$FB – run amok and tumbling down…

Facebook (FB) has been able to run on its own since being founded and going public.

So what, as it turns, does the company do? It runs amok.

As the NEW YORK TIMES INVESTIGATIVE REPORT revealed this week the company has been reckless and irresponsible and instrumental in the Russian invasion of the US 2016 elections, and its executives have “delayed, denied, and deflected” criticism through the entire controversy.

We’re talking sheer greed here, capitalism as its ugliest.

But it appears its time of running unfettered is up as Congress focuses on bringing regulations to finally make it responsible for the harm it has done and to insure that it does not do it again. In the end Facebook will be better off for it…or it will be dead (hard to believe? remember MySpace?).

As a result the FB stock (see chart below) has proved once again in financial markets’ store there all always both escalators up and escalators down,

Regardless, to state the obvious, while investors may see profits evaporate in fleeting time, traders can make money on both the ups and and the downs.

(click on the chart for a larger view)

UPDATING $RACE – Ferrari heading to the pits

This is a look back.

In August there was this post:

It’s been a great run for Ferrari but its $RACE is run

In which it was said:

If this race was hill climb, RACE obviously finished in the money.

Nothing like stair-steps in an uptrend.

But, a couple of observations: 1) the stock has not had a breakdown from a boxed consolidation until recently; 2) there’s also a small head-and-shoulder top formation inside the box; 3) when leader flag it’s a warning for the general market too.

So what now? It’s short the bounces until it makes a new high, and as long as it continues breaking to the downside.

And keep in mind this could be a warning in a possible transition from bull market to bear market.

Simply put, no stock goes up forever. At least not in a trader’s world. I’m sure Warren Buffet might disagree but then he’s been investing in a century time frame.

Since August, RACE has a rally back up to 140 and has rolled over as expected. That failing rally was the opportunity for long-term investors to take profits and get out.

See the chart below which has been updated from the chart in the link.

Obviously the trend has changed to a downtrend. RACE, step by step, is now building a down staircase.

Its race run Ferrari is pulling into the pits.

(click on chart for a larger view)

Five sessions in the marijuana stocks

Going into the market selloff last month, marijuana stocks were the leading sector in the market.

The stocks were flying on Constellation Brands certification of the sector’s profit potential with a $4-billion investment in Canopy Growth Corporation (CGC), then came Canada’s blanket legalization of the weed, Michigan in this election becoming the 10th state to legalize recreational uses in the U.S., following pot pioneers Washington and Colorado and others.

And now Jeff Sessions, the leading federal marijuana-legalization opponent, has been forced to resign as U.S. Attorney General. While Trump forcing Sessions out no doubt has more to do with Robert Mueller’s Russia investigation, it does have the side effect of removing another obstacle in the road to a possible national legalization.

The leading stocks in the marijuana sector surged today on the Sessions news but they were already on the run with the market bounce.

Long-term breadth (measured by the McClellan Summation Index) turned up after a 40-day decline on October 31st, giving a clear market-timing signal to buy the market on the open on November 1st, five trading days ago.

CGC is up 23.7%, TLRY 41.8%, CRON 29.2% and the ETF for the sector, MJ is up 16.9% (see the charts below, the white flags on the lower right tell the gains far per $100K invested).

In addition GWPH, a stable medical marijuana stock that has been around for a long time in the US, is up 8.9%.

All in five trading days. This sector is a perfect example of the splendid simplicity of the long-term breadth signal. Coming into the market selloff as a leading sector, it was highly likely (almost a certainty) that as the market’s drop stopped, the sector’s stocks would bounce fast and high…so to speak.

(click on the chart for a larger view)

$SPY – Is the bouncing cat dead?

The general market has bounced from its low last Thursday.

The actual buy signal was issued on the market’s short-term breadth indicator for Monday’s open three trading days ago. In that time the 3x-leveraged ETF, TQQQ (the Nasdaq) is up 5.8% (the Nasdaq), UPRO (the S&P) is up 5.1% and TNA (the Russell small caps) is up 8.8%.

All this is fine and dandy in reaction to last week’s fast, severe sell-off.

Now the question rises: Is this a classic “dead-cat bounce”?

In stock market terms, as defined by Investopedia, “a dead cat bounce is a temporary recovery from a prolonged decline or a bear market that is followed by the continuation of the downtrend.”

