Margin Debt – setting up a S&P 50% plunge?

FINRA margin debt is a long-term indicator and always reported a month late.

So now we have the August numbers, down 6% month over month, as reported by Advisor Perspectives Monday (see the chart below). But it’s not the margin number that is concerning, it’s the chart pattern for the long term.

In the 1990s margin debt chugged along in a reasonable bullish fashion before finally going ballistic in 2000 just before the dot-com bubble burst. Then again, coming out of the 2003 bear market, it moved up gradually before going ballistic again in 2007 on a bubble in housing, fueled by excessively low interest rates for too long a time, and we had the financial crisis of 2008/2009. And now in 2018 margin debt has pushed higher than ever before on deregulation and tax breaks to corporations fueling stock buy backs, and some would say on a lot of hot air.

It the fall of last year it topped and has not gone higher this year. That is ominous for long-term investors.

Consider the pattern on the chart below.

Note that in both 2000 and 2007 the market made a new high after margin debt topped and fell. Each time on the chart, the debt numbers formed a plateau lower than the peak as the market made those new highs.

What comes next?

That is always the most important question in the stock market.

In 2000, the S&P plunged 50% (the Nasdaq, 78%), and in 2008 the S&P plunged again down 56%. Note the pattern in place on the chart now. Same old same old.

So is another 50% bear market imminent? It’s likely because although they always say it’s different this time it never is, even though it sometimes takes a long slow time to get it done.

This is a bit tricky at the moment because of the late reporting. One has to guess what is happening with margin debt behind the monthly market moves. Since the August drop in price is reflected in the margin debt drop (big professional players lightening up, maybe desperately lightening up), and since the market has rallied so far this month, one can guess margin debt may move up a bit here in September but not a enough to head off what is to come.

And since the market likes to fool everyone into complacency at the last possible moment, a new high here would probably be just enough to lock long-term investors in when they should be at least shuffling, if not running, to the exit.

If by chance it doesn’t move up, October could become an October of old, which is to say…uh, crash… crash… crash.

(click on the chart for a larger view)

$SPY – trudging higher but watching for a reversal day

MARKET TIMING SIGNALS FOR 7/16/2019.

Long-Term Breadth (NYSI): BUY DAY 12
Short-Term Breadth (NYMO): Sell DAY 1
Price: BUY DAY 2
Nifty-50-Stock-List: 20 BUYS, 4 NEW BUYS, 13 OVERBOUGHT; 30 SELLS, 4 NEW SELLS, 11 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 57, falling, GREED LEVEL.
Bellwether Stocks: 11 UP, 4 DOWN.

WHAT?

The market moved sluggishly higher today.

In the case of SPY it was five days in a row, and except for a minor blip in the middle of the advance, TQQQ would be the same. SPY, by my measure, has been overbought for three trading days, which is often all she wrote, but not always.

During this entire move up, my nifty-50 stock list has never had more than 25 stocks on buys. The last time I saw above thirty was two weeks ago (37 on 7/1). Those stocks are trudging through a muddle. That might or might now mean something. Notably TNA, the 3xLeveraged ETF for the Russell small caps has gone nowhere.

Still SPY has managed to make new all-time highs, which is either ragingly bullish, or it’s about to die on the first down day.

WHAT NEXT?

Let’s consider that first day down for a moment, especially since short-term breadth, which has been putting in highs below high (see chart below), turned down today with SPY overbought and up five days in a row (see this many times before a dip).

Trader Vic Sperandeo noted one time that any time a major index goes four or more days in one direction at the end of an intermediate advance or decline the first reversal day is the change of trend. Trouble is I don’t think he ever quite defined what constitutes an intermediate advance or decline. One can look at charts and see he has been right again and again and again but then there is that one time…and that one time can kill anyone who doesn’t play defense. This advance is essentially five weeks old with a minor drop in the middle, projected here in this post below :#MarketTiming – a black candles Thursday leading to….

In addition SPY ended the day in a black candle. The black candle makes today’s high (301.13) and today low (300.19) key numbers, above the former there more rally to come, below the latter a dip to the downside, a easy read of price action. Those highs below highs on the NYMO (again see the chart below) are a warning. There is a divergence in CNN Money’s Fear and Greed Index not confirming the new highs. There’s the Russell stall so far… These things are beginning to pile up.

