#HousingStocks and the three little bears…

It is nearly impossible to call a market top before it becomes obvious it has already happened but the housing stocks have come closest in the past to doing it.

Which is why I keep an eye on LEN, KBH, DHI, MDC, NVR, TOL, PHM AND TOL. If is all not quite well with the market (and the economy for that matter), they are often the first to show the strain.

As far back as December of last year I posted an entry here at what I suspected might the first warning sign:

Gonna Huff and Puff and Blow Your House Down

And again in early February of this year, as the SPY began to break down, being led by the housing sector, I posted a warning here to also watch the banking stocks:

Housing stocks – the tails that wag the banking dogs

And finally this last April 24th, another post looking back at the history of these tell-tale stocks:

Housing stocks – Remembering 2008

Which bring us to today.

The ten-year bond rate went through 3% for the first time since 2011, with no sign of turning back, and it appears (obviously) the housing sector did not like it (see the chart panel below).

In 2007, this sector had a long sideways to up move after the initial hard break that had all the stock pundits (on CNBC and elsewhere) proclaiming the market pull back was over. The banks were even making new highs at the time (they are not now).

Then the plunge began into 2008.

The hard break in this sector this year has many of these same housing stocks down 20% already. And they have moved generally sideways — some with a downward bias — since mid-February before today’s four and five percent drops as it appears they are breaking down from their months-long consolidations just like last time.

On the chart panel below, see LEN, DHI, TOL and HOV particularly.

Is this the sign the bears have noticed this Goldilocks bull market has been eating their porridge and sleeping in their bed for far too long? There is a chance they are about to chase her out of the house running for her life into the deep dark forest of the time to come. And if so, the banking stocks will scurry after…

(click on the chart for a larger view)

Declining Margin Debt – the bullish scenario

Margin debt, money borrowed to leverage the market, has for now topped and is in decline. Before the top in February it had reached levels far beyond the surges in 2000 and 2007, which could be an ominous indication of what is to come when and if margin debt continues to unravel.

See the chart below and the charts in the link.

Does the fact that it is coming down as major players try to ease out of their leveraged positions mean the market, measured by the S&P 500 stock index (SPX), has also topped? For the time being it would appear it has but history would say that’s not necessarily so.

MARGIN DEBT AND THE MARKET

From the link:

“The first chart shows the two series in real terms — adjusted for inflation to today’s dollar using the Consumer Price Index as the deflator. At the 1997 start date, we were well into the Boomer Bull Market that began in 1982 and approaching the start of the Tech Bubble that shaped investor sentiment during the second half of the decade. The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge began in 2006, peaking in July 2007, three months before the market peak.”

Simply put, that would mean there is at least another new high coming in the new few months (the summer rally?) before any significant bearish behavior in the stocks.

The heads up is to say those highs, if they come, will be opportunities to sell, or at least tighten stops on long-term investments. A second look at the chart shows that the SPX, coming off highs in margin debt, declines close to 50%. Those were real bear markets. The next one could be worse. Regardless, no matter how low it goes, it is best to be avoided.

There are two possibilities it could be somewhat different this time. One, margin debt itself could surge to another new high along with a strong months-long market rally (see the jingle-jangle in 2015 on the chart); or two, the top is already in and the next leg down (given how astronomically high the margin debt is beyond 2000 and 2007) could be a dead bull dropping right out of the sky (they can not fly forever).

(click on the chart for larger view)

#BankStocks – as GS and DB tumble…

It is on my my mind that we’re seeing 2007 all over again in the financial sector stocks.

During the pullback in the SPX since January, housing stocks and the bank stocks have been breaking support and beginning to “stair-step” down (see the chart below), led to the a possible 2008 cellar by DB and now with GS (a bellwether, no less) following suit.

The rest of those I follow – JPM, BAC, WFC, USB – are sitting right on support. It the market takes another hard hit (like tomorrow?), they could all be in solid downtrends.

Needless to say, as the banks and the general market tend to feed on each other in up trends, they can also eat other alive to the downside too.

(click on the 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 – 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 – 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)

#MarketTiming – What a “long” glorious week!

This is an update of this post in this link, made last weekend:

#MarketTiming – Time for a bounce…

Wow! The predicted “bounce” has turned out to have been an understatement to what happened in the market this week.

