#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.



PRICE: Sell. (Day 4).
VOLATILITY: Buy, (Day 2).


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)

#Stocks – the tails that wag the banking dogs

As I recall back in 2007 or so there was a moment when the banking stocks were making new highs while the housing stocks had long since died.

Needless to say the rest in 2008 became history.

So are we there again? Stuck that “history repeats” thing again? Or is it different this time?

At moment the answers are out. Home building stocks are down on the creep up in interest rates and the overheating in the retail housing markets and the current pullback in the general market but maybe not out yet since we are still in a bull market overall. The banks are so far holding near the highs.

I bring this up just as a heads up.

Watch the tail – it will tell if the dog will die.

(click on the charts 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)

$GE – on the watch for January bounce…rally?

Call is bottom picking as the tax-selling season ends – GE look like a prime candidate for a bounce.

Although depressed all year and in some kind of fundamental trouble (not my concern), GE remains a big name and, technically speaking, it has tested its recent lows and so far is surviving the test.


It’s probably worth a gamble, with the recent lows as a stop loss. This is a play I want to go my way right away or I’m going away.

For a quick, cheap scalp, at the moment, the Jan 17 call, which gave a buy signal today at 64 cents (see the 10-minute chart on the right of the chart panel below) is at 68-cent ask with the stock at $17.46. For what it’s worth that is in-the-money option. A bounce is going to make some money, and a rally is likely to make a decent profit.

Ignoring the chart, the better buy may be at the end of the day for the option play, and next year’s open for the stock itself.

(click on the chart for a larger view)

$SPY – the flying bull still flies but…

With the last stimulus signed (the tax cut), Santa heading home (his job done), and the general market in a slight, slow sideways slide (at a time it usually is rallying), the new year may be coming early this year.

Hate to be bearish while the bull market continues, so far, unabated, but it can’t go up forever and at this time it appears most everyone is believing it can. The wackiness that often appears at tops has begun (bitcoin and its cousins), stocks tripling on name changes… If AMZN or GOOGL or TSLA or even AAPL were to split the stock now and scream up on the “fundamental” of the split alone, I’d say we are in 1999. They haven’t split of course…but what the hell, we are in 1999 and I suspect 2000 is right around the corner.

That said, and maybe meaning nothing since the bull continues to fly, all three of my daily swing signal enter today on sells. One of these days this is going to matter and this flying bull could drop out of the sky (do bulls actually fly?).

However, long-term breadth remains on a buy. Which at worse means a falling bull will bounce before it dies.



PRICE: Sell. (Day 1).
VOLATILITY: Sell, (Day 1).


SPY CLOSE – 267.57
QQQ CLOSE – 157.37
CNN MONEY’S FEAR AND GREED INDEX: (66, falling, greed level).
NIFTY-50 STOCK LIST: 16 Buys; 9 Overbought, 3 Oversold, 2 new buys today, 8 new sells.

(click on the chart for a larger view)

$SPY $QQQ – a December rally worth hating…

Granted the general market has rallied this month fairly steadily. Great for buy-and-hold investors, who don’t plan to sell even if it doesn’t, but not so great for swing traders like me.

My swing signals, usually so reliable, have been all over the place. Last Monday buys across the board, market tanks. Tuesday sells, market rallies. Wednesday mixed. Thursday sells across the board, market rallies Friday. Friday buys across the board, Monday…uh, market follows through to the upside…

But follows through in the worst possible way. My signals are for the open the day following the day they trigger. So today’s open gapes up big…then backs off and goes sideways all day for little or no gain from the open. That’s pretty much the way it’s gone on all month.

I do recognize these are swing signals, meant to capture individual moves, and they by their nature can be problematic in a strongly trending market like this one.

The main ETFs I trade, TQQQ and XIV, are up roughly six to eight percent each on the several swing trades this month. Nothing to cry over but those guys are 3x-leveraged so those gain are not much to sneeze at either.

What now?

Everything is up at least for a second day and have entered the first stage of too much too soon. Thirty-nine of my nifty-50 stocks are on buys with 24 overbought (a lot), and CNN Money’s Fear and Greed Index is at a greed level but still a potential divergence if it turns now(see table below). The market can go higher of course, and probably will given the season and given it’s a bull market, but the imminent passage of the Republican tax bill may turn out to be a sell-the-news event so caution as always is warranted here.



PRICE: Buy. (Day 2).
VOLATILITY: Buy, (Day 2).


SPY CLOSE – 268.20
QQQ CLOSE – 158.64
CNN MONEY’S FEAR AND GREED INDEX: (74, rising, greed level).
NIFTY-50 STOCK LIST: 39 Buys; 24 Overbought, 3 Oversold, 10 new buys today, 1 new sells.

$TQQQ – a Nasdaq bloodbath too far too fast?

TQQQ, the 3x-leverage ETF based on the Nasdaq 100 stocks (NDX), was down 5.4% today, a bloodbath that affected many of the bellwether Nasdaq stocks in the index.

See the table below:

(click on the image for a larger view)

NVDA down 14 points, NFLX down 11, and so on. Pretty ugly in the momentum bellwethers.

There was a fake-out nudge to the upside Tuesday, but can’t say today’s slam down was unexpected. Posted this two days ago:

This could be tricky since long-term breadth continues to climb (up for the fourth day). Given that, if short-term breadth turns up here in the next day or two (or bless a bottom dollar, three days), the market would get another bullish boost. If long-term breadth turns down, this could very easily become the hook that catches every bull off guard. Although the bull market has so far defied the signs over and over again, it is inevitable that one of these times, like today, when the signals signal a turn, the turn will come. Probably when the bears are worn out and the bulls don’t expect anything of on their blindside.

