never forget…

I began investing in the stock market in September of 1987. My wife was having our second child that month. I figured I had to make some financial provisions for the future. I was beginning to make some extra money so I put our savings into the stock market. I bought stock in Compaq and Intel. The stocks were roaring up and continued to rise. I was a very happy young father.

Then about four weeks later on October 19th, the market crashed. In a panic I sold all the stock. That was on the Tuesday after Monday’s crash. That time was in so much chaos it wasn’t until Saturday before I got the fills to learn we had no savings left.

I didn’t tell my wife. She was busy with our newborn. I had a job so we had money coming in. I didn’t want to worry her. But I was virtually catatonic for weeks, until Dec 4th, 1987 (coincidentally our anniversary), when the market made a successful retest of the crash lows.

That was the day I learned what matters most in trading the market – no matter what happens, it’s all happened before.

History, history, history.

There is the famous curse, usually attributed to George Santayana, that “he who does not learn from history is doomed to repeat it.” In the stock market it’s the opposite – “he who learns from history is is blessed to repeat it.”

Which brings us to the VIX, the Volatility Index.

The mass psychology of the market – because money is always at stake – is either in some degree of fear or some degree of greed with both emotions filtered by time.

While history serves as context, the VIX measures the market endless wheeling back and forth between fear and greed. The index itself runs opposite the other major indexes, the S&P500 (the SPX), Dow Jones Industrial Averasge, the Nasdaq Composite…in other words, it runs opposite the market.

When the VIX is low the market is in a bull market, and most stocks are rising, virtually all stocks, and when it is high (as it is now), the market is a bear market, and stocks go down, virtually all stocks.

But the VIX says more than the obvious.

Right now because we’ve just finished a very long bull market there is a lot of belief that the recent stock crash is just a temporary drop and prices will soon be hurtling upwards to new highs.

And yet…right now the VIX says “not so fast.”

Consider the chart below showing the VIX with a monthly chart of the SPX.

I’ve outlined the effect of the VIX on the general market.

First, let me say what I consider the key levels on the VIX itself. Under 15, the market is in a steady advance, a bull market. At 25, the market is in a normal “correction” and the price will soon continue to climb. But if the VIX rises through 25 convincingly and vaults past 40, it ia a bear market. At that point the VIX will have to convincingly fall back through 25 before stocks can in general begin to move up again.

On the chart the red vertical rectangles mark the periods in which the VIX last went through 40 and dropped again below 25. In the 2008 bear market it took eight months before prices began to rise again. Although it doesn’t show here on a monthly chart, a weekly chart of 2010 has the VIX also above 40 (marked by the red circle on this chart) when it took five months for the prices to rise again. In 2012, it took four months for prices to rise gain.

These are measures of time.

I am suggesting this is the time it’s going to take for the current bear market to subside so prices can rise again in a steady climb. Months at best, and even then only for those not holding long term. This crash has caused a lot of damage and a lot of stock holders are trapped at higher levels (the entire advance from the day Trump was inaugurated as President has been erased). William O’Neil of Investor Daily called this “overhead supply,” meaning those holding stock above current prices will be looking for bounces to get out so going forward is going to be a choppy ride and it’s going to take time to work off the effects of the bear.

To say nothing of the fact there are very few signs the market has, as yet, quit falling.

Still, there’s more…

By my reckoning the VIX is also a calendar. The market always has a bullish bias (this is America after all!) but there are months and even years lost along the way.

The shaded blocks on chart below illustrate the time it takes for prices, once the bear market has begun, to regain their former highs. For instance if one invested in the market at the top in mid-2007, it would have taken more than five years to breakeven; in the 2015/2016 and 2018/2019 corrections approximately a year each to regain the losses, or move sideways to new highs.

When the bull is going strong, everyone forgets it takes just one down day for a bear market to begin. Of course, until it’s later and one can look back, no one can know which down day, like February 20th this year, is THE DAY.

Which is also why since December 4th, 1987, as a day and swing trader, and having learned the market’s history, I sell, every time, on the first day down.

(CLICK ON THE CHART FOR A LARGER VIEW)

On $AAPL — its broken parabolic updated…

AAPL keeps trying to bounce off the market’s gaps down, but as time goes by it is still working its way down to where its recent parabolic rise began.

This decline with take some time. There will be bounces to sell along the way but when a parabolic breaks it creates so much overhead supply (i.e. holders who want to get out) the stock’s decline is usually inevitable.

The target price for the stock is approximately $220 to $230.

This was first outlined in this link:

#STOCKS – on $AAPL gone parabolic

And reiterated in this link when its parabolic rise first broke:

ON $AAPL gone parabolic – with an updated chart…

(click on the chart for a larger view)

#STOCKS – “Trump loves coal…”

The President claims he loves coal and coal miners.

Outside of Florida, he runs most often to West Virginia to rally his supporters.