Five weeks of solid gains may not be the end of the upswing but it is worth guarding against Trader Vic’s “first reversal day.”

All that aside. until long-term breadth turns down, the long side will remain the side to play. Dips are to be bought in the indexes, the ETFs, stocks. Eleven of my bellwether stocks were up today with decent gains, see AAPL, TSLA, SHOP, BABA as examples. So there is still strong buying in big names, which is probably the place to focus most trades.

It always sounds stupid with one says it but it is the one simple, absolute truth — the market will go up until is doesn’t.

(click on the chart for a larger view)

#MarketTiming – back to across-the-board buys…

MARKET TIMING SIGNALS FOR 6/14/2019.

Long-Term Breadth (NYSI): BUY DAY 6
Short-Term Breadth (NYMO): BUY DAY 1
Price: BUY DAY 1
Nifty-50-Stock-List: 18 BUYS, 5 NEW BUYS, 9 OVERBOUGHT; 32 SELLS, 1 NEW SELLS, 3 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 39, RISING, FEAR LEVEL.
Bellwether Stocks: 10 UP, 10 DOWN.

WHAT?

The question in the last market-timing post here was the market due for a Stall or a Drop?.

With barely two days down in the indexes it appears it was merely a stall.

The nifty-50 stock list worked off its overbought condition during the week from 41 stocks on buys Monday (28 overbought) to 15 on buys yesterday. Buy signals in the list clicked up today to 18 on buys with only 9 stocks overbought.

WHAT’S NEXT?

Since long term breadth continues to climb, assume there will be more upside with an up day likely again Friday.

Of particular note: CNN’s “Fear and Greed” Index put in a low above a low today (see its chart below with the Nasdaq Composite) as it works its way higher. It is still at a “fear” level so there is more room to move up.

(click on the chart for a larger view)

#MarketTiming – tracks of the bear?

Sometimes, as they say, it’s not a stock market, it’s a market of stocks:

(Click on the chart to see the full twitter thread)

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(Click on the chart to see the full twitter thread)

#MartketTiming – Swing Signals 4/10/19

THE SIGNALS AS OF 4/9/19.

Long-Term Breadth (NYSI): BUY FROM 4/10.
Short-Term Breadth (NYMO): BUY FROM 4/10.
Price: BUY FROM 4/10.
Nifty-50-Stock-List: 21 BUYS, 5 NEW BUYS, 11 OVERBOUGHT; 29 SELLS, 3 NEW SELLS, 3 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 70, FLAT, GREED LEVEL.
Bellwether Stocks: 14 UP, 1 DOWN.

OF NOTE, $10K Swing Trades, SPY OPTIONS:

SPY CALLS, 287, 288, 289 STRIKES FOR WEEKLY 4/12 EXPIRATION OR MONTHLY 4/18 EXPIRATION.

OF NOTE, $10K Swing Trade Stocks:

BUY ON OPEN 10/11: GS, MSFT, AMZN, FSLR, NVDA, WYNN,TWLO, TSLA. STOCK OPTIONS.


WHAT’S NEXT?

As was suggested the post below in regards to yesterday’s drop in the market and pull back in short-term breadth: “Most likely it’s a mere dip to the zero line on the NYMO.

And so it was.

With today’s pop (not so much on the Dow but worthwhile pretty much everywhere else), the NYMO and NYSI are once again positive.

Kind of get tired of saying it over and over again but as long as the NYMO and/or NYSI remain positive overall the usual play is to be long, take profits when the stocks give sell signals, and buy coming out of dips but have to say it since it happens over and over again.

Fourteen out of 15 bellwether stocks were up, 40 of the 50 stocks on my nifty-50 stock list gained, all eight of the 3xLeverage ETFs I follow — TQQQ, TNA, UPRO, SOXL, FAS, ERX, LABU, FNGU, up, up, up…

And most notably the NYMO put in another low above a low (see the chart below) so until further notice expect follow through – this is broad market run to the upside.

(click on the chart for a larger view)

$SPY – six days up into a black candle

Does the market pause here, pull back, or continue to rally?

