#MarketTiming – “a gift for the bears”…

I expect the market to go down tomorrow.

Really? Why?

Long-term breadth, as measured by the McClellan Summation Index (the $NYSI) is declining, and today short-term breadth, as measured by the McClellan Oscillator (the $NYMO) turned down after basically a four-day bounce in the market, but more importantly, timing-wise, this NYMO pattern is more than the usual turn down.

In this case it is a “high below a high below the zero line.”

And whenever this happens I believe it is a gift for the bears.

Take a look at the blue vertical lines on the chart below, which mark each time this pattern has repeated in the past six months. Focus on what happens next. It is always what happens next in the market that matters — not many indicators are consistent as this one – a sell off every time and usually hard downs the next day (tomorrow).

In addition, the SPX and Nasdaq Comp both clicked down today (to state the simply obvious, every dip or swing or slide or whatever the market wants to do to the downside has to begin with one down day), and VIX, after four days down, clicked up, giving its own first-day sell signal. Furthermore, my nifty-50 stock list which has 41 stocks on sells a week ago Wednesday rallied to 42 on buys yesterday before clicking down to 39 on buys today. CNN Money’s “Fear and Greed Index” is at a “greed” level trying to diverge with the rally highs. AAPL, by far the most important stock in the market and one capable of triggering a sell off all by itself, gaped up today on top of a five consecutive days up, but then sold off below its open (putting a black candle of indecision at a high on its chart).

But more important than any of that in my expectation is high below the high below the zero line, the gift for the bears, a gift in bull markets let alone in what may now be a bear market.

Okay, what if it doesn’t sell down? Well, that will be particularly bullish and I’ll take that up when and if it goes that way. As Trader Vic Sperandeo would say “if the market doesn’t do what’s expected, it usually does the opposite twice as much.”

(click on the chart for a larger view)

#MarketTiming – the rally to fool everyone continues

Been on vacation and been lazy so haven’t updated this blog for a month or so.

No matter. Nothing has changed much since first getting the buy signal on this upswing way back on the open of December 24th in this POST BELOW. Along the way I made the quote below in this entry back on January 7th — Santa leaves behind a “fast up” rally. :

So what now?

Probably more upside but it would be prudent to set stops to preserve swing profits. I’ve cautioned in the posts below that this longer term is a relief rally, and likely just the kind of rally the market uses to make everyone believe it’s the resumption of the multi-year bull.

The key here is go along for the ride but guard against being fooled by how fast the up.

This is still my overall opinion. This is a bear-market rally. It has been and continues to be spectacular but it is still likely to be the rally to fool everyone into believing the bull is alive and well. And maybe it will turn out that it is but no matter. The key is be long as long as it lasts but don’t fall in love with it.

Long-term breadth, as measured by the McClellan Summation Index, the $NYSI (obviously the most important stock market timing signal there is), has been rising now for 37 trading days and yesterday short-term breadth, as measured by the McClellan Oscillator, the $NYMO, turned up from a dip last week giving a renewed general market buy signal for today’s open (see the chart below).

It is a notable uptick since the $NYMO, as it often does ahead of a downturn, was giving warnings that the rally was flagging but the new low above a low in the $NYMO pattern (see green circle on the chart) suggests there is at least a week more of rally to come.

So, as I said above, nothing much has changed this year. The trend is up. Be long and don’t even think short. For now.

(click on the chart for a larger view)

#MarketTiming – $SPY ready for a Santa Claus Rally?

I’ve always been confused at what constitutes as”Santa Claus” or Christmas rally mainly because in bullish years, most years, the market rallies into Christmas and right on up into January so it’s hard to tell what is distinctive about Christmas itself.

This obviously is not one of those years.

SPY has come into Christmas in a free fall, eight consecutive days down (see the chart below), fueled by bad news (the usual Trump stuff) but mostly from being so ridiculously overbought and speculative something had to give. It is down now 20%, which makes this an “official” bear market.

My last post here was December 4th, 20 days ago. There has been no need to give a general-market update since the unraveling of margin debt has ruled this slam down and will likely keep doing so as the bear market continues its decline for some time to come.

So what about a Santa Claus Rally now?

Given the difference this year from so many others, I decided to seek out a simple definition of the possible phenomenon, went to Investopedia, Seeking Alpha, The Street, and eventually to Wikipedia which pretty much summed up all the others had to say:

A Santa Claus rally is a rise in stock prices in the month of December, generally seen over the final week of trading prior to the new year. It is a type of calendar effect.

There is no generally accepted explanation for the phenomenon. The rally is sometimes attributed to increased investor purchases in anticipation of the January effect, an injection of additional funds into the market, and to additional trades which must, for accounting and tax reasons, be completed by the end of the year. Other reasons for the rally may be fund managers “window dressing” their holdings with stocks that have performed well, and the domination of the market by less prudent retail traders as bigger institutional investors leave for December vacations.

