#HousingStocks and the three little bears…

It is nearly impossible to call a market top before it becomes obvious it has already happened but the housing stocks have come closest in the past to doing it.

Which is why I keep an eye on LEN, KBH, DHI, MDC, NVR, TOL, PHM AND TOL. If is all not quite well with the market (and the economy for that matter), they are often the first to show the strain.

As far back as December of last year I posted an entry here at what I suspected might the first warning sign:

Gonna Huff and Puff and Blow Your House Down

And again in early February of this year, as the SPY began to break down, being led by the housing sector, I posted a warning here to also watch the banking stocks:

Housing stocks – the tails that wag the banking dogs

And finally this last April 24th, another post looking back at the history of these tell-tale stocks:

Housing stocks – Remembering 2008

Which bring us to today.

The ten-year bond rate went through 3% for the first time since 2011, with no sign of turning back, and it appears (obviously) the housing sector did not like it (see the chart panel below).

In 2007, this sector had a long sideways to up move after the initial hard break that had all the stock pundits (on CNBC and elsewhere) proclaiming the market pull back was over. The banks were even making new highs at the time (they are not now).

Then the plunge began into 2008.

The hard break in this sector this year has many of these same housing stocks down 20% already. And they have moved generally sideways — some with a downward bias — since mid-February before today’s four and five percent drops as it appears they are breaking down from their months-long consolidations just like last time.

On the chart panel below, see LEN, DHI, TOL and HOV particularly.

Is this the sign the bears have noticed this Goldilocks bull market has been eating their porridge and sleeping in their bed for far too long? There is a chance they are about to chase her out of the house running for her life into the deep dark forest of the time to come. And if so, the banking stocks will scurry after…

(click on the chart for a larger view)

Declining Margin Debt – the bullish scenario

Margin debt, money borrowed to leverage the market, has for now topped and is in decline. Before the top in February it had reached levels far beyond the surges in 2000 and 2007, which could be an ominous indication of what is to come when and if margin debt continues to unravel.

See the chart below and the charts in the link.

Does the fact that it is coming down as major players try to ease out of their leveraged positions mean the market, measured by the S&P 500 stock index (SPX), has also topped? For the time being it would appear it has but history would say that’s not necessarily so.

MARGIN DEBT AND THE MARKET

From the link:

“The first chart shows the two series in real terms — adjusted for inflation to today’s dollar using the Consumer Price Index as the deflator. At the 1997 start date, we were well into the Boomer Bull Market that began in 1982 and approaching the start of the Tech Bubble that shaped investor sentiment during the second half of the decade. The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge began in 2006, peaking in July 2007, three months before the market peak.”

Simply put, that would mean there is at least another new high coming in the new few months (the summer rally?) before any significant bearish behavior in the stocks.

The heads up is to say those highs, if they come, will be opportunities to sell, or at least tighten stops on long-term investments. A second look at the chart shows that the SPX, coming off highs in margin debt, declines close to 50%. Those were real bear markets. The next one could be worse. Regardless, no matter how low it goes, it is best to be avoided.

There are two possibilities it could be somewhat different this time. One, margin debt itself could surge to another new high along with a strong months-long market rally (see the jingle-jangle in 2015 on the chart); or two, the top is already in and the next leg down (given how astronomically high the margin debt is beyond 2000 and 2007) could be a dead bull dropping right out of the sky (they can not fly forever).

(click on the chart for larger view)

#HousingStocks – Remembering 2008…

At the advent of the 2008 bear market, the housing stocks died first, then the banks came apart, and then everything…

So witness $TOL $DHI $HOV $KBH $LEN $MDC $NVR $PHM and then ponder the banks and then ponder…

Not much more to say except to paraphrase Yogi Berra again: “It’s beginning to look like deja vu all over again.”

(click on the chart for a larger view)

#MarketTiming – What a “long” glorious week!

This is an update of this post in this link, made last weekend:

#MarketTiming – Time for a bounce…

Wow! The predicted “bounce” has turned out to have been an understatement to what happened in the market this week.

Remember the 1961 movie “The Absent-Minded Professor” with Fred MacMurray, which introduced the world to flubber? Well, this week was a FLUBBER OF A BOUNCE, and since today it turned long-term breadth positive it is a bounce that has likely turned into a rally.

If I had to guess, instead of just following along, I suspect the pause begins tomorrow. If it gaps up, the rest of the day will likely be flat as the monthly options expiration plays out. If it gaps down or opens flat, there’s a good chance it rises again to the close and starts the pause there.

