Oops! $SPY rallies again into a black candle top

Okay, another day up as the rally keeps going, but…

But there are now simple black candles everywhere.

Back on December 3rd I started looking at black candles on StockCharts.com just for the fun of it and discovered a simple black candle at that point on the SPY might be the top of that up swing.

I wrote about it and posted the comments and a chart here:

$SPY – Simple Black Candle Tops

As it turned out it was the exact top of the late November market bounce. Given that it is believed that it is impossible to consistently call tops in the market, that might have been pure luck. However, looking back over many charts (see those below for examples) those black candles appear to be telling. Just focus on the black arrows on the day after, and the moves from there in the current environment.

In Japanese candlestick charting there are names for these patterns — dojis, shooting stars, abandoned babies, etc. — but I’m trying to be as simple as simple can be. The black candles I’m talking about here occur when an index/ETF/stock/future closes higher than the close the day before but also closes below its open (again see the charts below), oftentimes on a gap higher than the high the day before.

However, as with all technical and price indicators, nothing matters unless there is follow through the next day or very soon thereafter. December 3rd signaled the drop from the top of a range in the newly-born bear market (see the first chart below).

There was money to be made on that decline just as there was on the subsequent bounce off the bottom. This is swing trading.

The general market has had a nine-day bear-market rally off the low. For many ETFs and stocks there have been spectacular gains which I noted here (the post below, yesterday) but now….

Now we are back to simple back candles at the top of more than one ETF: not only SPY, but also QQQ, and in the sectors, LABU, ERX, FNGU, TAN, FAS. These I’ve charted (see the panel below the SPY chart) but these black candles are all over other ETFs and many stock charts besides.

This may be a turning point. It may not. But like all great things in the stock market we won’t have to wait long to find out.

(Click on the charts for a larger view)

$SPY – Santa leaves behind a “fast up” rally

Despite AAPL’s bite of the Santa rally two days ago, it appears the rapid bear-market rally that began the day after Christmas has gone on to a bigger thing.

That is good news and bad news for the bulls. The good news they have received remarkable relief from the drubbing in the fall. The bad news is this rise still looks like a typical bear-market rally. Just as bull markets grind up, then drop hard, then grind up again and so on, bear markets tend to grind down, rise up fast, then grind down again and so on.

This up swing truly fits that later description.

On the plus side, both short term and long term breadth have had a screaming flight out of the massive oversold low to a massive overbought high (see the chart below). That breadth blast has a lot of analysts commenting on the history of “breadth thrusts” and generally indicating the market has had its correction, maybe even an entire bear market when the S&P tapped a 20% decline (for one day).

That may turn out to be so but I doubt it.

I suspect this more likely just a bounce on the road to the next grind down, but it could go up more or chop sideways for a while before the grind begins again. Margin debt has likely not finished its fall (we won’t know how far it has to go until its reported for December at the end of this month) and that means more downside to come (take what just happened in November and December and do it again).

But, granted, this has been a spectacular rise with the 3x-leveraged TQQQ up 26%, TNA up 32%, UPRO up 23%; and leading the leveraged sector ETFs, LABU (biotech) up 67.5%, ERX up 35% and FAS up 23%.

NFLX, among my bellwether stocks, is the star of the show so far in this rally , up 32.5%.

This is eight days in the market and again prime example of the value of swing trading over buying and holding through declines. There are numbers in stocks’ advances during these last eight days that would make an asset manager’s entire year (and maybe will). Forty-eight of the stocks in my nifty-50 list are on buys. Today 43 of the 50 were up. And finally 40 of them are overbought.

And SPY itself is coming into the 255/260 resistance suggested here when this rally kicked off.

So what now?

Probably more upside but it would be prudent to set stops to preserve swing profits. I’ve cautioned in the posts below that this longer term is a relief rally, and likely just the kind of rally the market uses to make everyone believe it’s the resumption of the multi-year bull.

The key here is go along for the ride but guard against being fooled by how fast the up.

(click on the chart for a larger view)




#MarketTiming – $SPY ready for a Santa Claus Rally?

I’ve always been confused at what constitutes as”Santa Claus” or Christmas rally mainly because in bullish years, most years, the market rallies into Christmas and right on up into January so it’s hard to tell what is distinctive about Christmas itself.

This obviously is not one of those years.

SPY has come into Christmas in a free fall, eight consecutive days down (see the chart below), fueled by bad news (the usual Trump stuff) but mostly from being so ridiculously overbought and speculative something had to give. It is down now 20%, which makes this an “official” bear market.

