#Stocks – and out of the blue the brokerages fell…

Reportedly, this slam down in the brokerage stock is a result of Charles Schwab (SCHW) announcing a no-commission policy for online trade with presumably its competitors to follow.

And this is precipitated, according to reports, by the brokerage Robin Hood, which has been not charging for trades since its beginning. Robin Hood? Compared to these others, is that even a competitive trading house?

Regardless, SCHW, AMTD, ETFC, and IBKR are (at the moment) down either double-digit percentages or close to it in an out-of-the-blue across-the-board plummet. AMTD is down 23% (Holy cow!).

Whatever.

I would note the NYSI (long-term breadth) is falling. When it is, “accidents” like these often happen.

(click on the chart panel for a larger view)

#IPOs – a stealth bear market since summer

It appears while the main indexes have held near their highs this year, there’s seems to be a stealth bear market going on with many of this year’s prominent IPOs.

As has been written about here before (last visited in the link below), this is maybe the easiest trade there is in the the market — buy above the high of the opening day, using that high or the low of the first day (depending on one’s individual risk tolerance) and hang on for the long term:

#IPOs – A Great Year For “Dummies”

Well, it was a great year for the likes of SWAV, PINS, ZIM, BYND, SOLY, that is until summer. While none of these stocks have been stopped out (the high of the first day) they have not been going well since summer but as can been seen in the chart panel below there were opportunities to take profits to preserve profits, especially in crazy run ups in say SWAV or the famous IPO for BYND.

Sometimes when stocks just go silly even the most disciplined IPO investor needs to take notice and thank his or her lucky stocks.

In the larger market picture, this is the kind of weakness that can be seen in many sectors. It is just easy to see here.

P.S. Once again, the LYFT chart is included as a cautionary tale to not buy unless an IPO takes out the high of its IPO day.

(click on the chart panel 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)

$SPY – the slow roll over?

Given how sprightly the rally since December has been it’s hard to call a top. Actually it’s hard to call a top anytime but bear-market rallies are especially tricky.

Weeks ago it was suggested here this would be the rally to make everyone one believe the bull market has resumed, and it has been that kind of rally.

There is famous, familiar chart of investor emotions in the market (see below) that shows the various stages of market emotions from despair to euphoria and back again (see below). It’s worthwhile review that chart every so often and ask one’s self how am I feeling now. This is especially true for long-term holders and retirees who have their savings tied up in the market.

Looking at the chart below I would suggest we are at the “Return to Normal” stage. For any swing trader who played the upswing this has been a fantastic rally. For investors it’s been a big sigh of relief.

But… There are signs now that sigh may be about to become a gasp.

Long-term breadth, as measured by the McClellan Summation Index, the most important indicator of mass market psychology, turned bearish four days ago after several warnings from the declining highs on the McClellan Oscillator itself. My nifty-50 stock list has failed to get overbought since the rally’s kick-off’s first few days. While the indexes have worked higher, the stocks have rotated and paused and in some cases fallen under the surface (take a look at the rollover in the banking sector).

Weed stocks lead again (check out CRON up 87% on the YTD summation index run up or GWPH up 71%). While there’s a growth logic to the marijuana sector, that’s still just as crazy as the dot-com bubble of yesteryear.

Despite all those warnings until prices follow internals and drop with conviction (which could happen any day now, even tomorrow), and the VIX jumps back above 15 (it closed at 14.74 today), the sell off may not happen, and if the SPX, or in this case the SPY run up past the resistance at recent highs, it might go to all time highs before the bear market resumes.

Doubt that but we’ll see.

(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)

#MarginDebt – the divergence that kills the bull

I been taking note of margin debt, now recorded monthly by FINRA, since last spring with the warning that it was at astronomical levels in relation to itself in 2000 and 2007.

One early post solely on margin debt this spring noted that the market was likely to make new highs while margin debt failed to the do the same (see the charts below). It is difficult to time precisely when this distribution is going to matter since it is always reported a month late. During lag, one can only speculate what it going on it with behind the scenes, so to speak.

Linked here,I called that:

Declining Margin Debt – the bullish scenario

And linked here more recently on October 1, it was suggested this may be the month when debt takes its toll:

Margin Debt – a sign of quiet desperation?

It’s been noted in posts here that even as the market moved up to new highs it appeared during the day that there was selling going on. I guessed that was big players were trying to edge off margin debt. Behind the scenes the advancing stocks were narrowing, the new lows at the bottom of the market were beginning to outpace the new highs at the top. Everywhere there were signs – wackiness was going on all over the place., marijuana stocks became the leading sector, some low priced stocks, like YECO, would go up 500 percent (in a day!); one by one bellwether stocks, FB, NFLX, TSLA, AMZN and finally even AAPL took hits; the housing stocks have been declining all year and finally banking stock have joined them.

In that October post above, I called this late stage the “most bearish bull market” I’ve seen.

But now margin debt is finally the revealed rub.

Each time the levels of margin debt in 2000 and 2007 became unsustainable, the subsequent decline led to bear markets in which the S&P 500 index declined 40% to 50% (see the charts below), and now when it drops it will be dropping from an even higher height.