Remember the 1961 movie “The Absent-Minded Professor” with Fred MacMurray, which introduced the world to flubber? Well, this week was a FLUBBER OF A BOUNCE, and since today it turned long-term breadth positive it is a bounce that has likely turned into a rally.

If I had to guess, instead of just following along, I suspect the pause begins tomorrow. If it gaps up, the rest of the day will likely be flat as the monthly options expiration plays out. If it gaps down or opens flat, there’s a good chance it rises again to the close and starts the pause there.

Just guessing this stuff…

Regardless, it has been a truly glorious week for swing traders – among the leveraged index ETFs TQQQ is up 15.8%, TNA up 12.1%, UPRO up 10.7%, even SVXY in the blistered VIX complex is up 15.3%. The at-the-money monthly SPY 263 call from Monday’s open, expiring tomorrow, is up 179%. Among the bellwether stocks AAPL is up 9.2% (that is a heavy market-cap lift in an awfully short time), BIDU up 13%, NFLX up 11.2%. I’m going to update my bellwether stocks later but suffice it to say here all twelve as of the close today are in the black for the week.

Now for a few cautionary notes.

If there is any trouble with this, it is that it has been a straight up move since last Friday. All the major indexes and most of the sector ETFs are up five days in a row. Much of the market is wildly overbought on short-term basis. This up move has been crazy. It is easily three standard deviations of an average advance and done in five consecutive days! (See the histogram on the Nasdaq Composite chart below.) I can’t even remember the last time anything like that happened, and obviously not in the last six months of this huge bull market. Forty-seven of the stocks on my nifty-50 stock list are on buys with 31 overbought (see the swing trading signals below), and yet we are not at new highs. This is going to have to have a pause, some backing and filling, then a resumption of the upswing before one can be sure it is yet another bullish rally in the on-going bull market.

The trouble with rallies out of hard drops, like the one the market took before this bounce, is that by the time they are obvious, they are sometimes over.

In addition, if the fierce sell-off that has preceded this bounce was a shot across the bow of the bull market, it is possible the buying this week is the last leap into the market by those long-ago left behind — if so, and if this rally fizzles before new highs (or even at marginal new highs) then this could be an advance before a mighty, mighty big flop.

Whenever this ends, we are going to have one of the biggest bear markets in history. If you don’t think so, you must not know history or you think “it’s different this time.” History says it is never different this time.

Even flubber bounces had to come back to earth.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Buy (Day 1).

PRICE: Buy. (Day 5).
SHORT-TERM BREADTH: Buy. (Day 5).
VOLATILITY: Buy, (Day 5).

CONTEXT:

SPY CLOSE – 273.03
QQQ CLOSE – 165.70
CNN MONEY’S FEAR AND GREED INDEX: 11, falling, extreme fear level).
NIFTY-50 STOCK LIST: 47 Buys; 31 Overbought, 0 Oversold, 1 new buys today, 1 new sells.

(click on the chart for a larger view)

#MarketTiming – Time for a bounce…

Just spent a week in New Orleans watching Carnival parades, eating too much food and listening to lots of great music.

So what did I miss in the markets?

Just kidding. Saw all that too. Long time coming but again, just as everyone started to believe it was, it is NOT DIFFERENT THIS TIME.

The question to be answered is was that just a correction after a great bull run or is that the first plunge from a new bear born? Probably the bear is being born but we’ll have to see if it is so in the fullness of time.

For now, after Friday’s further plunged to another new low and reversal back into positive territory, it’s likely the market will bounce this week. How high and for how many days is anyone’s guess but a bounce is what to look for, and, as they say, if one sees what one is looking for, jump all over it.

An important note, the lows and tests of lows last week set up a divergence with short-breadth (see the green circle in the upper section of the chart below). That is an aggressive trader’s buy signal. Works like a charm in bull markets. Doesn’t work all the time in bears. What happens next on that indicator could tell a lot about what kind of market we’re going to have going forward.

All swing signals registered buys Friday but the long-term breadth remains negative indicating so far this bounce will only be a bounce.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Sell (Day 10).

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

CONTEXT:

SPY CLOSE – 261.50
QQQ CLOSE – 156.10
CNN MONEY’S FEAR AND GREED INDEX: 10, rising, extreme fear level).
NIFTY-50 STOCK LIST: 19 Buys; 2 Overbought, 29 Oversold, 9 new buys today, 6 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)