My last post here was December 4th, 20 days ago. There has been no need to give a general-market update since the unraveling of margin debt has ruled this slam down and will likely keep doing so as the bear market continues its decline for some time to come.

So what about a Santa Claus Rally now?

Given the difference this year from so many others, I decided to seek out a simple definition of the possible phenomenon, went to Investopedia, Seeking Alpha, The Street, and eventually to Wikipedia which pretty much summed up all the others had to say:

A Santa Claus rally is a rise in stock prices in the month of December, generally seen over the final week of trading prior to the new year. It is a type of calendar effect.

There is no generally accepted explanation for the phenomenon. The rally is sometimes attributed to increased investor purchases in anticipation of the January effect, an injection of additional funds into the market, and to additional trades which must, for accounting and tax reasons, be completed by the end of the year. Other reasons for the rally may be fund managers “window dressing” their holdings with stocks that have performed well, and the domination of the market by less prudent retail traders as bigger institutional investors leave for December vacations.

The Santa Claus rally is also known as the “December Effect” and was first recorded by Yale Hirsch in his Stock Traders Almanac in 1972. An average rally of 1.3% has been noted during the last five trading days of December for the NYSE since 1950. December is typically also characterized by highest average returns, and is higher more often than other months.

The failure of the Santa Claus rally to materialize typically portends a poor economic outlook for the coming year; a lack of the rally has often served as harbinger of flat or bearish market trends in the succeeding year.

That last line in the quote is probably giving already-battered bulls further heart palpitations but let’s consider how oversold this market is and the chances of a rally coming.

Short-term breadth (the McClellan Oscillator) is near a level last seen at the February low this year and down four days in a row (four is a magic number) and at a level which usually generates at least a violent bounce if not an ultimate bottom of a down swing. My nifty-50-stock list has had 40 or more stocks on sells for two days now (48 on Friday, 43 yesterday, an uptick) — another sign, if not of the bottom of a down swing, or at least the beginning of a bottom. The VIX, solidly in bear-market territory above 25 has been screaming up for seven straight days. In standard deviations of average declines SPY is down more than has been seen in at least a year (I keep track of only a year). CNN Money’s “Fear and Greed” index is at two!

I guess what I’m saying is this market is down so far so fast it is bound to bounce any day, any minute… If short term breadth had clicked up Monday with the market at new lows I’d be more confident Santa is here with more than a lump of coal for the bulls, but one can not have everything, even at Christmastime.

I am a bear, and as recorded in these posts, have been pretty much from the top this year. With sector by sector falling apart, and stocks all over the place in bear-markets of their own, and the pot stocks becoming the leading sector at the end, it was rather obvious the bull was about to stumble and die.

But in the spirit of Christmas, let’s give bulls a bit of relief.

The last time I ventured a guess as to high an upswing might go, I suggested the 281 neighborhood (see the chart below) I’m not good at that kind of guessing but luckily nailed that one as SPY hit a high at 280.40 before ending the run around a closing 279. So I’ll venture another guess. If this is a fierce, multi-day run up into early January, in other words a “Santa Claus Rally”, it could get to the 250 neighborhood (see the chart) with 255 to 260 as formidable resistance beyond that.

(But, bulls, don’t let this bit of relief become a beacon of false hope, this will be, if it does come, another rally to sell.)

(click on the chart for a larger view)

#MarginDebt – The Reckoning has arrived…

You know those recaps that begin each new episode of TV shows with words like “Previously on Mad Men…Previously on Shameless…” or most appropriately in this case “Previously on Breaking Bad”?

For a year I’ve been watching for the end of this bull bubble and chronicled it’s slow rollover in the links in this link so let’s call this recap “Previously on Margin Debt”:

Margin Debt – the divergence that kills the bull

As has been noted before the trouble with this gauge from FINRA (it used to be from the NYSE) is that it is calculated and released always a month late. So during any given month one pretty much has to guess from price action what’s going on with the margin debt. Given how over extended it was, my guess October’s price action was probably finally killing the bull market (see the link above), and November would probably be the confirmation that the bear was out of it’s nine-year cave. Indeed, it was confirmation and the bear did emerge.

If one stares at the chart below for a while, it’s clear if history is any guide (at least based on the 2000 and 2007 bull bubbles) when margin debt comes apart it does not quit feeding on itself until the SPX declines 40 to 50 percent.