My bias going into Friday is a pause, possibly going into a pull back.

But, thanks to SPY rising six days in a row, putting a black candle on the price chart and an inside day today (see the chart below), it’s going to be easy to see the next move, either up or down. Every black candle, which I simply define as a day in which the close is higher than the day before and lower than its open, is a clear sign of indecision in the market and an inside day is a further indication of indecision. The indecision obviously is resolved above the high or below the low of the black candle day. It’s that simple.

At the moment, the key numbers on SPY are 287.76 at the high and 285.75 at the low.

Of course it takes a down day to start a decline and SPY, at six days up, has not had one but the Nasdaq Comp, after five days up in a row, was down slightly today and there were eighteen sell signals today on my nifty-50 stock list, CNN’s Fear and Greed Index is overbought in the greed zone… All of which contribute to my bias.

On the other hand, long-term breadth (NYSI) continues to rise, short-term breadth (NYMO) also is positive so it’s likely, when and if it comes, the dip will be more of a pause than a deep pullback.

In the meantime, it might be time for swing traders to tighten stops to lock in profits. It’s been a good upside run this week with TQQQ up 3.8%, TNA, up 3.1% and UPRO up 2.5% at today’s close.

Among the bellwether stocks FB is up 4.9 %, FSLR up 3.9%; AAPL lagging but up 2.1% (watching for a short soon); remarkably WYNN is up 13.1% and AMD up 10.4% and GS up 4.2% and BAC up 4.5% at today’s close. All of these are four day trades from the market-timing buy signal on the open Monday.

(click on the chart for larger view)

#MarketTiming – from bearish to bullish to bearish again…

On Monday, this blog posted that this stock market at this juncture is —

TRICKY, TRICKY, TRICKY.

No kidding.

At that point, for Monday, the market, according to many technical indicators, was poised to sell off, ending the splendid rally from December. But then it didn’t sell off.

Instead, yesterday, it gave a tentative, but likely, indication it was going to continue to go up into a typical bull-market cycle advance, and today on the opening gap and with its pre-lunch follow-through from the open, it appeared the snorting gods were in their heaven and all was right with bull world.

Then, during the day a quick slide took everything negative. Not by much, hardly enough to notice on daily charts at the end of the day, but it was enough to turn long-term breadth negative again (see the dots on the chart below), which makes being long the market dangerous and while short-term breadth did peek above the zero line for a day a look back looks pretty bearish (the yellow line on the chart below) with highs below highs generally all the way back to the beginning of the rally.

Tricky.

I’ve long said this is the rally to make everyone believe a bear market did not begin in September of last year, that the bull market from as far back as Obama’s first term was resuming and continuing and it may still be (it sure looked like it yesterday), but it will not surprise me if a benign dip like today turns into a raging grizzly while the buy-and-holders sitting at The Palm or at Smith & Wollensky are wondering why the steaks are taking so long.

For today I’m posting my “Black Candle” chart. Black candles shows up when an index or ETF or stock or whatever one’s trading closes higher than the day before (usually on a gap) but lower than its open. There are candlestick names for these kind of chart patterns but just plain “black” is fine with me.

Today, notably, we had black candles on SPY (below) and TQQQ, and remarkably on FNGU (the leveraged ETF for the FANG stocks). They don’t always signal tops of swings, although I can’t think of anything else that comes as close (see examples on SPY below), but they are alerts. They do signal sudden indecision. And they are useful markers, pretty much as simple as it gets — go long above the high of the black candle, go short below the low of the black candle as the indecision gives way to a direction either up or down.

(click on the chart for a larger view)

#MarketTiming – Bulls doing what they needed to do

What they needed to do was to push the market up some more.

In the process, the all important long-term breadth (the NYSI) has turned positive to go along with the short-term breadth (the NYMO) and price indicators with SPY finally edging above its 280/282 resistance (see the charts below).

That would suggest more advance to come. The upturn in the NYSI is buy signal for tomorrow’s open

But maybe not without a dip first, a “turnaround Tuesday”?