The Santa Claus rally is also known as the “December Effect” and was first recorded by Yale Hirsch in his Stock Traders Almanac in 1972. An average rally of 1.3% has been noted during the last five trading days of December for the NYSE since 1950. December is typically also characterized by highest average returns, and is higher more often than other months.

The failure of the Santa Claus rally to materialize typically portends a poor economic outlook for the coming year; a lack of the rally has often served as harbinger of flat or bearish market trends in the succeeding year.

That last line in the quote is probably giving already-battered bulls further heart palpitations but let’s consider how oversold this market is and the chances of a rally coming.

Short-term breadth (the McClellan Oscillator) is near a level last seen at the February low this year and down four days in a row (four is a magic number) and at a level which usually generates at least a violent bounce if not an ultimate bottom of a down swing. My nifty-50-stock list has had 40 or more stocks on sells for two days now (48 on Friday, 43 yesterday, an uptick) — another sign, if not of the bottom of a down swing, or at least the beginning of a bottom. The VIX, solidly in bear-market territory above 25 has been screaming up for seven straight days. In standard deviations of average declines SPY is down more than has been seen in at least a year (I keep track of only a year). CNN Money’s “Fear and Greed” index is at two!

I guess what I’m saying is this market is down so far so fast it is bound to bounce any day, any minute… If short term breadth had clicked up Monday with the market at new lows I’d be more confident Santa is here with more than a lump of coal for the bulls, but one can not have everything, even at Christmastime.

I am a bear, and as recorded in these posts, have been pretty much from the top this year. With sector by sector falling apart, and stocks all over the place in bear-markets of their own, and the pot stocks becoming the leading sector at the end, it was rather obvious the bull was about to stumble and die.

But in the spirit of Christmas, let’s give bulls a bit of relief.

The last time I ventured a guess as to high an upswing might go, I suggested the 281 neighborhood (see the chart below) I’m not good at that kind of guessing but luckily nailed that one as SPY hit a high at 280.40 before ending the run around a closing 279. So I’ll venture another guess. If this is a fierce, multi-day run up into early January, in other words a “Santa Claus Rally”, it could get to the 250 neighborhood (see the chart) with 255 to 260 as formidable resistance beyond that.

(But, bulls, don’t let this bit of relief become a beacon of false hope, this will be, if it does come, another rally to sell.)

(click on the chart for a larger view)

A falling $BID takes its toll…

Sotheby’s (BID), the art-auction house, has always been a telling market indicator.

It often confirms the market’s direction when the stock and the indexes are in sync but more importantly it sometimes leads at the turns, not at the exact turns in the shift from bull to bear and back again but as a warning, often far in advance (see the chart below).

When BID is no longer in sync with the general market, it is time to question the market’s current direction.

I have written about this before in this link:

$BID and $TIF – What do the rich folk do?

If the question is actually relevant, one could argue that when the rich quit buying art, it won’t be long before they are selling stock.

(click on the chart for a larger view)

UPDATING $RACE – Ferrari heading to the pits

This is a look back.

In August there was this post:

It’s been a great run for Ferrari but its $RACE is run

In which it was said:

If this race was hill climb, RACE obviously finished in the money.

Nothing like stair-steps in an uptrend.

But, a couple of observations: 1) the stock has not had a breakdown from a boxed consolidation until recently; 2) there’s also a small head-and-shoulder top formation inside the box; 3) when leader flag it’s a warning for the general market too.

So what now? It’s short the bounces until it makes a new high, and as long as it continues breaking to the downside.

And keep in mind this could be a warning in a possible transition from bull market to bear market.

Simply put, no stock goes up forever. At least not in a trader’s world. I’m sure Warren Buffet might disagree but then he’s been investing in a century time frame.

Since August, RACE has a rally back up to 140 and has rolled over as expected. That failing rally was the opportunity for long-term investors to take profits and get out.

See the chart below which has been updated from the chart in the link.

Obviously the trend has changed to a downtrend. RACE, step by step, is now building a down staircase.

Its race run Ferrari is pulling into the pits.

(click on 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)

$SPY – Is the bouncing cat dead?

The general market has bounced from its low last Thursday.

The actual buy signal was issued on the market’s short-term breadth indicator for Monday’s open three trading days ago. In that time the 3x-leveraged ETF, TQQQ (the Nasdaq) is up 5.8% (the Nasdaq), UPRO (the S&P) is up 5.1% and TNA (the Russell small caps) is up 8.8%.

All this is fine and dandy in reaction to last week’s fast, severe sell-off.

Now the question rises: Is this a classic “dead-cat bounce”?

In stock market terms, as defined by Investopedia, “a dead cat bounce is a temporary recovery from a prolonged decline or a bear market that is followed by the continuation of the downtrend.”

Despite these last three days, the overall market hasn’t been able as yet to turn the all-important long-term measure breadth (the NYSI, the McClellan Summation Index) up, and today its short-term component (the NYMO) clicked down.

How many times have we see that before — the market pops out of a deep drop and the NYMO turns down in negative territory.

Dead cat? In addition the SPY ends today in a dreaded doji (see the chart below). Dead cat? Sure looks like it. If so, the market’s current recovery will roll over in short order…probably tomorrow. Maybe Friday (or maybe Friday too).