Evidently, the West Virginia voters have been so poor and uneducated for so long, they will believe anything his says. I’m probably being too harsh on these unfortunate folks but it’s way past time they wised up. To have Trump on your side is to have worse than having no one.

Except for his Russian money-laundering real-estate businesses, this self-described master deal maker and businessman has managed to run through everything he inherited from his dad and a few billion more, bankrupting almost everything he’s touched along the way – casinos, steaks, champagne, a university, and so and so on (to say nothing of his marriages and his money spent to shut up porn stars and playmates).

Without the Russians, he could be going broke right now hawking hot dogs from a cart on a street corner in New York.

But enough of my admiration for greatest con man of all time, let’s get down to the stock market and the coal stocks.

While Trump says he loves coal, as anyone who has bumped into my posts on Trader-Talk over the years knows, there may be no one who loves shorting coal stocks more than me.

I’ve shorted Walter Energy (WLT) off the board. That was a lot of fun as nearly every coal sector analyst kept reiterating “buys” at every price level from $85 a share to $1.50. At $1.50, the analysts finally said sell. Believe it! Hopefully all those fools (or are they liars and thieves?) are out of the securities industry but probably not (Trump is President, after all, no matter what).

Over the years, so many coal companies have gone belly-up, killed by natural gas, environmental activists, and finally the worldwide recognition of climate change, it was almost as if one could throw darts at the sector and whatever the dart hit would die.

Two of the most prominent were Peabody Energy (BTU), “the biggest coal company in the world,” and Arch Coal (ARCH).

Both companies, BTU and ARCH (and also the not-great Cloud Peak Energy), came to the port town where I live in a desperate attempt to ship coal to China where my neighbors, along with everyone on the West Coast, shut them down, a failure that led to both companies filing for bankruptcy and its consequent loss of all shareholder equity. They both reorganized, returned to the big board, and long came Trump to sit down beside them and give them hope…for about a year. Even subsidy plums can’t save a dying fruit tree.

Both companies are now well on their way to burning through all shareholder equity again. I can’t imagine who squanders investments on this dead-end stuff anymore.

See the pitiful charts below. Both stocks, like the market, are so oversold they will probably a bounce here. If so, they are shorts…again.

Once BTU drops below $5 (it closed today at $5.50, down from $30 or so in just the last year), the nails in its coffin will soon follow. ARCH has a lot more price downside (see the second chart below) and it will take some time but it will get to cliff BTU is standing on too.

(click on the charts for a larger view)

#STOCKS – on $AAPL gone parabolic

At the risk of a massive understatement, let’s just say AAPL has gone up…a lot.

In fact one look at its chart below reveals is has gone parabolic.

Let’s define a parabolic move first. Basically, according the website, Prometheos Market Insight, when a stock makes a enough of a move to create three distinct supporting trend lines (see the green lines on the chart below), then accelerates, it is in a parabolic move (the red line on the chart).

There is both good news in that, and bad news.

The good news you own it, the bad news its latest rise is unsustainable. Although one can only guess when and at what level it parabola ends (the way it always is with that phenomenon), but when the inevitable end comes it will likely be violent and the stock could eventually go back to where the parabolic began.

At this point, a rough estimate of where it began in AAPL is around $230.

It’s hard to believe it will ever quit going up as it’s wildly (exuberantly) rising, but I would suggest there is no profit here until one sells.

Also, one other thing to keep in mind, AAPL today, according to Yahoo Finance, has a market cap of 1.377 trillion dollars. That in itself is unprecedented in market history, but it is also nearly $100 billion higher than next highest market cap, MSFT (but that as they say is another story).

(click on the chart for a larger view)

#Stocks – the last bounce of a one-time main-street giant

In the town where I live there sits a unmistakable store front on a main downtown street. It is half a block wide, on top of a basement with its upper stories a solid bricked-in facade. Inside the windows that stretch the length of its first floor there is nothing but empty space. It’s been closed for 30 years, ever since the mall opened on the north side of town. The same or similar buildings stands on some main street in nearly ever city and town in America.

Although often there no longer is a sign, for everyone over the age of thirty, it is instantly recognizable — “that’s the old J.C. Penny store,” people say.

Now, like other main-street icons, Sears, the Bon Marche, Woolworth and maybe some day, Macy’s, it is fading away.

And it is a sad, sad sight today – the relic of a bygone era, the hollow memory now of a time when the country boomed, when optimistic people shopped downtown for its clothing line that was both reliably well-made and economical. In other words, before there were malls.

Moving to the mall could not save it and in these times it is ravaged by on-line shopping.

What to do with the building now has more than one city or town stymied. It’s is too small to be a Walmart and too big for nearly anything else. In my town, there is a developer who would like to renovate it into apartments by adding two more stories to it, and making the the basement into a parking garage and leaving the street-level as retail space, but he wants the city government to subsidize the project so he has no risk. My son, an urban planner, would like to turn it into the city’s much-needed new library. But neither of those plans are moving forward.

