#MarketTiming – looking for a swing leg up…

Nearly every night for past two weeks, the overnight index futures have been trying to mount another leg up for the market from the March 23rd bottom, and nearly every day the bears try to knock it back down.

Actually that’s typical – as J.P. is reputed to have said famously: “The market will fluctuate.”

As a day and swing trader I’m just sitting on the edge of my desk chair waiting to see which way to go.

Technically speaking, the SPY chart is showing an island reversal for the recent spectacular bounce off the market low.

That is bearish.

In addition the chart patterns I watch most closely — the NYSI and NYMO — are decidedly bearish. After getting wildly and rapidly overbought on the bounce, they have retreated with both highs below highs on the NYMO and a drop below the zero line on the NYSI. In bullish times it usually take three or four NYMO highs below highs to stop a rally. In bearish times it may take but one and several lows above lows to mount one. So far that has been true again (see the NYMO/NYSI line in the middle of the first chart below).

Long term investors, if they are in this market below current price levels, are losing time (at least a year, maybe as much as Trump’s entire term). If they are in at higher price levels they are truly trapped, losing time and losing money.

Regardless, I keep hearing both groups wishing and hoping — and pleading for — more bounce, either to cut paper losses or to get out.

So what’s next?

Having said all the bearish stuff, let’s take a look at the a couple short-term rally possibilities.

The NYMO, despite the current bearish pattern, just did something that is normal in bullish times and is at least a glimmer for a another leg up. It has dipped to the zero line three weeks (15 trading days) from its low. Three to four weeks into is normal for a twelve to fourteen week McClellan Oscillator cycle; it happens all the time in bull markets. Could this be a hint this is the week to try for more upside? A bit of relief, a surge of hope for the bulls? Maybe.

In addition, every day I tabulate all the stocks on my nifty-fifty stock list as to whether they are on buys, buys-overbought, sells, sells-oversold. Have been doing that for years, and it is a list that talks.

See the histogram on the second chart below for reference.

I’ve said before any time 40 or more of those stocks are on sells that is either the bottom of a swing or the beginning of the bottom of the swing. On the chart below, that tallies as 30 or more (stocks on buys minus stocks on sells). The red box mark each time this has happened.

During bull markets, when the nifty-fifty start up again, they either lead or confirm the next up swing. But since February that has not been case. No need to guess why that is so. Whenever a reliable indicator has a change in behavior, it screams there is SOMETHING BIGGER GOING ON HERE! My stock list is one among several technical indicators that have just announced the bear is out of his cave (and he’s given the world a vicious virus besides).

But…like the glimmer on the NYMO, there is a glimmer here also. The stocks on sells has been under forty for three days (there is no four days on this chart), and for the past two of those days it’s been slowing slogging its way higher.

Monday will be important but I’m going guess… The market is going to pop and take a leg up for at least a couple days this week.

Needless to say, I could be totally wrong about this since I am arguing against the NYMO and NYSI at the moment, the two most important measures of market psychology there is.

If so…well…it will be a short…again.

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$TSLA – #DayTrading #ShortStrangles for a steady 15% weekly gain

Despite being stopped out twice during the five days last week, TSLA short strangles once again had a double-digit gain, 15%.

This strategy since introduced here six weeks ago, in early February, on TSLA, a volatile stock with liquid weekly options, has had a double-digit return every week.

The cumulative gain is now 76% for the six weeks on a maximum margin requirement (as calculated by the CBOE) of $20,000 per contract.

The values on the table below for last week’s short-strangle trades are per contract.

The reference for this strategy is this link: $TSLA – Day trading short strangles for simplicity’s sake.

(Click on the table for a larger view)

Reading history on the #MarginDebt chart

For anyone who pays attention to FINRA margin debt this market crash was no surprise.

If there was anything surprising about what is now 30% plunge in the SPX, it was that it took so long to happen.

I had a clear warning here as far back as six months ago in this post:

Margin Debt – setting up a S&P 50% plunge?

Now all I can say is anyone who was not paying close attention to margin debt or was disregarding its warning was asking to get their stock profits ripped apart.

Once margin debt starts down, it feeds on itself with margin calls leading to stock sales and more margin calls leading to more stocks sales with each jolting decline in the market. And besides the profits lost, there is time lost, sometimes a lot of time lost, before the market can even begin to recover.