Ai-yi-yi, long-term holders!

But can this time be different? Of course it can. Margin Debt this time is coming down from higher levels than even 2000 and 2007. What if different turns out to be the same as 1929-1932? Talk about a “Presidential cycle” – the last “businessman” to be President was Herbert Hoover who presided over the worst bear market in history.

Different is never really different. It really means all things must change so that all can return to being the same.

America has had magnificent prosperity from 1945 to… Picking a time depends where one sits on the income inequality scale but I suppose for the vast majority of Americans the time was the 1980s when prosperity began to fray, the American dream began to fade. Read an telling opinion piece on this just yesterday – American Capitalism Isn’t Working. Needless to say it can be fixed but the fix is going to take a lot of year now. It’s going to be long climb back and we’ve not even hit bottom.

I could be wrong about this, of course, since market psychology can run amok even in the face of time and all sorts of fundamental foolishness.

In the meantime, as J.P. Morgan so famously put it “the market will fluctuate.” There will continue to be plunges to buy and bounces to sell. For those of us who actively play this game, that’s all that matters to make money.

(click on the chart for a larger view)

$SPY $TQQQ – if Santa’s rally is coming to town…

It appears it started today and triggered the likelihood of more to come tomorrow…

This should be a rally all the way to Christmas and possibly a bit beyond.

Why?

Because the market has been pounded hard to the downside since, in some index cases, early October. But more importantly short-term and long-term breadth, measured by the McClellan Oscillator and Summation Index (see the chart for today below), has simultaneously given buy signals for tomorrow’s, Tuesday’s, open. And they have done it with a telling divergence – see on the chart how deep the breadth plunge was on the lows in late October, and how the breadth numbers failed to confirm the price lows at the same levels last week.

In addition, my nifty-fifty stock list had 44 sells on the first plunge (usually the sign of a swing bottom) but could not muster more than 39 on sells during the last sell-off. Forty-five of them are now on buys.

I have major 3xleverage ETFs giving new individual buy signals for tomorrow’s open – FAS, SOXL, FNGU, TNA, TQQQ, UNPRO — and major bellwether stocks doing the same – AMZN, NVDA, TWTR, GS, BABA, FB. But neither TSLA nor NFLX can be ignored on any market bounce.

While AAPL missed an individual buy signal today by a whisper, this market is not going anywhere without it. However, I see, it closed at 174 and is down to 170 after-hours (a better bargain?). That AAPL has an after-the-close sell down raises the possibility the downside is not yet done.

Highly likely we are now in a bear market with Finra (NYSE) margin debt unraveling. If so, there’s going to be downward pressure on this rally almost every day. This is the time for traders to take advantage of sharp upside bounces like today and for long-term investors to lighten up on their holdings if not to get out completely. Every time margin debt has come apart (and this time it is from a higher level than both 2000 and 2007) the SPX has lost 40% to 50% before the bear market ended in 2003 and 2009. See this LINK – the divergence that kills the bull.

Bear-market rallies tend to be fast and furious so we’ll see how this one goes, but if it is truly a bear-market rally, it will as time goes by take a lot of time to recover from the its eventual bottom whenever it comes and at whatever price level.

(click on the chart for a larger view)

A falling $BID takes its toll…

Sotheby’s (BID), the art-auction house, has always been a telling market indicator.

It often confirms the market’s direction when the stock and the indexes are in sync but more importantly it sometimes leads at the turns, not at the exact turns in the shift from bull to bear and back again but as a warning, often far in advance (see the chart below).

When BID is no longer in sync with the general market, it is time to question the market’s current direction.

I have written about this before in this link:

$BID and $TIF – What do the rich folk do?

If the question is actually relevant, one could argue that when the rich quit buying art, it won’t be long before they are selling stock.

(click on the chart for a larger view)

#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)

$LVS $WYNN – “No one knows how to bankrupt casinos like I do.”

I made up the quote in the headline on this post but I’d bet the first thought of everyone — EVERYONE — who read it was Donald Trump said that?!

He might as well have (maybe he has sometime in his daily incoherence). Before he got into the money laundering business with the Russian Oligarchs, he owned casinos in Atlantic City. They all went broke.

He doesn’t own any gambling palaces anymore but it appears as President he’d like to help bankrupt those of his friends as well, like a hobby on the side. Both Sheldon Adelson and Steve Wynn are big Trump supports. Or at least they have been. Looking at what’s happening to the shares of their companies, one wonders if they still are. If they are, what’s the matter with them?