If today’s sell off continues, that will be relevant, but there are signs this is done already.

Nearly every time TQQQ falls through the standard deviation lines (the blocks on the green lines on the chart below), the Nasdaq bounces the next day or two days out (the red vertical lines on the chart). It is as if any fall this far is too far too fast. And oftentimes in this bull market, the bounce becomes another rally (see the diamonds on the chart are TQQQ). In fact, a look-black on the chart shows this last great upswing in the Nasdaq, which began in late September, started with a touch down on the green lines just like today.

So I’m looking for the bounce, and looking to ride a rally if it develops here (Santa time?), and if it doesn’t then the suggestion in the quote above might indeed be a sea change in the market.



PRICE: Sell. (Day 1).
VOLATILITY: Sell, (Day 1).


SPY CLOSE – 262.31
QQQ CLOSE – 153.89
CNN MONEY’S FEAR AND GREED INDEX: (67, rising, greed level).
NIFTY-50 STOCK LIST: 14 Buys; 11 Overbought, 8 Oversold, 6 new buys today, 3 new sells.

(click on the chart for a larger view)

#STOCKS – the nifty-50 stock list revised and sorted…

Just scanned the market to add to and sort my nifty-50 stock list.

These, by my measure, are the stocks that have performed best with the market swing signals since the last sort three months ago. That does not mean they will be best going forward but it is my experience they will be strong vibrant participants on market swings to come.

In addition, the list itself serves also as a market-timing indicator.

For instance, historically, whenever 40 or more of the stocks on the list are on sells by my measure, the general market (no doubt in a pullback at that point) is within a day or three of a significant swing bottom. This, like so many indicators in the stock market’s forever bull trend, does not do as well marking swing tops. Too many on buys, 40 or more, does often trigger a pause in the advance. That’s just the way it is.


The top 12 stocks are in the chart panel below.

(click on the charts for a larger view)

Swing signals – when to take the trade…

My three swing signals, based on price, breadth, volatility, are all on the buys.

A question arose on whether these trades should be initiated on the close of the day they are triggered or on the open of the following day?

Both times make money but the open of the next day is better. This is a market-timing system I developed to have its signal register after the close each day so a trader only has look at it once a day and can look the night before to put in an order for the open of the next day. It is geared to both longs and shorts but as it has turned out longs are more important over the long haul and the next day’s open is better than the previous day’s close probably in both cases because of the market’s long-term bullish bias.

This week has been a pretty good example of the open versus the close. I had a sell signal on Monday’s close and sold into that gap up Tuesday. Gaps go both ways but more often than not it goes like that.

The signals on the close of Tuesday again triggered buys for today’s open and produced a nice bounce for the day. Of the the 3x-leveraged index ETFs I follow, XIV led, up 1.7% from its open. And incidentally, SOXL, the leveraged semiconductor sector ETF, continued its amazing rally, putting on another 3% on its 11th consecutive day up (that is probably not sustainable…).

It should noted that long-term breadth is again climbing – it is never wise to short anything against it.

It should be further noted that the short signals do not work as well as the longs over the long-term. The were profitable in 2008 and 2011 (of course) but not much at any other time. In other words, being in a bull or bear market matters.

XIV, based on volatility, has led this swing system all year. On the chart panel below the closed returns are in the white rectangles on the lower left and the current profit is in the white rectangle on the lower right. Each trade is calculated at $100K to yield an easy percentage number. As the chart shows, XIV’s closed profit on price is up 60%, on breadth up 51%, and on volatility up 71% (appropriately). These were all buys on the open of the day following the close the signal was triggered.


PRICE: Buy. (Day 2).
VOLATILITY: Buy, (Day 2).


SPY CLOSE – 255.02.
QQQ CLOSE – 148.04.
CNN MONEY’S FEAR AND GREED INDEX: (83 falling, extreme greed level).
NIFTY-50 STOCK LIST: 22 Buys; 116 Overbought, 7 Oversold, 4 new buys today, 6 new sells.

(click on the chart for a larger view)

#MarketTiming – From fear to new highs…

After basically a week’s consolidation, the rally from fear to greed resumed Monday.

CNN Money’s Fear and Greed Index moved out of the fear zone and into neutral.  First posted here with this below:


And previously posted here:


The buy signal on individual EFTs after that first post started with SPY at 243.06 (closed Monday at 249.21), QQQ at 141.18 (closed Monday at 145.87; the leveraged ETFs, TQQQ moved from 104.41 tgo 114.70 and XIV moved from 76.37 to 84.31.  That’s nine trading days including a week’s price consolidation.

That is the quality of market timing as measured by this CNN Money multiple-component index.

So what now?

Fear and Greed at neutral and the indexes already knocking the highs.  There is a good chance the market goes higher, dragging sentiment, as measured by this index, back into the greed zone (see the red line on the chart below) as the indexes register more new highs and stocks generally stay strong.

All three of the daily signals – price, breadth, volatility – are back on buys as long-term breadth entered its third positive week.


PRICE: Buy. (Day 1).
VOLATILITY: Buy, (Day 1).


CNN MONEY’S FEAR AND GREED INDEX: (58 rising, neutral).
NIFTY-50 STOCK LIST: 34 Buys; 23 Overbought, 3 Oversold, 18 new buys today, 1 new sells.

Bellwether stocks meeting 5-minute day-trading criteria for a buy on the open:  TSLA, BABA, AAPL.

(click on the chart for a larger view)