$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)

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

They buy stocks, and spend money on all sorts of luxuries – second, third, fourth houses, paintings, baubles, antiquities… Just about anything that can be had at auction or in blue boxes.

And when they quit… Let’s just say they pull the BID (see charts below).

As bellwethers of the future market action BID (Sotheby’s) and TIF (Tiffany’s) are always worth watching. The timing is not precise but when they are long and strong the bull market is strong also but when they fall they tend to fall ahead of time. BID particularly.

Just bringing this up since I happened to notice BID seems to have had quite a sell-off lately, and it appears TIF could follow with a lot of downside space to drop into.

Just a cautionary note to remind anyone used to bull-market stock moves that whatever goes up can also go down.

(click on the charts for a larger view)

Buying IPOs For Dummies

In the tradition of the “For Dummies” books, I give you the short and sweet on trading and/or investing in IPOs:

Buying into an IPOs 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 can close by and obvious – either below the high of the opening day or below the low of the opening day depending one’s own time parameters and risk tolerance.

Whatever the latest stock IPO, there is nothing more to say except maybe “Keep it simple, dummy!”

#MarketTiming the second biggest mountain in the stock market range

Great article and charts from Visual Capitalist:

VISUALIZING THE LONGEST BULL MARKETS IN THE MODERN ERA

If this current bull market can hold for two more months, it will become the longest bull market in the modern era, topping the dot-come bubble.

Uh, did I slip and say “bubble”?

The question, as always, is what comes next and when.

What comes next is obvious – what goes up also goes down. The “when” is the tricky part but it would seem the when is getting closer by the day. I find it hard to believe in percentage gain it can top the dot-com mania but it is possible. If it does, it’s likely the higher it goes, the farther it falls.

One of the most famous quotes in investing history is from Bernard Baruch: “I made my money by selling too soon.”

Might want to keep Baruch in mind as each market pundit, each brokerage analyst, each brokerage, continues to say invest now, invest for the long term, while staring at the second highest mountain in the great rocky stock market range.

(click on link or this chart for a larger view)

#MarketTiming – $TWTR leads latest swing with 33% gain

Been on vacation from this blog for awhile but am back now and will try to be more diligent in posting here.

Now, as it turns out, appears to be an appropriate time to return since latest swing trade on the long-term breath signal will close officially on the open tomorrow. This swing began on the open of the market on 5/31, twelve trading days ago.

In the bellwether stocks (see chart panel below), as of the close Friday, TWTR led the stocks I consider to be bellwethers in this bull market with a 33.2% gain, followed by TSLA up 24.1% and BIDU up 12.6%. Twelve trading days – I’ve said it before but it bulls repeating…this is what swing trading is all about. The position in stocks will be in cash waiting for another swing to begin.

Should be noted, the 3X-leveraged ETF, TQQQ, which tracks the Nasdaq and makes general swing trading easier, is up 12.1% for the trade. FNGU, an 3X-leveraged ETN trading based on the NYSE FANG stock index, is up 33% (remarkably it was relatively small volume).

In addition to TWTR, TSLA, and NFLX, the bellwether stock list also has AMZN, NVDA, GOOGL, BIDU, BABA, FB, and AAPL. The gains for the up swing just ending are in the white flags on the lower right of the charts below. That is a calculation per $100K traded in each position in order to get both a dollar-earned and a percentage gain. Note AAPL is the laggard on the list, up less than one percent for the swing, $800 on $100K. Another example from the charts – NFLX is also up double-digits, 10.7%, $10,690 for the swing.

As for the general market, the sell signal for tomorrow’s open has come most likely because this rally — which longer term price-wise began in early May — is up a lot, overbought and tired.

I would not be surprised, however, by another bounce since short-term breadth has been declining for six consecutive days. Most likely that signals the bounce, at least a feeble one, before a bigger down swing, but if one if particularly bearish after this run up it could signal a hard down thrust this week before the bounce.

(click on the chart panel for a larger view)

#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 all is 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)

#BankStocks – as GS and DB tumble…

It is on my my mind that we’re seeing 2007 all over again in the financial sector stocks.

During the pullback in the SPX since January, housing stocks and the bank stocks have been breaking support and beginning to “stair-step” down (see the chart below), led to the a possible 2008 cellar by DB and now with GS (a bellwether, no less) following suit.

The rest of those I follow – JPM, BAC, WFC, USB – are sitting right on support. It the market takes another hard hit (like tomorrow?), they could all be in solid downtrends.

Needless to say, as the banks and the general market tend to feed on each other in up trends, they can also eat other alive to the downside too.

(click on the chart for a larger view)

Trending days in the “Fool’s Game”…

The market Friday broke to the upside at the open and never looked back.

As a result it was what I’ve now come to call in my mind a “perfect trending day” in what I ironically call the “Fool’s Game”. That is to say since I started trading and tracking weekly SPY calls and puts solely on as longs and solely as day trades to avoid as much time decay as possible, it is a day when the in-the-money option gains more than 100% on the trend for day.

Friday’s expiring weekly SPY 275 calls vaulted on my day-trading signal into the close for 252% profit on the day trade. That is $25,200 for each $10K traded, in this instance 93 contracts (see the white flag on the lower right of the 10-minute chart below).

Going into Friday, last week’s trading was truly looking like a fool’s game.

From Monday to Thursday, the daily trades were down a cumulative 150% for the week, $15k for each $10k traded, the first weekly loss of the year.

But there had been no trending day during the week, by Thursday no 100% plus day, another first for the year.

And it was also a Friday, when the weekly option expires and there are the most volatile movements. There have been twelve trending days (up and down) in the first ten weeks on this year and five of those days have come on a Friday, making Friday this week once again the best possibility for another trending day.

And so it was to be, as it turned out. Rather spectacularly. For 252%, the second biggest day-trading gain of the year (on February 2nd, the Fool’s Game racked up a 265% gain on a put trade), and turning the loss on the trades for the week into an overall 100% profit.

(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)