If we take a look at the history on the chart below it’s pretty obvious the divergences between margin-debt and price of the SPX foretells the market sell-offs. In 2000 and in 2008 margin debt dropped down (the black boxes on the chart) while each time the market went higher for a few months before plummeting. Again these last six months (another lower black box lower than the previous peak), history repeated.

Granted it’s hard to believe as the market keeps going up and up the bull will ever end — earnings seemed good, the Fed was on board, Trump was bragging on Twitter at each new high — but long-term investors could not ask for a better advance notice it was their time to sell or at least tighten their stop-loss levels to preserve capital. All this market needed was one small trigger for the full unwinding of margin debt to usher in a bear market, instead it got a big one. But if it hadn’t been the Covid-19 pandemic, it would have been something else.

Now that the bear market has begun, margin debt is indicating it is not done yet.

History says, like in 2000 and 2008/2009, the S&P500 is going down around 50% before this bear market is finished. If history repeats again, there is another 20 or so percent more downside to go.

Margin debt during this long bull market went higher than either 2000 and 2007 so there’s no telling how that’s going to play out. From its 2019 peak it has a lot farther to fall – and if the news keeps getting worse — since the US, thanks to a lying President and his incompetent Federal administration is getting a late start on coming to grips with the pandemic it’s possible it could be more than 50%.

If the dire damage being done to the economy is not mitigated sufficiently by a Congress that was supposed to have a stimulus package out last week and hasn’t managed get one done yet or if the stimulus is too small or if it’s aimed at the wrong people, we could be looking beyond a historical 50-percent decline to something more like 1932.

You ask me, we’re at a point when we need a Franklin Roosevelt in the White House and instead we’re still stuck with worse than a Herbert Hoover.

But as history shows on the chart, whatever the final decline is to be, it’s likely it won’t be until after a big bounce any a week, any day, any minute now.

This market is massively oversold and it’s a positive sign that governors and mayors, allied with scientists and health-care providers across the country, have taken over the front-line fight against the pandemic as Washington goes on dithering.

The trouble with the margin-debt numbers is they are reported a month late so one pretty much has to guess, based the price action during the month, where the debt level might be in the current month. While we can see the SPX crash here in March on the chart, the margin debt line is only up to date through February. I would assume from the current price action in March it’s now a lot lower, probably akin to that drop in 2008 marked by the black vertical line.

If so, we may be closer to a bear-market bottom (six months or so) than the pattern in 2000 (which took about three years).

Regardless, the bounce, which could be spectacular, is not going to be a resumption of the bull underwater long-term holders are hoping for. More likely it’s going to be a bull to be slaughtered so severely by the next bear move no one, as despair sets in, will be looking to buy any stocks.

In despair is when a new bull market can be born.

But I could be wrong. It could be different this time. Uh, huh…

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Reading history on the #VIX chart…

Ah, yes, I remember it well… In fact I’ll never forget…

I began investing in the stock market in September of 1987. My wife was having our second child that month. I figured I had to make some financial provisions for the future. I was beginning to make some extra money so I put our savings into the stock market. I bought stock in Compaq and Intel. The stocks were roaring up and continued to rise. I was a very happy young father.

Then about four weeks later on October 19th, the market crashed. In a panic I sold all the stock. That was on the Tuesday after Monday’s crash. That time was in so much chaos it wasn’t until Saturday before I got the fills to learn we had no savings left.

I didn’t tell my wife. She was busy with our newborn. I had a job so we had money coming in. I didn’t want to worry her. But I was virtually catatonic for weeks, until Dec 4th, 1987 (coincidentally our anniversary), when the market made a successful retest of the crash lows.

That was the day I learned what matters most in trading the market – no matter what happens, it’s all happened before.

History, history, history.

There is the famous curse, usually attributed to George Santayana, that “he who does not learn from history is doomed to repeat it.” In the stock market it’s the opposite – “he who learns from history is is blessed to repeat it.”

Which brings us to the VIX, the Volatility Index.

The mass psychology of the market – because money is always at stake – is either in some degree of fear or some degree of greed with both emotions filtered by time.

While history serves as context, the VIX measures the market endless wheeling back and forth between fear and greed. The index itself runs opposite the other major indexes, the S&P500 (the SPX), Dow Jones Industrial Averasge, the Nasdaq Composite…in other words, it runs opposite the market.