There are shaky signs that remain in this tricky time in the market. It’s kind of scary to jump in now with the market already up essentially six days in a row, both the Russell and the Dow at at the moment lagging the Nasdaq and the SPX as if not all the generals are as yet on the battlefield. My nifty-50 stock list has 29 stocks on buys and has been declining since last week, even slipping again today from 31 on buys Friday. CNN’s Fear and Greed Index is at a “greed” level and still working on divergence trailing the market’s up move these last six days.

Still, at this point there is no choice other than to be long until further notice.

Given that the NYMO/NYSI is positive and also has a cycle that usually runs ten to fourteen weeks (the sell down ending six trading days ago was in the 10th week) breadth could launch the market into rally into say…May…and maybe making a new high along the way.

I’ve been asked to explain what’s on the the triptych of stock charts below. They are an illustration of what I talk about over and over again as I try over and over again to simplify, simplify, simplify.

The top part is whatever is being traded on the signals. In this case TQQQ. Could be AAPL, GE, NFLX, options, whatever. The middle part is NYMO and NYSI. The next lower part is obviously SPY. Also use the Nasdaq composite here on other charts. And finally the bottom part is the profit reading, set for $100,000 in order to easily see the percentage move. The white flag on the lower left is the booked profit percentage on the signal year to date. The white flag on the lower right is the current profits if the signal is in play.

The chart on the left is the short-term breadth signal for March, in the middle is a pure price signal for March, and on the right is the long-term breadth chart, YTD (it is set to go long again tomorrow).

Remember this is day trading and swing trading, no long-term buy and hold in my world (far too risky).

(click on the charts for a larger view)

#MarketTiming – tricky, tricky, tricky…

So the market did not go down Friday as expected here.

And it may have switched gears to rally some more to the upside.

While long-term breadth, as measured by the McClellan Summation Index ($NYSI), continues to decline, short-term breadth ($NYMO) turned up Friday with a low above a low on its chart (see the green circle on the charts below). In bullish times, that is an aggressive traders buy signal. In bearish times, not so much.

Now if the Summation Index turns up, which it needs to do in short order (like Monday…), it could be the start of several weeks of rally. And if it doesn’t, and the low above low on the NYMO is canceled out, which seldom happens in bull markets but is common in bear markets, we will again, immediately be looking at a likely down swing again. One that could be big.

A lot hinged on Friday’s market action and now more may hinge on Monday’s.

The the first chart on the left below is based on the long-term breadth signal year to day. Because of this monster rally that ended at the end of February, TQQQ, the leveraged ETF for the Nasdaq is up 48% for the year. It is flat now but will go long if the NYSI turns up. TQQQ on the center chart is riding the short-term breadth signal and is currently up 14% for the year. It will go long on tomorrow’s open (Monday’s open). The chart on the right is a purely a price-base signal (I say “buy the yellow, sell the blue”). It has booked 3.1% profits and is currently up 5.1% on this latest on-going upswing.

If the market rallies tomorrow again, it is likely all three will be long at the same time. That is truly bullish.

IF not, then it won’t be bullish. As I said, much hinges on Monday for now. Tricky, Tricky, Tricky.

(click on the chart panel for a larger view)

$AAPL giveth, Apple taketh away…

There has not been much to say about AAPL these last couple of years as it’s made a near parabolic rise and taken the entire market with it.

Its phone has made the company tons of cash and still does. And it has used a lot of the cash to buy back its own stock, by some accounts as much as $300 billion to propel it past an unprecedented $1 trillion market cap.

But there-in, as far as the stock is concerned, lies rub. Most likely Apple has been and still the biggest buyer of AAPL. It been a mugger sticking a phone in the face of investors and saying give me your stock.

What if it ends up being essentially the only buyer?

And despite all of the fundamentals in favor of the company, those fundamentals can not go on forever. AAPL has been competing with itself for years (now there’s a business plan…) but now others are joining in are beginning to take a toll, and the iPhone keeps getting more and more expensive, and the tax breaks it gets or maneuvers for itself will balance out eventually, and evidently the biggest fundamental of all is still and maybe will always loom over the company – Steve Jobs is still dead.

As AAPL eventually and inevitably falls, the larger question arises: Since it is in all of the big three indexes – the DOW, S&P and Nasdaq — will it take the general market with it to the downside the way it has to the upside?

(click on the chart for a larger view – update 1/2/2019)