$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)

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 – 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 – Fast and furious the bear-market rally rises…

It was noted in the post below from the day before yesterday that bear market rallies tend to be fast and furious so we would have to see how this one goes.

And now, so far, it has went exactly as expected. Both short-term and long-term breadth, measured by the McClellan Oscillator and Summation Index, gave buy signals for yesterday’s open.

Despite a somewhat squishy start to yesterday, the rally (or maybe it should be called a “bounce”) clicked in strongly today. The fast move up midday was probably due to a speech by Federal Reserve chairman Powell which turned out to be more dovish than expected on future interest-rate increases. Funny how often news comes along to agree with what market breadth is saying already.

Notable moves in the rally so far include TQQQ up 12.% in two days; UPRO up 9.1%; FNGU, the 3x-leveraged ETF of the “FAANG” stocks, up 9.7%; tech ETF TECL up 13.4%. In two days…

So what now?

Both SPY and TQQQ are up more than two standard deviations of an average advance (“fast and furious”) and SPY is about to smack into an obvious down trend line (see the chart below). This is not sustainable. It is likely too much too soon. In addition my nifty-50 stock list has 45 stocks on buys (this current turn to the upside started with 39 of those 50 stocks on sells). Consequently, it’s likely the general market will either go sideways for a time now or take a quick dip…maybe only one day. Given past history, those who did not jump on the buy signals yesterday are probably itching to buy any dip so the rally should go on. Only 11 of my 50 stocks are overbought. Usually there will be many more of them overbought before this upswing stalls out completely.

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.

(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)

$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)

$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)