When the VIX is low the market is in a bull market, and most stocks are rising, virtually all stocks, and when it is high (as it is now), the market is a bear market, and stocks go down, virtually all stocks.

But the VIX says more than the obvious.

Right now because we’ve just finished a very long bull market there is a lot of belief that the recent stock crash is just a temporary drop and prices will soon be hurtling upwards to new highs.

And yet…right now the VIX says “not so fast.”

Consider the chart below showing the VIX with a monthly chart of the SPX.

I’ve outlined the effect of the VIX on the general market.

First, let me say what I consider the key levels on the VIX itself. Under 15, the market is in a steady advance, a bull market. At 25, the market is in a normal “correction” and the price will soon continue to climb. But if the VIX rises through 25 convincingly and vaults past 40, it ia a bear market. At that point the VIX will have to convincingly fall back through 25 before stocks can in general begin to move up again.

On the chart the red vertical rectangles mark the periods in which the VIX last went through 40 and dropped again below 25. In the 2008 bear market it took eight months before prices began to rise again. Although it doesn’t show here on a monthly chart, a weekly chart of 2010 has the VIX also above 40 (marked by the red circle on this chart) when it took five months for the prices to rise again. In 2012, it took four months for prices to rise gain.

These are measures of time.

I am suggesting this is the time it’s going to take for the current bear market to subside so prices can rise again in a steady climb. Months at best, and even then only for those not holding long term. This crash has caused a lot of damage and a lot of stock holders are trapped at higher levels (the entire advance from the day Trump was inaugurated as President has been erased). William O’Neil of Investor Daily called this “overhead supply,” meaning those holding stock above current prices will be looking for bounces to get out so going forward is going to be a choppy ride and it’s going to take time to work off the effects of the bear.

To say nothing of the fact there are very few signs the market has, as yet, quit falling.

Still, there’s more…

By my reckoning the VIX is also a calendar. The market always has a bullish bias (this is America after all!) but there are months and even years lost along the way.

The shaded blocks on chart below illustrate the time it takes for prices, once the bear market has begun, to regain their former highs. For instance if one invested in the market at the top in mid-2007, it would have taken more than five years to breakeven; in the 2015/2016 and 2018/2019 corrections approximately a year each to regain the losses, or move sideways to new highs.

When the bull is going strong, everyone forgets it takes just one down day for a bear market to begin. Of course, until it’s later and one can look back, no one can know which down day, like February 20th this year, is THE DAY.

Which is also why since December 4th, 1987, as a day and swing trader, and having learned the market’s history, I sell, every time, on the first day down.

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$UAL $DAL $AA – time for buyouts instead of bailouts?

Bloomberg reported yesterday that the major American airlines used their free cash flow for buybacks and may be bankrupt by May.

See this CASH FLOW LINK and this BANKRUPTCY LINK.

Trump is already talking a taxpayer bailout.

How about buyouts instead?

Again and again, these industries (last time it was the banks) recklessly practice free-market capitalism and eventually a crisis comes and again they need a socialist intervention to go on with their business as usual.

Don’t these guys ever plan ahead? Don’t they ever realize all good times come to an end to one degree or another (all bad times too for that matter)?

Isn’t it time for this periodic sucking on the taxpayer tit stops? Maybe a lesson needs to be learned. If the taxpayer is going to have to subsidize and/or finally bail them out in the end, maybe it’s time the taxpayers take ownership.

Not that Trump would know what to do being on the opposite side of his own bankruptcy history but he won’t be President forever (at least I hope American voters have wised up enough to flush the con king).

Anyway, this is what these once high flying birdS look like crash landing together:

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#SectorTrading – when the bear bites everything bleeds

Got the bounce Friday in a frenzied last half hour as suggested Thursday in this post: #MarketTiming $SPY – Buy now, resell later….

No doubt it was primarily short covering but the rapidness of the run-up was bolstered by the announcement that the confused disingenuous Trump Administration is trying to catch up to the actual facts of the Covid-19 virus.

Trump and his team of appointed incompetents had no choice since the scientists within the CDC are coming to the fore and not putting up with the bullshit anymore, and Governors Jay Inslee of Washington State, who Trump called a “snake” (I guess because Inslee was teaching him leadership by example), Andrew Cuomo of New York and Gavin Newsom of Califonia, as well as hundreds of mayors across the country, who could not wait any longer on the dithering Feds, were moving aggressively to confront the virus in order to protect the citizens in each of their states and municipalities.