This probably has to do with the way Trump has managed to get the Chinese to quit playing games of chance but who knows? Maybe it’s just his “golden touch” in casinos is contagious? Or maybe, a more obviously, it might be, as much as fools wants to tout the supposed merits of a businessman in the White House, every fool needs to remember the last one was Herbert Hoover.

The worst is likely not over for LVS and WYNN, and the down staircases like these here (see the charts below) are likely going to get built soon in a lot of other stocks, and a lot of market sectors (even now take a glance at housing stocks and bank stocks and place bets).

(click on the charts for a larger view)

$SPY – Market breadth takes a toll on a “Big Wednesday”

In surfing lore, there is the myth of “Big Wednesday.”

The myth was immortalized in the 1978 cult film “Big Wednesday,” written and directed by John Milius, who also wrote such movies as “Jeremiah Johnson”, “The Wind and the Lion” and “Apocalypse Now.” It was Milius’ contention elite surfers cannot acquire true greatness, legendary greatness, until they face and overcome the great waves, the legendary waves that rise and surge and rage along the California coast from out of almost nowhere. No one know why they come or when they come but as the movie puts it: “They always come on Wednesdays.” Maybe what Milius had to say about surfers should also be applied to market traders and investors.

Today was a big Wednesday in the stock market.

The Dow was down more than 800 points, the Nasdaq more than 300, the SPY nearly 100 points. Big moves out of, I guess one could say, flat surf on Tuesday.

Actually this was no real surprise.

There have been signs everywhere. The general market indexes have been rising in price to all time new highs for the past month in defiance of long-term breadth as measured by the McClellan Summation Index, the $NYSI (see the declining red dots on chart below). That was rather amazing to watch, particularly the way the NYSI kept falling day after day despite the lingering bullishness on the indexes, and in the end, as always, the NYSI took its toll.

In a head-to-head battle between price and market breadth (the sum of all stocks rising and falling) it may be hard to tell when the battle will end but it will end with breadth winning every time.

Long-term breadth is the most effective indicator of mass market psychology there is.

Even as market appeared to be rising on a few tech stocks alone — AMZN, FB, NFLX, NVDA, GOOGL and most notably AAPL — breadth was saying the bottom was falling out. When those stocks began to crumble (look up charts of FB, NFLX…), this day became all but inevitable.

Signs everywhere. Besides the obvious relentlessness of the NYSI, the economy-sensitive housing stock have been falling for months with the banks beginning to tumble with them (many of the banks broke major price supports today just like in 2007-2008); news low began to outpace new highs in late September and accelerated on October 4th (which also happened in 2007-2008); there were also rare whispers under the surface like the day the Dow made a new high while more than 50% of the SPX stocks were below their 50-day moving averages (last seen at the exact market top in 2007).

So is this the beginning finally of the bear market to come that is just as inevitable? Don’t know yet. The market can plunge farther now (as I write this it is in overnight futures trading); it could even crash. But it won’t be a bear market for sure until it rallies and that rally fails below the previous highs in the price of the major indexes.

I seldom have anything to say about fundamentals, since the technical trumps the fundamental every time, but probably I should mention when one considers what comes next, the here-and-now is a bull market that is ten years old, interest rates are rising, unemployment is at its lowest level in forever, margin debt in stocks is near its high and at an astronomical level; there has been a tulip craze in crypto-currencies, a mania in block-chains, and the strongest sector in the market right now is the weed patch, marijuana stocks.

If this is the death of the bull and the birth of a bear, everything I’ve just mentioned will not be with us much longer.

(click on the chart for a larger view)

#MarginDebt – a sign of quiet desperation?

I gotta say, as a day trader, I’m beginning to wonder if this is the most bearish bull market ever – gap it up overnight with futures, sell it down all day.

I suspect this could be a sign some big boys are desperately trying to slip out of the market without anyone noticing, but what do I know about such machinations?

Needless to say, margin debt is at astronomical levels in comparison to 2000 and 2007. Since the chart below was published for August, the SPX has gone to a new high in September. We will not be able to see what margin debt has done at the same time since the data going into the chart calculation is assembled monthly (why is that?). But even if it goes to a new high also (a sure sign of continuing greed), it will only mean the bull market has more time to rise but also at an ever more risky height from which to fall.

(click on the chart for a larger view)