$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.

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$UNG – Natural gas may flame out here but what a run!

Today looks like a blow-off high but…

But UNG (US Natural Fund) sure has given a lesson in what can happen on a technical breakout from a flat base, from 27.5 to 39.5 in eight trading days (see the chart below). Kind of crazy.

I guess it’s a weather report for a cold, cold winter.

Regardless, it’s going to be a buy-the-dips play for some time to come. One would think has to settle down some first or there is going to be a lot of risk, either long or short.

On a contrarian note: aggressive traders might want to look to short it as soon as it stalls, for at least a scalp and possibly a worthwhile dip, with a stop loss to cover at the high of the move at whatever level that is when the time comes.

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$SPY #Options – Trending Day-Trade 32 for 166% in the “Fool’s Game”

When something looks too good to be true it usually is.

But so far not this year.

The day-trading strategy developed here last November and dubbed in earlier posts “The Fool’s Game” has now had 32 days like today since the start of this year.

Thirty-two trending days.

I define a trending day as any day the SPY calls or the SPY puts or a combination of both gain more than 100% on the day trade. All trades are long only. The 276 in-the-money put for today closed the day trade up 166% on each $10K traded (see the chart on the left below). There were no trades triggered in the calls.

This was one those great trending days that goes one way all day.

And by the way, the market, with today’s hard sell down, is now wildly oversold so the chance of bounce tomorrow is very high. I say that chance is about 85%, but that’s mostly a guess based on the past six months market action. No telling how high. There’s also about a 75% chance the bounce will be a one-day wonder.

For fun, I’ve included a chart of the “at-the-money” 277 Put for today below on the right just as a comparison between one strike and another on a day of expiration. The gain per $10K traded, $25,384 (also the percentage gain, 253%) is in the white flag on the lower right of the chart.

Obviously, the greater the risk the greater the reward.

Remember these posts are meant solely for entertainment purposes and for the educational purpose of showing what the possibilities are in options if one has persistence, experience and discipline. They are in no way be construed as any kind of direct or indirect trading or investing advice.

(click on the charts for a larger view)

Five sessions in the marijuana stocks

Going into the market selloff last month, marijuana stocks were the leading sector in the market.

The stocks were flying on Constellation Brands certification of the sector’s profit potential with a $4-billion investment in Canopy Growth Corporation (CGC), then came Canada’s blanket legalization of the weed, Michigan in this election becoming the 10th state to legalize recreational uses in the U.S., following pot pioneers Washington and Colorado and others.

And now Jeff Sessions, the leading federal marijuana-legalization opponent, has been forced to resign as U.S. Attorney General. While Trump forcing Sessions out no doubt has more to do with Robert Mueller’s Russia investigation, it does have the side effect of removing another obstacle in the road to a possible national legalization.

The leading stocks in the marijuana sector surged today on the Sessions news but they were already on the run with the market bounce.

Long-term breadth (measured by the McClellan Summation Index) turned up after a 40-day decline on October 31st, giving a clear market-timing signal to buy the market on the open on November 1st, five trading days ago.

CGC is up 23.7%, TLRY 41.8%, CRON 29.2% and the ETF for the sector, MJ is up 16.9% (see the charts below, the white flags on the lower right tell the gains far per $100K invested).

In addition GWPH, a stable medical marijuana stock that has been around for a long time in the US, is up 8.9%.

All in five trading days. This sector is a perfect example of the splendid simplicity of the long-term breadth signal. Coming into the market selloff as a leading sector, it was highly likely (almost a certainty) that as the market’s drop stopped, the sector’s stocks would bounce fast and high…so to speak.

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$SPY #Options – Trending Day 31 in the “Fool’s Game”

When something looks too good to be true it usually is.

“Usually” IS usually, but so far this year not this time. This day-trading strategy developed last November – dubbed in earlier posts here “The Fool’s Game” – has had 31 days like to day since the start of this year.

A trending day.

I define a trending day as any day the SPY calls or the SPY puts or a combination of both gain more than 100% on the day trade. All trades are solely long. Today was up above up 125% despite the 56% loss on the calls at the beginning of the day as puts ran hard into the close (see today’s color-coded charts below).

Think about that for a moment…31 days of 100% or more, a $10,000 or more profit on each $10K traded. As they say, “that’s a lotsa money!”.

Good thing too because on the 178 trading days so far this year that did not trend, the strategy has lost money. The biggest draw down was 640%. That is not a typo, $64,000 trading $10K every day.

Yikes!

Obviously day trading options, any options strategy, has to be with no more than a fraction of anyone’s total capital.

I’ve learned some market rhythm day-trading the closest in-the-money strike on the nearest expiration I never knew before. Friday’s are truly freaky gaining 48% of all the money for the strategy on the year, with Monday Monday being good to me too, racking up 28% of the profits; Wednesday follows with 24%, Thursday with 15%, and Tuesdays absolutely suck, barely in the black at 1%.

And no matter what this takes persistence, discipline and years of experience.

Did I forget to mention the staggering total amount trending days have made so far this year over and above the losses on the non-trending days?

(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.

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$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.”

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#MarketTiming – Time for a “Turnaround Tuesday”?