JCP – a look at its stock chart below is a picture worth a million words, showing the long steady fall in the past 10 years. There’s that high on the chart at seventy-six dollars and the recent low at 62 cents. It has doubled off that penny-stock low (no pun intended) but that is not some hope springing eternal. That is most likely the familiar sign of last of the shorts closing out their holds. After they are gone there will no buyers left.

And that will be another nail in the coffin of a once-great American commercial era.

(click on the chart for a larger view)

Divergences don’t matter…until they do…

Over and over again, especially in bull markets, prices keep going higher despite divergences on internal indicators, but when a tumble comes, a “pull back”, even a crash and one looks back at its beginning there is usually a divergence there.

Or a cluster of divergences.

So as of today, we have one in CNN Money’s “Fear And Greed” Index. That index has been wildly over bought as prices have surged on most major indexes (in the SPY ETF surrogate for the S&P 500). It is back off, risen again and as of today put in its divergence by making a lower low while SPY has hugged its high (see the chart below). It is not infallible but if history do tell, it is a reliable context (not the red lines on the chart and subsequent market drops).

And wonder of wonders, the FINRA Margin Debt reading for October came out today (see the second chart below). It is a monthly and always a month behind so there’s always some guess work to be done in real time, but this reading is, indeed, ominous.

Besides having risen way beyond the debt levels of both 2000 and 2007 before those bear markets arrived, it has now been carving out a ledge pattern on its chart (sometimes called a bear flag) for the past few months as the market keeps rising into thinner and thinner air.

Why ominous?

Note it’s the same pattern that was in place as the market was making highs last time and, when it finally fell apart, it was the precursor of the bear markets in both 2000, and 2008. Is it different this time? Is it ever different this time?

History, history, history.

This is to say nothing of the divergences on the McCellan Oscillator (the NYMO) with its Summation Index (the NYSI) declining for the past 10 days even as the market as advanced.

Does this mean we’re about enter a bear market?

Maybe not, divergence don’t always matter. But if a bear comes roaring now there is a good chance when we look back to this day this cluster of divergences will have mattered.

(FEAR AND GREED – CLICK ON THE CHART FOR A LARGER VIEW)

(FINRA MARGIN DEBET – CLICK ON THE CHART FOR A LARGER VIEW)

#MarijuanaStocks – the wither in the weed patch…

At one point last year, the marijuana stock sector was the leading sector in the entire market.

Everywhere analysts were hailing it as the next great growth sector, especially after Canada joined several states in the U.S. to legalize weed, both medically and for recreational use. Made sense, and before anyone could say “don’t Bogart that joint” there were cannabis shops practically fighting Starbucks for retail space.

#MarijuanaStocks – gains are high in the weed patch

At one point, the founder and CEO of TLRY, because he owned so much stock in his heralded IPO, was something like the fourth richest man in the world…for a day. But now that day is done.

The chart panel below tells the rest of the story and there is not much more to say about that.

(click on the charts for a larger view)

Margin Debt – setting up a S&P 50% plunge?

FINRA margin debt is a long-term indicator and always reported a month late.

So now we have the August numbers, down 6% month over month, as reported by Advisor Perspectives Monday (see the chart below). But it’s not the margin number that is concerning, it’s the chart pattern for the long term.

In the 1990s margin debt chugged along in a reasonable bullish fashion before finally going ballistic in 2000 just before the dot-com bubble burst. Then again, coming out of the 2003 bear market, it moved up gradually before going ballistic again in 2007 on a bubble in housing, fueled by excessively low interest rates for too long a time, and we had the financial crisis of 2008/2009. And now in 2018 margin debt has pushed higher than ever before on deregulation and tax breaks to corporations fueling stock buy backs, and some would say on a lot of hot air.

It the fall of last year it topped and has not gone higher this year. That is ominous for long-term investors.

Consider the pattern on the chart below.

Note that in both 2000 and 2007 the market made a new high after margin debt topped and fell. Each time on the chart, the debt numbers formed a plateau lower than the peak as the market made those new highs.

What comes next?

That is always the most important question in the stock market.

In 2000, the S&P plunged 50% (the Nasdaq, 78%), and in 2008 the S&P plunged again down 56%. Note the pattern in place on the chart now. Same old same old.

So is another 50% bear market imminent? It’s likely because although they always say it’s different this time it never is, even though it sometimes takes a long slow time to get it done.

This is a bit tricky at the moment because of the late reporting. One has to guess what is happening with margin debt behind the monthly market moves. Since the August drop in price is reflected in the margin debt drop (big professional players lightening up, maybe desperately lightening up), and since the market has rallied so far this month, one can guess margin debt may move up a bit here in September but not a enough to head off what is to come.

And since the market likes to fool everyone into complacency at the last possible moment, a new high here would probably be just enough to lock long-term investors in when they should be at least shuffling, if not running, to the exit.

If by chance it doesn’t move up, October could become an October of old, which is to say…uh, crash… crash… crash.

(click on the chart for a larger view)