However, this is all could be (and probably is) a positive sign for swing-trading bulls. Since last week’s lows my nifty-50 stock list has moved from 40 stocks on sell signals (usually the bottom or the beginning of the bottom of a swing) to all 50 on buys yesterday. They clicked down slightly today (another sign of the cat) but the last time all this happened was March 5th at the end of the three-day bounce out of the March low. The cat that died that day gave rise in the end to the spring rally. If this bounce dies now, it very well could result in a bottom for a trading rally.

Such a rally may be, in the fullness of time, the last of this bull market and an opportunity for buy-and-holders to lighten up or to raise protective stops before the real bear growls, but it could also be a stock rally that rises all the way to the end of the year.

(click on the chart for a larger view)

$SPY – Market breadth takes a toll on a “Big Wednesday”

In surfing lore, there is the myth of “Big Wednesday.”

The myth was immortalized in the 1978 cult film “Big Wednesday,” written and directed by John Milius, who also wrote such movies as “Jeremiah Johnson”, “The Wind and the Lion” and “Apocalypse Now.” It was Milius’ contention elite surfers cannot acquire true greatness, legendary greatness, until they face and overcome the great waves, the legendary waves that rise and surge and rage along the California coast from out of almost nowhere. No one know why they come or when they come but as the movie puts it: “They always come on Wednesdays.” Maybe what Milius had to say about surfers should also be applied to market traders and investors.

Today was a big Wednesday in the stock market.

The Dow was down more than 800 points, the Nasdaq more than 300, the SPY nearly 100 points. Big moves out of, I guess one could say, flat surf on Tuesday.

Actually this was no real surprise.

There have been signs everywhere. The general market indexes have been rising in price to all time new highs for the past month in defiance of long-term breadth as measured by the McClellan Summation Index, the $NYSI (see the declining red dots on chart below). That was rather amazing to watch, particularly the way the NYSI kept falling day after day despite the lingering bullishness on the indexes, and in the end, as always, the NYSI took its toll.

In a head-to-head battle between price and market breadth (the sum of all stocks rising and falling) it may be hard to tell when the battle will end but it will end with breadth winning every time.

Long-term breadth is the most effective indicator of mass market psychology there is.

Even as market appeared to be rising on a few tech stocks alone — AMZN, FB, NFLX, NVDA, GOOGL and most notably AAPL — breadth was saying the bottom was falling out. When those stocks began to crumble (look up charts of FB, NFLX…), this day became all but inevitable.

Signs everywhere. Besides the obvious relentlessness of the NYSI, the economy-sensitive housing stock have been falling for months with the banks beginning to tumble with them (many of the banks broke major price supports today just like in 2007-2008); news low began to outpace new highs in late September and accelerated on October 4th (which also happened in 2007-2008); there were also rare whispers under the surface like the day the Dow made a new high while more than 50% of the SPX stocks were below their 50-day moving averages (last seen at the exact market top in 2007).

So is this the beginning finally of the bear market to come that is just as inevitable? Don’t know yet. The market can plunge farther now (as I write this it is in overnight futures trading); it could even crash. But it won’t be a bear market for sure until it rallies and that rally fails below the previous highs in the price of the major indexes.

I seldom have anything to say about fundamentals, since the technical trumps the fundamental every time, but probably I should mention when one considers what comes next, the here-and-now is a bull market that is ten years old, interest rates are rising, unemployment is at its lowest level in forever, margin debt in stocks is near its high and at an astronomical level; there has been a tulip craze in crypto-currencies, a mania in block-chains, and the strongest sector in the market right now is the weed patch, marijuana stocks.

If this is the death of the bull and the birth of a bear, everything I’ve just mentioned will not be with us much longer.

(click on the chart for a larger view)

$COMPQ – a bounce for the rest of the week…

Once again, the market, particularly the Nasdaq, is oversold in these last rapid-fire down days off the top six days ago.

It is as if it has gone down too far too fast.

So…a bounce.

When the Nasdaq Composite, as measured by the blue histogram on the chart below, plunges to the lower green line, it is almost always, first, the prelude to a bounce, and then oftentimes the next up swing (see previous instances on the chart).

In addition, the Nasdaq is setup again for a “Turnaround Tuesday.” I last wrote about this Tuesday phenomenon Sept. 10th (see the link below), and Tuesday, the 11th, was a huge upsurge across the general market.

“TURNAROUND TUESDAY”

It is possible the market could go lower before the projected reversal into the end of the week but don’t count on it. This is still a bull market and right now the bulls need to prove they can stop this drop and run it up again as they have so many times before.

If the bulls can not rule the rest of this week…well, we’ll get to what that could mean in due time.

I’m expecting a bounce right now. Tomorrow is a day to focus on the open for longs in stocks, options and futures on the major indexes, but I always keep in mind what Trader Vic Sperandeo once said: “If the market doesn’t do what one expects, it is likely to do the opposite twice as much.”

(click on the chart 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)