Despite these last three days, the overall market hasn’t been able as yet to turn the all-important long-term measure breadth (the NYSI, the McClellan Summation Index) up, and today its short-term component (the NYMO) clicked down.

How many times have we see that before — the market pops out of a deep drop and the NYMO turns down in negative territory.

Dead cat? In addition the SPY ends today in a dreaded doji (see the chart below). Dead cat? Sure looks like it. If so, the market’s current recovery will roll over in short order…probably tomorrow. Maybe Friday (or maybe Friday too).

However, this is all could be (and probably is) a positive sign for swing-trading bulls. Since last week’s lows my nifty-50 stock list has moved from 40 stocks on sell signals (usually the bottom or the beginning of the bottom of a swing) to all 50 on buys yesterday. They clicked down slightly today (another sign of the cat) but the last time all this happened was March 5th at the end of the three-day bounce out of the March low. The cat that died that day gave rise in the end to the spring rally. If this bounce dies now, it very well could result in a bottom for a trading rally.

Such a rally may be, in the fullness of time, the last of this bull market and an opportunity for buy-and-holders to lighten up or to raise protective stops before the real bear growls, but it could also be a stock rally that rises all the way to the end of the year.

(click on the chart 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)

$LVS and $WYNN – winning on the losing gambling stocks

The big tumble in the gambling stocks is probably another fall out (fall down?) from the Trump trade war with China.

Who woulda thunk the Chinese would quit the gaming tables in Macao, where both LVS and WYNN have major casinos, over a little tariff tiff?

Then again, this might be Steve Wynn, at WYNN, shuffling off the world stage in a Me-Too shadow, or maybe Sheldon Adelson, at LVS and one of Trump’s biggest campaign contributors, getting a mega-dose of whatever…

As they say, you never know how the chips are going to fall.

Actually, you can know.

Take those rectangles on the LVS and WYNN at the top of the charts below…Those are Darvas Boxes, pioneered by Nicolas Darvas years ago. Play with those enough by drawing boxes around price consolidations and taking the trade as it either comes out of the top or in the cast of these two out of the bottom of the box, and then add in a moving average to mark the path of least resistance and one can be up 23% since summer in LVS and 35% in WYNN by being short the downs in those stocks.

There is also a lot of simplicity in the gamble that is the stock-market game.

Also, take note these leaders in the gaming sector also show even in a raging bull market, there’s always a bear market somewhere.

So what now? More to come. There are no signs these two stocks are finished with their fall, and they will have to base, going sideways, for a long time across some bottom before they can recovers and have any chance of racking up winnings on the long side again.

(click on the chart for a larger view)

$TLRY – When the dummy becomes the genius

Can a dummy become a genius?

With the right setup and a dose of luck, in stock trading, of course. Maybe not to the level I am about to chart (see below), but it happens more often one might think.

It’s the setup that creates the luck. And it takes persistence and experience to recognize the opportunity, and discipline to play it out.

In this link in early August – Buying IPOs For Dummies— I suggested the setup:

In the tradition of the “For Dummies” books, I give you the short and sweet on trading and/or investing in IPOs:

Buying into an IPOs 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 can close by and obvious – either below the high of the opening day or below the low of the opening day depending one’s own time parameters and risk tolerance.

Whatever the latest stock IPO, there is nothing more to say except maybe “Keep it simple, dummy!”

That having been said, let’s take TLRY (Tilray, Inc.), a timely recent IPO launched in the wake of the Canadian legalization of all marijuana products.

Talking about smokin’ hot! According to the setup (see the chart below), that was a buy at the $29.77 close the day after its IPO day, July 20th. If one happened to gamble on it as it gaped above its IPO high that day at $24.25 or so, all the better. At $29.77 it is now up 400% in two months.

This is a stock!

Granted this doesn’t happen this big this often — this took a MASSIVE DOSE OF LUCK — but it does happen regularly to a lesser degree (maybe I’ll bring up MESA next time).

By the way, if TLRY breaks that fast average on the chart be ready to get out of Dodge. That’s a parabolic and it’s likely to be a violent break. In fact today (at the moment) looks like a blow off. Might want to leave town any minute…

(click on the chart for a larger view)

Bitcoin and its buddies on the blockchain

If ever there was a bubble that was obvious it was Bitcoin and its buddies – the other cryptocurrencies and finally the blockchain stock mania that lasted what…a week or so?

