#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 – 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)

#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)

#HousingStocks – Remembering 2008…

At the advent of the 2008 bear market, the housing stocks died first, then the banks came apart, and then everything…

So witness $TOL $DHI $HOV $KBH $LEN $MDC $NVR $PHM and then ponder the banks and then ponder…

Not much more to say except to paraphrase Yogi Berra again: “It’s beginning to look like deja vu all over again.”

(click on the chart for a larger view)

#MarketTiming – long, strong and more to come

Didn’t getting around to posting the timing signals last week for various personal reasons so this post probably looks a little late to the party.

Oh, well…

A lot related to the headline above has already happened. The Nasdaq is already up six days in a row and the SPY, except for a minor dip during the week, would be too. My nifty-50 stocks have risen from 13 on buys and 15 oversold six trading days ago to 41 on buys and 29 overbought as of the close Friday. Virtually every index and sector ETF is overbought.

Once again, the market internals, ruled by short-term and long-term breadth, called the swing low, the turn, and the rally (see the circles and lines on the chart below).

So why bring this up now?

Because there is more to come in this bull market, either right away or right after a shallow pullback. The short-term breadth indicator is just too strong to be turned on a dime, and with the long-term breadth having just come out of a divergence itself (see the circle in the middle of the chart), there is a good chance this rally has another three, four, or more weeks to run before any significant sell-off is possible. So every dip is to be bought, and every surge savored.

Could it be different this time? The market could do whatever it wants but history says not right now, and history, when it comes to the mass psychology and movements of the market, is the best indicator of all (no matter who says otherwise).

(click on the chart for larger view)

A manic Monday in four-day-old $LFIN

Day 1: Came public at 6 dollars.
Day 2: Dipped into the $5 range.
Day 3: Wandered up to $20.
Day 4 (today): Opened at 39, ran up to 140, halted by Nasdaq at 126, reopened at 59, ran up again to 96, halted again at 75, reopened again 69, halted again at 62, dropped to 43, popped to 87, closed at 72, up 228% for the day.

Up 11 times its IPO four days ago.

(See the crazy 10-MINUTE chart below.)

How does this happen?

In a word — BLOCKCHAIN.

LFIN, LongFin Corp, came public four days ago and bought a blockchain company, Ziddu.com, and the stock went nuts. Wrote recently about RIOT, a biotech, which doubled on changing its name to Riot Blockchain. And already, according the MarketWatch, this latest blockchain jackrabbit is being investigated for securities fraud.

Likely this is another mania, to go along with bitcoin, that is just beginning. And it will all be insane if it goes on long enough, and in the end if it gets big enough it will kill the bull.

(click on the chart for a larger view)

$SBGL – the little gold stock known to get bigger..

Back in a little into the little gold stock that can get bigger in a hurry.

As has been said before, divergences don’t mean anything until they do (see the chart below). SBGL made a lower low in the last two days but the channel commodity index did not, setting up, once again, a divergence that might be telling on the long side.

Last this setup took hold, SBGL rallied up 26% in a month at its high and stopped out at up 22% (see the first chart below for the history). Not bad, especially since its stock sector (measured by the ETFs GDX, NUGT, and JNUG) were mostly going lower during that entire advance (see the second chart below).

Closed today at 5.16. May add on tomorrow’s open. Stop at 4.98.

(click on the charts below for larger views)

Pulling the $BID – when bear markets can be born

Forecasting tops in the market, the kind of tops that lead to substantial declines, even to bear markets, is no easy thing to do.

Virtually impossible, no matter how many so-called market gurus claim they have.  Most often top callers get chopped to death before they get their sell-offs, and those that appear to have succeeded in calling a top never say how painful it was trying along the way.

I am not calling a top here but I am calling attention to the fact $BID (Sothebys) may be the most important bellwether stock there is.

I don’t know if it’s because the rich quit buying expensive art, jewelry, wine and other luxury items at auction or what?  But on a simple, purely technical-analysis approach it is obvious over and over again that the stock leads when it comes to sell-offs.  There’s always a bid and ask in trading and investing and BID clearly shows when someone pulls the bid.

See the charts below. The first is a daily chart showing while the general market (SPY) has lumber up in recent days, BID has been selling off with conviction.  The second is a monthly chart showing the history of BID in relation to the market on the longer time span (that is when Bear Market can be born).  If history and the stock is to be believed this market advance is on truly dangerous ground.

Any day, any minute now the market may follow BID down.

(click on the charts for a larger view)

 

$AAPL trying for a new high, holds up the market

Talk about a mixed market.  Should say a mixed day.  The general indexes were up on the day and down from the open.

So I guess the story is AAPL.  How many times has that been the case in this bull market?  Every day?  AAPL closed at 161.47 just a point off its all-time high of 162.51.  The high today was 162 even. It is overbought.  See the daily chart below.

The question arises “Can AAPL hold up the market all by itself?”  Probably, at least for a while. But if it comes apart, the market is likely to flush like crazy. It has an $834-million market-cap which is a number that absolutely defies history so when it falls it could (and likely will) fall very hard.

In the general market, I had end-of-the-day sells on my Breadth signal (as was expected after six days up) and the Volatility signal.  The turn-down in breadth was not enough to damage the longer-term breadth.  The price signal remains on a buy.  Like I said, a mixed day.  The market could go either way tomorrow.

I don’t have much more to say.

Hmm…that reminds me, the great trader Linda Bradford Raschke once said (if I may paraphrase) she loved it when nothing much happened in the market because the next big thing usually is a REALLY BIG THING.

SWING TRADING SIGNALS:

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

CONTEXT:

LONG-TERM BREADTH: Buy(Day 2).
CNN MONEY’S FEAR AND GREED INDEX: (29 rising, fear).
NIFTY-50 STOCK LIST: 21 Buys; 6 Overbought, 8 Oversold, 1 new buys today, 1 new sells.

(click on the charter for a larger view)