Just guessing this stuff…

Regardless, it has been a truly glorious week for swing traders – among the leveraged index ETFs TQQQ is up 15.8%, TNA up 12.1%, UPRO up 10.7%, even SVXY in the blistered VIX complex is up 15.3%. The at-the-money monthly SPY 263 call from Monday’s open, expiring tomorrow, is up 179%. Among the bellwether stocks AAPL is up 9.2% (that is a heavy market-cap lift in an awfully short time), BIDU up 13%, NFLX up 11.2%. I’m going to update my bellwether stocks later but suffice it to say here all twelve as of the close today are in the black for the week.

Now for a few cautionary notes.

If there is any trouble with this, it is that it has been a straight up move since last Friday. All the major indexes and most of the sector ETFs are up five days in a row. Much of the market is wildly overbought on short-term basis. This up move has been crazy. It is easily three standard deviations of an average advance and done in five consecutive days! (See the histogram on the Nasdaq Composite chart below.) I can’t even remember the last time anything like that happened, and obviously not in the last six months of this huge bull market. Forty-seven of the stocks on my nifty-50 stock list are on buys with 31 overbought (see the swing trading signals below), and yet we are not at new highs. This is going to have to have a pause, some backing and filling, then a resumption of the upswing before one can be sure it is yet another bullish rally in the on-going bull market.

The trouble with rallies out of hard drops, like the one the market took before this bounce, is that by the time they are obvious, they are sometimes over.

In addition, if the fierce sell-off that has preceded this bounce was a shot across the bow of the bull market, it is possible the buying this week is the last leap into the market by those long-ago left behind — if so, and if this rally fizzles before new highs (or even at marginal new highs) then this could be an advance before a mighty, mighty big flop.

Whenever this ends, we are going to have one of the biggest bear markets in history. If you don’t think so, you must not know history or you think “it’s different this time.” History says it is never different this time.

Even flubber bounces had to come back to earth.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Buy (Day 1).

PRICE: Buy. (Day 5).
SHORT-TERM BREADTH: Buy. (Day 5).
VOLATILITY: Buy, (Day 5).

CONTEXT:

SPY CLOSE – 273.03
QQQ CLOSE – 165.70
CNN MONEY’S FEAR AND GREED INDEX: 11, falling, extreme fear level).
NIFTY-50 STOCK LIST: 47 Buys; 31 Overbought, 0 Oversold, 1 new buys today, 1 new sells.

(click on the chart for a larger view)

#IPOs – $FIT shows the first day’s range is sacrosanct

As has been stated in a previous post here, buying into an IPO is actually one of the easiest decisions in stock investing but never let a broker con you into doing it the day of the offering.

Instead, note the high price and the low price on the first IPO is traded. Those are the lines in the sand or the Darvas box around the first day of trading (see the charts below). The time to buy, invest, is on a close above the high of the first day with a stop loss below the high of the first day. That is usually a low-risk trade since the real good news comes when the stock proves it can move up from all the hype surrounding the offering itself and if it falls back the stop to exit is close by.

So, with history on our side, let’s take a look back at one of the most famous IPOs of past couple of years – FIT.

FIT came public in 2105 at 30.40 and had a high on its first day of 31.90, a low of 29.50 and a close of 29.68. That would make the “sacrosanct” range from the 31.90 high to the 29.50 low (see the blue rectangle on the chart below).

The next day, FIT closed at 32.50. That was the buy signal as it finished outside the first day’s range. It then rallied as high at 51.90, a pretty nice rise in a couple of months.

I’m not one for fundamentals but how far did anyone think the company was going to go on a gadget product keyed to New Year’s resolutions and open to competition from virtually everybody?

Needless to say, like New Year’s resolutions themselves, the stock began to fade and by the end of the year 2015 it was violating its “sacrosanct” first day’s range. It started 2016 with a serious break to the downside on substantial volume making it a clear short in IPO trading and, as they say, the rest is history.

It has now dropped into the $5 range from its IPO low of $29.50 in the face of one of the greatest bull market’s in history.

This price action, long or short, is the same with every IPO.

By the way, history, me thinks, is the best market indicator of all.

(click on the chart for a larger view)

$AAPL trying for a new high, holds up the market

Talk about a mixed market.  Should say a mixed day.  The general indexes were up on the day and down from the open.