Regardless, this bounce, even if it becomes a rally is not going to last. As also noted in the post Thursday, the economic damage that’s begun hasn’t even begun to move through the market. Companies may begin warning this week of earning shortfalls.

There are going to be a lot of earnings shortfalls.

The S&P is down 16% for the year, even after Friday’s nine percent bounce. If is FINRA Margin Debt is unraveling (it’s reported a month late), and it probably is, and if history means anything, the S&P has another 30 or so percent to the downside to go over time. Margin calls feed on themselves as the calls bring more selling and more selling brings more margin calls.

The point is it is not buy-the-dips anymore, it’s sell the bounces. Friday’s was a big bounce. Did anyone sell or just started praying for more?

In the meantime, I thought I’d take a look at a few stock sectors I follow to see how bad it’s been even with Friday’s bounce in the numbers. Interesting among the biotechs: both REGN and GILD are up for the year so far, the only glimmers of green. Those are among the drug companies working on a vaccine for the virus. I will get to the tech stocks later. They have held up somewhat but the bear will bite them too before this is over. And the marijuana stocks…ah, the weeds, they are worthy of a blog post all their own.

The tables below are a year-to-date (less than three months). Take note of the percentage decline columns next to of the raging red bars:

BANKING STOCKS

HOUSING STOCKS

ENERGY STOCKS

COAL STOCKS

BIOTECH STOCKS

On $AAPL — its broken parabolic updated…

AAPL keeps trying to bounce off the market’s gaps down, but as time goes by it is still working its way down to where its recent parabolic rise began.

This decline with take some time. There will be bounces to sell along the way but when a parabolic breaks it creates so much overhead supply (i.e. holders who want to get out) the stock’s decline is usually inevitable.

The target price for the stock is approximately $220 to $230.

This was first outlined in this link:

#STOCKS – on $AAPL gone parabolic

And reiterated in this link when its parabolic rise first broke:

ON $AAPL gone parabolic – with an updated chart…

(click on the chart for a larger view)

#STOCKS – “Trump loves coal…”

The President claims he loves coal and coal miners.

Outside of Florida, he runs most often to West Virginia to rally his supporters.

Evidently, the West Virginia voters have been so poor and uneducated for so long, they will believe anything his says. I’m probably being too harsh on these unfortunate folks but it’s way past time they wised up. To have Trump on your side is to have worse than having no one.

Except for his Russian money-laundering real-estate businesses, this self-described master deal maker and businessman has managed to run through everything he inherited from his dad and a few billion more, bankrupting almost everything he’s touched along the way – casinos, steaks, champagne, a university, and so and so on (to say nothing of his marriages and his money spent to shut up porn stars and playmates).

Without the Russians, he could be going broke right now hawking hot dogs from a cart on a street corner in New York.

But enough of my admiration for greatest con man of all time, let’s get down to the stock market and the coal stocks.

While Trump says he loves coal, as anyone who has bumped into my posts on Trader-Talk over the years knows, there may be no one who loves shorting coal stocks more than me.

I’ve shorted Walter Energy (WLT) off the board. That was a lot of fun as nearly every coal sector analyst kept reiterating “buys” at every price level from $85 a share to $1.50. At $1.50, the analysts finally said sell. Believe it! Hopefully all those fools (or are they liars and thieves?) are out of the securities industry but probably not (Trump is President, after all, no matter what).

Over the years, so many coal companies have gone belly-up, killed by natural gas, environmental activists, and finally the worldwide recognition of climate change, it was almost as if one could throw darts at the sector and whatever the dart hit would die.

Two of the most prominent were Peabody Energy (BTU), “the biggest coal company in the world,” and Arch Coal (ARCH).

Both companies, BTU and ARCH (and also the not-great Cloud Peak Energy), came to the port town where I live in a desperate attempt to ship coal to China where my neighbors, along with everyone on the West Coast, shut them down, a failure that led to both companies filing for bankruptcy and its consequent loss of all shareholder equity. They both reorganized, returned to the big board, and long came Trump to sit down beside them and give them hope…for about a year. Even subsidy plums can’t save a dying fruit tree.