Every time someone would pump Bitcoin or whatever other Oreocoin someone dreamed up the night before last, I’d ask “Can you buy a snickers bar with that?” I suppose you can somewhere but I’ve yet to find anyone who has.

I thought this pseudo money would crash when it was reported that New Orleans lap dancers were having bar codes tattooed onto their breasts to be able to accept crypto-scans as tips.

Then along came the blockchain stocks (see the wild charts below), which is to say companies like Kodak (KODK) changing its name and tripling overnight, or Riot Blockchain (RIOT) which looked as if it was the brain child of two or three guys smoking weed in Colorado who became multi-millionaires almost as a drugged-out joke. Everyone tells me cryptos may go bye-bye but blockchain technology, stringing together each and every financial transaction, is here to stay. Of course, a million computers all over world grabbing and archiving when someone (say, in Latvia) finally gets to buy a snickers with a Bitcoin.

How much electricity goes into that single candy bar?

And of course, as history would have it (always), the obvious became utterly obvious when it all finally crashed.

These is just a nutty time, typical end-of-a-bull-market craziness. Keep that “end-of” in mind. It takes a while and it’s virtually impossible to pick a market top of significance but bit by bit the history of how it happens keeps showing up. AAPL hit a $1trillon market cap probably because the company has enough cash on hand to buy that prize for itself. Then AMZN hit $1trillion too – for one day.

One of these bellwether stocks — AAPL, AMZN, FB, good heavens GS –is going to take a tumble that matters and actually follow through to the downside while no one is really paying attention.

When that happens a bear will be here. Maybe tomorrow. Or maybe today.

(click on the chart panel for a larger view)

UPDATE – $SPY #Options trade on a “Turnaround Tuesday”

Pretty great day in the gone-long options world.

Bought the Wednesday 287 call based on the immediate post below speculating that today would be a turnaround day suggested by history and by David Bergstom’s analysis at the “See It Market” site.

Several notable stocks were also up more than 3% from the open: NFLX, AMZN, BABA, and AAPL almost at up 2.95%. TQQQ, the Nasdaq 3xLeveraged ETF, was up 3.8% from the open.

An $AMZN trade that was a coulda, shoulda, but not a woulda…

Shared the chart below of AMZN around the internet after the close last night with the suggestion that this was an obvious setup to buy puts or sell calls.

It was prompted by this post here yesterday:

$AMZN – a leader stumbles?

The idea was that the stock would continue its stumble today (and maybe for a week or so). See the blue boxes marking the spots on the chart when that has happened before as it comes off overbought (the yellow color coding on the chart).

Since long-term breadth had just turned down after a long run up and everything in the market was pretty much overbought, it was likely there would also be market pressure on the stock besides it being overextended on its own. Then there was that history thing in play again – the best indicator of all since it repeats or rhymes or whatever but it mostly whispers what’s going to happen next again and again.

It was a trade for today’s open. The most aggressive and least expensive entry would be an in-or-at-or-just-out-of-the-money put expiring Friday.

I coulda and probably shouda but I did not trade this. In general I don’t like stock options, don’t like the spreads, don’t like the lack of liquidity when it’s time to close it out, don’t like the complications (all those Greeks and spread strategies). I like my options trading plain and simple – it either goes up or it goes down, it is either a call or a put. I trade SPY options.

I threw this out there last night for entertainment purposes primarily, and, as it turned out, it turned out to be quite instructive for anyone who does like stock options. To each his or her own way to play these money games…

AMZN had a big move down (as history whispered it would). The 1995 Put, expiring Friday, from the open peaked during the day up 260% and ended the day up 161% (see the companion chart below). That’s somewhere between $26,000 and $16,000 on a small $$10K capital commitment. Not bad for a day trade? This could drop more tomorrow making that put even more profitable but come on…it’s a home run with no need to risk an overnight reversal.

And besides, moves like this happen again and again, nearly everyday, somewhere in the market.

I didn’t even notice TWTR. Market-timing, options-trading bears must have made some serious money there today.

(click on the charts for a larger view)