So I guess the story is AAPL.  How many times has that been the case in this bull market?  Every day?  AAPL closed at 161.47 just a point off its all-time high of 162.51.  The high today was 162 even. It is overbought.  See the daily chart below.

The question arises “Can AAPL hold up the market all by itself?”  Probably, at least for a while. But if it comes apart, the market is likely to flush like crazy. It has an $834-million market-cap which is a number that absolutely defies history so when it falls it could (and likely will) fall very hard.

In the general market, I had end-of-the-day sells on my Breadth signal (as was expected after six days up) and the Volatility signal.  The turn-down in breadth was not enough to damage the longer-term breadth.  The price signal remains on a buy.  Like I said, a mixed day.  The market could go either way tomorrow.

I don’t have much more to say.

Hmm…that reminds me, the great trader Linda Bradford Raschke once said (if I may paraphrase) she loved it when nothing much happened in the market because the next big thing usually is a REALLY BIG THING.

SWING TRADING SIGNALS:

PRICE: Buy. (Day 2).
SHORT-TERM BREADTH: Sell. (Day 1).
VOLATILITY: Sell, (Day 1).

CONTEXT:

LONG-TERM BREADTH: Buy(Day 2).
CNN MONEY’S FEAR AND GREED INDEX: (29 rising, fear).
NIFTY-50 STOCK LIST: 21 Buys; 6 Overbought, 8 Oversold, 1 new buys today, 1 new sells.

(click on the charter for a larger view)

 

 

 

$RACE – Ferrari racing up the Darvas stairs…

At the risk of oversimplification, the most effective ways to trade stocks is to keep it simple.

One of the best ever at this was Nicholas Darvas.

His method was to put a simple box around a stock’s price consolidation and buy it as the stock came out of the top of the box and either put a stop loss below his trade price (which would be a tight stop if the stock came back into the box) or below the bottom of the box (depending on anyone’s individual risk parameters).

Darvas said he never shorted a stock dropping below the bottom of a box only because he felt he was not psychologically suited to selling short. Still that would be, especially in a bear market, as simple of buying the top of one of his boxes in a bull market.

Darvas’ book “How I Made $2,000,000 In The Stock Market” (this was the 1950s) describes his “Box System”. It is a classic. And timeless – see the chart of RACE below.

I have said before the easiest way to buy or not buy an IPO is to put a box on the high and low of its first day of trading and buy above the top of the box and short below the box. While an IPO’s first day is itself a Darvas box (blue on the chart below) as one can see here there are others also very worthwhile for the trader as well as a longer-term investor.

(Click on chart for a larger view)

RACE2017-07-18_0928

Watching $BID for a market top

Sotheby’s Holding (BID) has so often been a market bellwether.

And at tops at that!  A rare thing in the world of calling market direction. Bottoms are easier to see and sometimes obvious but tops…”calling” tops has killed many a market prognosticator and killed many a bear.

So let me say right off I’m not calling a top here.  Just trying to pay attention…

And when BID quits rallying and/or diverges with general market, it is time to pay attention.  BID was down a bit on its monthly chart in September.  That is a lower high for the stock while the S&P 500 and Nasdaq drifted higher.

What’s it mean?  Maybe nothing.  Yet.  But take a look at the chart action showing BID with the SPX on the chart below in 2000 and 2007.  One might say, as BID goes so goes everything else.

And this time, so far, BID has not even crawled up to the top of its long-term price range, which is rather ominous going forward.

(click on the chart for a larger view)

bid_2016-10-03_0749

 

#Greed top could lead to #SPY stumble

CNN Money’s “Fear and Greed Index”, a calculation of seven key market indicators in order to gauge the primary emotions underlying the stock market, appears to have put in a double top at an extreme greed level.

Historically, this pattern has led to significant sell-offs in the general market as investors’ and traders’ greed, fueled by the market’s recent rally, cycle down once again to a prevalent fear level.

There is really no way to tell how far the S&P 500 index (SPX, also the SPY ETF) will fall but the last time this down cycle took place the SPY fell from a high of 211 to a low of 185 (about 250 SPX points, a 10% or so correction). There is no guarantee it will stop there.

Regardless, this is an excellent shorting opportunity across the face of the stock market, just as it will eventually lead to an fine buying opportunity later on.

Market timing.  They say it can’t be done but a study of the chart below should make it rather obvious “they” don’t know what they are talking about.

(right click on the chart to view a larger image)

FEAR_AND_GREED_2016-04-11_1609