Both companies are now well on their way to burning through all shareholder equity again. I can’t imagine who squanders investments on this dead-end stuff anymore.

See the pitiful charts below. Both stocks, like the market, are so oversold they will probably a bounce here. If so, they are shorts…again.

Once BTU drops below $5 (it closed today at $5.50, down from $30 or so in just the last year), the nails in its coffin will soon follow. ARCH has a lot more price downside (see the second chart below) and it will take some time but it will get to cliff BTU is standing on too.

(click on the charts for a larger view)

#MarketTiming – From the Kerplunk to a bounce

Warned of a sell-off here back in February 9th in this post:

$SPY – Up, up, up…and KERPLUNK?

Well, the market defied the sell-off warning for a couple of weeks as it ran up past the setup, but that run up is gone now in the rubble of the last four days.

TVIX and UVXY, the leveraged VIX ETFs were backing into the starting blocks, backing into the starting blocks — here $TVIX – Just a heads up… and here $TVIX – Just a heads up… — until finally there were off with TVIX up 92% in the last four days, and UVXY up 67%. I remember when I posted that heads up someone on Twitter or Facebook scoffed at me an told me I basically full of shit (I get a lot of that at market tops).

Now there are stocks all over the place down 20% or more just on market timing. It’s likely nothing as changed at many of those companies since four days ago except for the market sell off. Such is the madness of crowds.

None of this is any surprise really, since there were signs everywhere that the indexes were running on the fumes of AAPL vapor and a, I guess, a whopping TSLA short squeeze (everyone said Elon Musk was crazy, and then it turned out is was more like crazy smart). Over at Virgin Galantic (SPCE), where Richard Branson’s company has put a mere two winged space craft in space for short jaunts, there are passengers buying seats on flying ships to Mars. Say what?

As the indexes made new highs, there were divergences on the NYMO/NYSI, CNN’s Fear and Greed Index, S&P 500 stocks versus their 200-day moving average, and news lows were gradually climbing above new highs before bolting much higher (see the chart below).

Then there is the Coronavirus…and again news comes along like black swans crying when market internals are obviously falling apart.

So what now?

This sell off is so extremely oversold there is going to be a bounce. Likely tomorrow.

Forty-eight of the stocks on my nifty-50 stock list are on sells with 36 individually oversold (that is a lot). The indexes are down more in this four-day thrust than they’ve been in more than a year. It is just too much too quickly.

However, the question is going to be what to do with this bounce? Hang on and hope it’s V-bottom? Or sit on the edge of your seat looking for a chance to SELL EVERYTHING?

The bull market of the past year would suggest the former, everything else suggests the later. But it should be noted that CNN’s Fear and Greed Index is at 22 today. While that’s an “extreme fear” level, it has more room to move down which suggests when the bounce happens, tomorrow or whenever, the low of left behind will be tested, and if by then this is a full-fledged bear market, this bounce is going to be remembered as a last chance to sell for a long time.

P.S. And if it doesn’t bounce? Ai-Yi-Yi!

(click on the chart for a larger view)

ON $AAPL gone parabolic – with an updated chart…

This is a followup to the post below as AAPL takes a predictable hit today.

Wrote the following in this link a couple of week ago: On $AAPL Gone Parabolic.

At the risk of a massive understatement, let’s just say AAPL has gone up…a lot.

In fact one look at its chart below reveals is has gone parabolic.

Let’s define a parabolic move first. Basically, according the website, Prometheos Market Insight, when a stock makes a enough of a move to create three distinct supporting trend lines (see the green lines on the chart below), then accelerates, it is in a parabolic move (the red line on the chart).

There is both good news in that, and bad news.

The good news you own it, the bad news its latest rise is unsustainable. Although one can only guess when and at what level it parabola ends (the way it always is with that phenomenon), but when the inevitable end comes it will likely be violent and the stock could eventually go back to where the parabolic began.

At this point, a rough estimate of where it began in AAPL is around $230.

It’s hard to believe it will ever quit going up as it’s wildly (exuberantly) rising, but I would suggest there is no profit here until one sells.

Also, one other thing to keep in mind, AAPL today, according to Yahoo Finance, has a market cap of 1.377 trillion dollars. That in itself is unprecedented in market history, but it is also nearly $100 billion higher than next highest market cap, MSFT (but that as they say is another story).


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