$SPX $SPY – walking the edge of the long-term cliff…

As we end another month and the first half of the year, I thought I’d take a quick look at a long-term monthly of chart of the SPX/SPY, the S&P 500 index and its primary ETF.

Someone (probably the great trader, Linda Raschke) once said if the short term is confusing in the stock market just back to a longer term view and all will become clear.

So what is clear in the here and now?

The bull market is still in progress (see chart below) although that progress has been stalled for this year to date.

The current upswing is completing a three-month rally so a sell-off could come any day now.

The technical indicators MACD and CCI are lagging, setting up as in the past (see the red rectangles on the chart) for a possible sell-off. But at the moment the pattern this time is not complete.

If the SPX had closed lower this month than it closed last month and its volume finished higher than its volume last month, I’d have to say the sell-off is likely right now. But that didn’t happen.

Obviously, the market in general is walking along a cliff (see the blue trend lines)… But until it falls off that doesn’t matter.

So is it going higher? I hate to but I have to shrug on that. Could be but with that cliff edge so close better to be be alert, and best to put in place some protections like trailing stops on any long-term investments.

Buying this? Okay, it remains a bull after all. But, me thinks, only for the short-term while standing every day next to the exit door. If the market charges higher, the short term will have you in, and if it goes screaming lower the short term will take you out.

(click on the chart for a larger view)

#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 – $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)

#MarketTiming – From follow through to follow through

The general market, after Tuesday’s bounce, followed through today for big gains across the board, made all the more bullish by coming back from a deep gap down.

The Dow, or instance, was down 500 points at the open and finished up 230.

The question now, of course, can there be more tomorrow.

All indications are this correction is over with many of the indexes touching their 200 daily moving averages, with my nifty-50 list of momentum stocks triggering 30 buy signals in the past two days (Monday all but two of those stocks were down, today all but six were up), with CNN Money’s Fear and Greed Index finally lumbering up off a very low readings at 12 today (it got as low as six and can’t go below zero). That later index is still registering “extreme fear” which is the time a time for investors to be looking to buy stocks.

But most importantly (see the chart below), short-term breath put in a low above a low in negative territory, a divergence with the SPY Tuesday which needed a follow through into positive territory to turn the all-important long-term breadth up. The follow through came today.

All three of my swing-trading signals, based on price, breadth and volatility, are on buys now.

So this market bounce has more to come and could morph into a full-fledged multi-week rally.

Some notes. AAPL is probably the safest bet during a market bounce (emphasis on “safest”) but NFLX, NVDA and TSLA will probably out-perform among the big boys. Look at TSLA today, up 7.5% on the day and 13.7% from the open — there was some dope just last week predicting Elon Musk’s baby would go bankrupt.

(click on chart for a 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.

#MarketTiming – Plunge to a climax low?

The general market seriously tanked today – Dow down 724 points, SPX down 68, the Nasdaq Composite down 178.

And it was an across-the-board slaughter as every one of the nine sector ETFs I follow slammed into sell signals, with eight of the nine now oversold on the close.

The all-important long-term breadth indicator – the McClellan Summation index — is on its fourth day down, making it obvious which side of the market to be on, but even more telling is that this is a wind down that began nearly two weeks ago on the first day down from the bounce top on March 12th (see the chart below).

There is a lot of stuff going on that could have led to this drop — Trump, Trump’s tariff plans, Trump’s saber rattling, Trump’s staff members bailing as fast as they can, the Trump chaos (we have a sitting President in litigation with a porn star and so far she and he lawyer are kicking his and his lawyer’s butt), uncertainties springing up everywhere; and the Fed is raising interest rates.

All that is taking a toll of course but this a market that has been moving up too far and too fast so the last two weeks were at some time inevitable.

Is this a bear market? Still hard to tell. The VIX, which measures volatility, is above 20, which is the territory for a correction in a bull market, but it is for the second time this year flirting with the 25-level (it closed at 23.34 today), and that is the door to a bear market. If the SPY (SPX) takes out February low either right now or after a bounce without a significant rally, a bear’s growl may, for sure, be heard.

The trouble with bear markets is by the time everyone feels enough pain to panic they are over. I suspect if this becomes a bear market that pain is going to last a lot longer than anyone believes.

But back to today. So was this drop enough downside to make a climax low. Probably not but it could lead to another quick bounce. Given that there are now pretty defined resistance trend lines in place (see the chart), this next bounce might be worth trading but it is not likely to do anything more than produce another selling for shorting opportunity.

Regardless, this is a market that after two weeks down is oversold everywhere. Four times in the last seven days, my nifty-50 stock list has had 40 or more stocks on sells, which usually indicates the bottom of a swing or the beginning of a bottom. CNN Finance’s “Fear and Greed” index is at an “extreme fear” level (at 9…it can’t go below zero), which longer-term is usually buy territory. As noted above all of the sector ETFs, as well as the index ETFs I follow like TQQQ, UPRO and TNA, are also oversold.

All in all, time for another bounce…

Except this time, maybe a crash into a climax bottom tomorrow and Monday instead (an echo of 1987)…

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Sell (Day 4).

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

CONTEXT:

SPY CLOSE – 263.67
QQQ CLOSE – 162.8
CNN MONEY’S FEAR AND GREED INDEX: 9, falling, extreme fear level).
NIFTY-50 STOCK LIST: 8 Buys; 3 Overbought, 24 Oversold, 1 new buys today, 13 new sells.

(click on the chart 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)

#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)