#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)

#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)

#MarketTiming – $SPY ready to break up out of its box?

All through the market’s recent wild ups and downs, short-term breadth, measured by the McClellan Oscillator, has continued to work its way higher with each market plunge and recovery.

Now the all-important long-term breadth has also turned positive.

This is very bullish.

And yet, price has to yet to break of its nearly two weeks of consolidation – see the box on the chart below. With today’s general-market surge it is once again challenging the top of its range and appears poised to break through to higher highs. Tomorrow could be key. If SPY breaks out, it will no doubt take the rest of the market with it. The first objective would be that red trend line across the tops of the recent pullback.

Whether this is a resumption of the bull market or just a short-term swing in a bear being born is still a question. If SPY fails to climb out of its box, it could go all way down again and possible turn that box into the bull’s coffin. There are plenty of doubts this bull can keep going but for now the fight is on the upside.

Those rising green circles, marking the lows above the lows on the upper graph below, are a telling prelude to a strong up swing (see their history on the chart) and right now the bulls have the benefit of the doubt.

It is time to be long to be long and to buy stocks on dips until it isn’t anymore.

(click on the chart for larger view)

$DBX – An IPO easy to buy at the right price…

When a hot IPO is launched, as was the case with Dropbox (DBX) yesterday, the headlines are usually how much it leaped over it initial offer price. That is a worthless commentary. Unless one is on some broker’s favored clientele list, it is impossible to have the stock and to be able to sell it on that leap.

So what to do?

With IPOs this is actually one of the easiest decisions in stock trading. Simply note the high price and the low price on day one of the IPO. Those are the lines in the sand.

Buy on a close above the high of the first with a stop loss below the high of the first day. With DBX that buy is a close above 31.60. If the stock drops back below that number, take the loss (likely small) and forego the anxiety of being locked into a foolish IPO buy made on whatever day. If it rallies from there, it could trend up and become a longer-term investment.

#SwingTrading – 3x Leverage for the short-term swings

If one is a swing trader in ETFs 3x-Leverage is the name of the game.

For example, the currently short-term breadth indicator I follow gave a swing buy signal last Thursday for Friday’s open and the market exploded to the upside Friday. While the Dow and the SPX stalled out today, the Nasdaq put on another up day, actually the seventh in a row. The same short-term breadth signal that gave the buy for Friday morning has now given a sell for tomorrow’s open.

I will not be surprised if tomorrow the entire market takes a dip, likely just a dip, not a tumble.

The sells on the ETFs are on tomorrow’s open but, in the face of today’s heads-up on the sell signal, let’s take a look at how the leveraged ETFs done and why they are the name of the game in short-term index and sector ETF trading.

Take a look at the charts below. The white flags on the lower left are the gains on the swings so far this year (longs only) and the white flags on the lower right are the current gains. Both numbers are calculated on buying $100k on each trade in order to not only give a dollar amount but also to correlate with the percentage gain.

We’re talking a mere two-day bullish trade, and TQQQ (the Nasdaq) is leading the indexes, up 5%, while SOXL (semiconductors), up 7.6%, among the sector ETFs, leads TECL (tech) up 4.5% and LABU (biotechs) up 4.3%.

Two days. Not a bad trade if one chose to close on the close today. Regardless, because of the signal, they all will be cashed in on the open tomorrow.

Consider for a moment the three charts in the column on the right of the panel. The top two are 3x-leveraged financial ETFs — FAS (big banks) and DPST (regional banks) – and the one in the lower right corner, NAIL, is a 3x-leveraged EFT for home building stocks. NAIL, down year-to-date, had a nice move on this swing, up 6.7%, but note where it is in relation to the two financial ETFs above… This is housing lagging the banks, particularly the regional-bank stocks.

I bring this up because of history — the action in those sectors looks a lot like, almost identical in fact, to how they looked in 2007.

With that I leave this post. As far as swing trading goes, will be in cash tomorrow.

(click on the chart for a larger view)

#SwingTrading – the top stocks on the nifty-50 list

Just revised and sorted the stocks on my nifty-50-stock list – a powerful group they are!

I’m just going to feature the top 12 here because they are just too many moving too much. On the charts below the keys are the white flags on the lower right and lower left of each chart. On the lower right are the closed gains based on the 10 swing trades so far year-to-date and on the lower left are current open trade results using the short-term breadth signal as the trigger for the buys and sells.

Each trade is a $100K stock buy (so the cash in the flag is also the percentage return). For instance, QNST on the upper left of the chart panel is up 55.6% on trades marked up this year and the current open trade is up another 5.4%. VCEL, just below QNST on the chart panel, is up 66.5% on closed trades and down 2.1% on the open trade. And so on, and so on across the charts…

The stock trading here is entirely a market-timed swing system based on the basic idea that most stocks move with the movements of the general market. It is purely technical and what each company does is largely irrelevant. The measure of each stock is how well it tracks and how big it moves in accordance with each market swing.

Needless to say these and many more stocks are doing very well as the bull market so far continues.

(click on the charts for a larger view)

#MarketTiming – Can the bounce become a rally?

The pause in the market suggested for this week in last Friday’s post has played out with not a lot of fanfare. It’s been a more sideways than down (see the SPX chart below).

(click on the chart for a larger view)

That is a 7-day 10-minute chart that ends each day with a volume spike on a fast drop into the close. Overall that is not good. But it could be argued that it is still a digestion of the rapid rise that preceded this week and was one of the quickest bounces off a hard decline in this bull market.

If so, time may still be on the bull side.

The Nasdaq Composite had less of a pull back than the SPX but still marked at today’s close four days down in a row. Four days down is often the time for another surge up, and often times during this bull market it is the time the bounce become a rally with an attempt at new highs. In addition, short-term breadth turned up again, taking long-term breadth with it, both very positive signs and they have a lot of room to move up (see the SPY/Market chart below).

In other words, I’m expecting the market to shoot up Friday.

But…as Trader Vic Sperandeo has fondly said: “If the market doesn’t do what it’s expected to do, it will do the opposite twice as much.” So day traders be nimble, swing traders tighten stops, and investors watch your asses — this is not a spot you want to be blindly holding if expectations go awry.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Buy (Day 1).

PRICE: Sell. (Day 4).
SHORT-TERM BREADTH: Buy. (Day 1).
VOLATILITY: Buy, (Day 2).

CONTEXT:

SPY CLOSE – 270.40
QQQ CLOSE – 164.80
CNN MONEY’S FEAR AND GREED INDEX: 15, falling, extreme fear level).
NIFTY-50 STOCK LIST: 16 Buys; 6 Overbought, 3 Oversold, 3 new buys today, 12 new sells.

(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)