Can a 40-50% bear market happen again? You can bet half your portfolio on it.

Once margin debt begins to unravel, it will feed on itself — when the margin calls come, it is either put up more money or sell the stock. Selling the stock drives it lower and brings more margin calls. Nothing else will matter, not fundamentals, not news, not hopes, not dreams.

Why is this important? Depends on one’s age. When it happens, it will take years and years – five years? eight years? 13 years? – to recover the prices the indexes are at right now.

It appears, now that we can see the new high in the market and the fact the margin debt did not follow, that process has begun behind the scenes, so to speak.

Of course big bull markets can fool (see 2016 in this one on the charts below), and might try soon since the market is currently deeply oversold and the Christmas season is traditionally bullish, but it can’t fool history forever. History is the best indicator of the fear-greed-time market psychology there is since it repeats and rhymes all through time. In the end history will tell.

(click on the charts for a larger view)

#MarginDebt – a sign of quiet desperation?

I gotta say, as a day trader, I’m beginning to wonder if this is the most bearish bull market ever – gap it up overnight with futures, sell it down all day.

I suspect this could be a sign some big boys are desperately trying to slip out of the market without anyone noticing, but what do I know about such machinations?

Needless to say, margin debt is at astronomical levels in comparison to 2000 and 2007. Since the chart below was published for August, the SPX has gone to a new high in September. We will not be able to see what margin debt has done at the same time since the data going into the chart calculation is assembled monthly (why is that?). But even if it goes to a new high also (a sure sign of continuing greed), it will only mean the bull market has more time to rise but also at an ever more risky height from which to fall.

(click on the chart for a larger view)

$AMZN – a leader stumbles?

What if AMZN, after all the hoopla, only spends one day at a $1Trillion market cap?

As noted back on July 1, halfway through this year, in this link:

THE MARKET WALKS THE EDGE OF A LONG-TERM CLIFF

If a leading stock like AMZN stumbles…how mean will a reversion to the mean be? The stock’s 50-day moving average is nearly 150 points below today’s close (see chart below). Hard to believe in this the oldest of bull markets can end but a serious decline always begins with just one day down.

AMZN and AAPL have been the leaders. They both have had moves that resemble blow offs on this last upswing. Not often stocks as big as these run up 25% virtually out of nothing more than a buying panic. Now if AMZN follows today’s decline with more down to come, how long can AAPL alone hold up the market?

Just speculating here on a bit of market timing since it’s damn near impossible to call a market top, but more and more signs appear and one of these days one or the other of the signs will be telling.

Bear markets can come out of the blue. Out of the fog of complacency. Just when everyone believes the leading stocks and the bull itself can go up forever, they and it won’t.

(click on the chart for a larger view)

$SPY – Can Orange Become The New Black Swan?

Four days up in a row for SPY and TNA while the Nasdaq, long the leader, now lags…

At the close of the day forty-one of the stocks on my nifty-50 stock list ended in the buy column with fourteen overbought.

Short-term breadth was up again but is now in overbought territory. Usually it takes time to unwind that even when it turns down.

Long-term breadth has been rising now for just three days, giving worthwhile advances in most everything — 40 out of the 50 stock on my list advanced today, and 41 or the 50 are positive on this three-day upswing. It should be noted if long-term breadth turns down now it will put in a fairly serious divergence with the SPY new high (see chart below).

Which bring us to the news?

I don’t ever trade the news but just taking in some market perspective one wonders if something is going to come along and blindside the complacency of this bull advance? Like the odd VIX spike today. Like AAPL gone crazy and possibly running out of buyers besides AAPL itself. Like some sector gone so frothy so fast it signals irrational exuberance has crossed over into insane exuberance (see the pot stocks in the post below).

Or like two of those closest to the jabbering President of the United States suddenly going down coincidentally on the same day, one with a guilty plea and flip, and the other found guilty on 80 criminal counts that could get him 80 years in prison. Trump claims always to be the best, be the greatest, know more than anyone else, likes setting records…how boastful can he be when his administration racks up more convictions than any other, including the Nixon administration?

What’s it mean to the market? As I write this, I see futures are down, with the Dow futures reversing the day. This bull market has been able over and over again to erase the overnight falls in futures. What if this time it doesn’t?

I guess then we might be able one day to look back and say: “Whattaya know…Orange
was the new black…SWAN!”

(click on the chart for a larger view)

#Bitcoin – Don’t follow this crypto mania much but…

But I took a look today to see what’s going on lately.

Are you kidding me? There are people out there claiming this will replace the dollar? Replace gold?

Can’t anyone spell T-U-L-I-P-S?

I thought this would end when lap dancers in New Orleans started putting bar-code tattoos on their boobs to collect bitcoin tips.

Now that the drug dealers and money launderers have made a market a few notable institutions (like Microsoft for heavens sake!) had gotten sucked into, and computer nerds in bedrooms with potato chips are “mining” in their spare time, and even more than a few suburban crazies have gone crazy over, what is the real future for this crap? It is in market history (duh, the tulips), and it is not good.

Does anyone actually want to put their savings in this for a buy-and-hold overnight?

That this stuff is priced in U.S. Dollars should tell everyone everything that needs to be told.

(click to enlarge)