#MarijuanaStocks – gains are high in the weed patch

The vast majority of stocks move with the market. And some stocks move more than others, both up and down.

Take the marijuana stocks as the prime example.

At what may have been the end of the bull market last August, this newcomer stock sector was leading the market (a telling sign the bull was getting too high) and with the fall in the Fall, its stocks all went down together.

Even the sector’s leaders took a drubbing CGC, which Constellation Brands had just put a ton of investment money into, dropped from a high of $59 to a recent low of $24. TLRY, an extremely hot IPO screamed crazily from its IPO price close of $22 to a high of $300 in two months (its founder may have been the fourth richest man in the world for one day…on weed) and then plunged to an almost still respectable low of $70.

What fundamentally changed at those companies in the three months the market sold off and took them down? No much, if anything at all.

So coming into the market bottom, that was an obvious vibrant sector that needed to be watched for a big bounce.

And, indeed, the marijuana stocks have not disappointed any swing traders looking to make bear-market rally plays (see the chart panel below). Since the December 26th blog buy signal here, CGC has rocketed 52%, CRON 27%, GWPH 31%, ACB 37%, and TLRY had gained 37% until it was knocked down to a “mere” 13% gain in today’s action.

That hit on TLRY today is why I bring all this up now.

There is speculation TLRY’s drop was caused by fear that an expiration of the lock-up period on IPO insiders would bring on selling, a self-fulfilling prophesy if ever there was one but then most moves in the market usually are. With the exception of GWPH, the granddaddy stock in the sector, the rest of the stocks took hits in one way or another today along with TLRY.

It was on some news, profit-taking, whatever, but it was a hit in the leading sector on a market up day. That is an alert.

In the blog post below the suggestion was and still is to play defense, defense, defense during this rapid rise in the market because of the likelihood this is a bear-market bounce that can go ragged at any moment, and in some sectors die on a dime.

Bull markets end and bear markets begin on one down day. And sector rallies do the same.

Today may or may not be the end-of-the-swing day in the weed patch, but it turns out to be, as we used to say in the 60s and 70s and the bear can growl now: “Don’t bogart that joint, my friend.”

(click on the chart panel for a larger view)

$SPY $QQQ – Defense, defense, defense…

With $SPY up 5 days in a row and 8 of the last 11, and with the Nasdaq up 5 days in a row and 10 or the last 11, short-term breadth turned down today…

How many times have we seen that before?

In addition, my nifty-50 list of stocks started to turn on Tuesday from 48 buys (and 40 overbought) on Monday to 22 on buys (and none as yet oversold) today. CNN Money’s Fear and Greed Index has finally, begrudgingly it seems, managed to crawl out of its ‘extreme fear” reading to a mere “fear” reading today.

This was been a spectacular bounce from extreme fear but at this point maybe too spectacular. Almost every index is up five days in a row. The Nasdaq Comp is well beyond two standard deviations of an average advance when one is usually enough to throw the advance into a pullback or a sideways slide (see the upper red line on the chart below). And that’s despite the AAPL news blip in the middle of the rally.

SPY has also moved that much but that ETF, mirroring the S&P, has reached strong resistance at its 260 level.

Usually, this would be called “too far, too fast.” This time it looks like “too much, to soon.”

A lot of shorts have been scorched. A lot of traders are sitting on big gains in no time at all. TQQQ for example is now up 35% in the past 11 days, NFLX 38% and looking to gap up more tomorrow. There’s momentum in those numbers so I suspect there will be more upside to work it off but at the moment with a hint from a slight falter at an astronomical level from short-breadth it could be time for a dip.

One suspects those left behind on this bounce are beginning to believe it’s more than a bounce, and one suspects long-term holders are holding their breadth in the hope it is (sorry, boys, just look at how far anything is from its high and it’s overbought already?).

The market can go up as high it wants and for as long as it wants, of course, but this really looks like as good as time as any for a dip, probably tomorrow.

And since this appears to be a typically fierce bear-market rally, any dip can get carried way with itself and become a dose of despair…the play is defense, defense, defense…

(click on the chart for a larger view)

$SPY – Simple black candle tops…

Let’s call this a KISS moment as in “Keep It Simple, Stupid.”

Again and again, market upswings end in black candles – a hanging man, a shooting star, a dreaded doji, or just a sign after six days up and two blasts of nothing-much news the buyers get tired. Not always it’s a black candle ends the rally, but it happens often enough, me thinks, for swing traders to take notice.

On November 26th, it was suggested this market would rally in this post: If Santas’s rally is coming to town… and on the follow up in this post: Fast and furious the bear-market rally rises… it was suggested this swing has the speed of a bear-market rally and it was noted:

“If I had to guess, I’d pick the 281 neighborhood as a place where the SPY may settle this trip up (see the chart). Maybe even a bit higher. It may not take long or it may chop up until January. After that all indications are we have not seen the eventual lows of this bear.

Well, it didn’t take long. SPY came within 60 cents of that 281 number today and sold off. Hence the black candle.

So is this swing done?

Could be but maybe not… If not the simplicity of this looks truly stupid, if so I suppose it looks…smart? The key to these singular candle moments is what always comes next. Looking back over the chart below, it appears, what comes next is the smart part but if it breaks that red line at 281 it will likely go considerably higher (more Santa gifts for bulls and those who want to jump out of the house from an upper-story window).

Must note that all of my bellwether stocks – NFLX, AMZN, NVDA MSFT, GS, BIDU, BABA, FB, TSLA, AAPL — were up today from yesterday’s close, and ALL OF THEM were down from today’s open. In other words, in one of the posts linked above it was suggested in a bear market there would be selling pressure nearly every day – today during the day it was obvious this was one of those days.

Tomorrow could another and it could bring more serious selling if the simple black candles have their way.

(click on the chart for 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)

$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)