There’s an old cliche in the stock market that says after a down Monday, the market turns back up Tuesday.

Everything was up a bit today except the Dow but…

David Bergstrom writing at the excellent “See It Market” website back in June, 2017, (see this link: TUESDAYS MARKET CLICHE OR TRADING EDGE?) added a wriggle to the criteria for a Tuesday Turnaround.

The idea is that the market tends to reverse a Monday selloff or down day with a strong rally on Tuesday hence the name “Turnaround Tuesday”. If this is the case then we can test this idea and add a simple edge to our arsenal.

First, let’s define our “Turnaround”. If Monday’s Close is below Monday’s open then Tuesday should – based on our theory – show positive performance across the stock indexes. On the other hand, Tuesdays following a neutral or positive Monday (close > open) should fare only about randomly or without a strong trading edge.

In the charts below, you can see equity curves for Tuesday trading across the major stock indexes. The first chart follows an up Monday, while the second chart follows a down Monday – or our “Turnaround Tuesday” performance. The blue line represents the S&P 500 futures since 2002.


The charts he presented are these:

Quite impressive Tuesday performance as per his setup.

So what about now?

If one hasn’t guessed, Bergstrom’s set-up for tomorrow is in play. Today’s major indexes, represented by SPY, QQQ, and IWM all closed below their respective opening prices. So if he is right, tomorrow should be up, and possibly it could be the beginning the next market upswing to new highs.

In that latter regard, I will add my own indicators. While the all-important long-term breadth is down, short-term breadth (measured by the McClellan Oscillator), after a series of highs below highs, plunged into oversold Friday (see chart below) and turned up today.

In addition, my nifty-50 stock list saw 40 or more stocks on sell signals two and three days ago, which is usually the bottom of a swing or in this case the beginning of the bottom. There are now 28 on buy signals with 15 triggering buys signals today — the stocks are turning, which often happens before the indexes.

Also, the Nasdaq composite declined coming into today’s little bounce four days in a row. In bull markets that’s about all the steady decline one can expect. This is only the third time it has happened in this very bullish year in the Nasdaq and each time has marked the bottom of the downswing.

Reiterating: tomorrow, Turnaround Tuesday, the market will likely bounce and it could be the beginning of a rally back to new highs.

(Click on the chart for a larger view)

#MarketTiming – Pot stocks partying like it’s 1999

Canada legalizes marijuana and the stocks get high.

In the past ten trading days, with confirmation from long-term breadth as a market-timing signal, sector newcomer TLRY is up 200%, CRON up 97%, all up, CGC 50%, the sector ETF MJ (this might be the more reasonable way to play the sector), even long-term steady, GWPH, which actually makes money in medical marijuana is up nicely. The cash/percentage gains per $100K invested are the white flags on the lower right of the charts below.

In 1999, it was the dot-coms gone crazy with no more than hopes and dreams of massive monies to be made. With, most notably AMZN, the hopes and dreams have come more than true. So it’s likely to be with cannabis too in the fullness of time, but like in 1999 with the dot-comes, it is now no more than party time.

If anyone rolled these up ten days ago, congratulations! If not, they will correct, probably any moment now with the market but, no matter, these stocks will be obvious prospects for the next market upswing.

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#MarketTiming – Summing up profits on a 10-day upswing

How important is long-term breadth to the swing trader?

It is a trigger to get into the trade and an answer to one of the most difficult questions in market timing and stock trading — When to get out?

Measured here by the McClellan Summation Index ($NYSI), this latest upswing began on the open of of 8/20 and closed on the open today, a 10-trading-day swing. See the indicator in the center band of the charts below).

On the swing, the 3xleveraged ETFs made solid gains for the 10 trading days: TQQQ up 8.6%, TNA up 5.7%, UPRO up 3.7%, FNGU 11.5%, SOXL 19.7%, FAS 2.8%, LABU 18.8%, ERX 4.6%. There were no losses in the group.

On the swing, among my “bellwether stocks” AAPL racked up a 4.9% gain, AMZN gained 7.3%, NVDA 15.9%, NFLX 14.3%, TWTR 5.6%. But there were also losers – TSLA down 2.1% , GOOGL down .9%, BABA 4.4%. BIDU 2.4% and FB down 2.5%. The entire basket was up 1.98%.

The top-ten stocks in my nifty-fifty list coming into the swing outperformed both of the above stock baskets with CRC up 38.4%, TNDM up 36%, PVAC up 4.8%, RGNX up 13.2%, WTI 15.1%, ARWR 4.6%, I up 2.9%, HLG 4.6%, TLRD 7.7% and the only loser in the group was MDGL down 3%. The nifty-fifty stock basket for the swing gained 12.48%.

How important is long-term breadth for the swing trader?

The “When to get out?” was today’s open for everything (market timing). As of the moment of this writing all of the symbols mentioned above are down with the exception of MDGL, the only loser in the nifty-fifty basket (that, I believe, is the market giving a wink to traders just for the fun of it).

Except for the fact we are still in a bull market, today’s breadth sell could have been a short. For aggressive traders, it was.

A main path to the “persistence, experience and discipline” it takes to be a successful trader is the trigger-in one is comfortable with and the trigger-out one is willing to accept without question.

(click on the chart for a larger view)