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)

#BellwetherStocks – End Of A Swing Trade

The swing trade for buying stocks signaled by the market’s breadth indicators on the open of April 4th, thirteen trading days ago, ended on the open of trading today.

START OF THE TRADE

Despite a choppy market in which neither SPY nor QQQ rose as much as one percent, all twelve of the bellwethers were in the black for the trade and several on the list had rather stellar gains for 13 trading days — TWTR up 20.5%, NFLX up 19.3%, TSLA up 14.2%, AMZN up 13.1% and FSLR up 11.4%.

The Bellwether stocks with single-digit gains were FB, 9.7%; BIDU, 8.4%; BID 7.5%; NVDA 6.3%; BABA 6.6%; GS 2.3%; and last and least (remarkably) AAPL 1.4%.

Once again, market timing has been validated by the stocks even when the market is going no where.

On the charts below, the white flags on the lower left quadrant of each chart is the dollar gains for $100k invested in each particular stock.

Thirteen days…

(click on the chart panel for a larger view)

#MarketTiming – From follow through to follow through

The general market, after Tuesday’s bounce, followed through today for big gains across the board, made all the more bullish by coming back from a deep gap down.

The Dow, or instance, was down 500 points at the open and finished up 230.

The question now, of course, can there be more tomorrow.

All indications are this correction is over with many of the indexes touching their 200 daily moving averages, with my nifty-50 list of momentum stocks triggering 30 buy signals in the past two days (Monday all but two of those stocks were down, today all but six were up), with CNN Money’s Fear and Greed Index finally lumbering up off a very low readings at 12 today (it got as low as six and can’t go below zero). That later index is still registering “extreme fear” which is the time a time for investors to be looking to buy stocks.

But most importantly (see the chart below), short-term breath put in a low above a low in negative territory, a divergence with the SPY Tuesday which needed a follow through into positive territory to turn the all-important long-term breadth up. The follow through came today.

All three of my swing-trading signals, based on price, breadth and volatility, are on buys now.

So this market bounce has more to come and could morph into a full-fledged multi-week rally.

Some notes. AAPL is probably the safest bet during a market bounce (emphasis on “safest”) but NFLX, NVDA and TSLA will probably out-perform among the big boys. Look at TSLA today, up 7.5% on the day and 13.7% from the open — there was some dope just last week predicting Elon Musk’s baby would go bankrupt.

(click on chart for a larger view)

$SPY options – another freaky Friday?

Last Friday, the calls in what I’ve ironically labeled for myself the “Fool’s Game” exploded 250%.

In my post in this link below I noted that going into that Friday, my game was looking at its first losing week this year and there had been no trending day during the week also for the first time this year. I define a trending day as any day either the weekly SPY calls or the puts close with a 100% or more gain.

TRENDING DAYS IN THE FOOL’S GAME

So what’s this week look like? Pretty much the same as last week.

As of today’s close, this day-trading system, buying SPY calls and/or puts, expiring either Wednesday or Friday, is losing money, a jarring 81% for each $10K traded (it was losing 152% at last Thursday’s close). Obviously, one does not trade this with any more than a small portion of any account. In addition, this week again there has been no trending day.

Can last Friday be happening again this week? I’m going to suggest — yes!

SPY is down this week four days in a row (not much) which tends to be a magical number for a turn-around in my experience with swing trading, especially in this bull market. The Nasdaq Comp is down three consecutive days. CNN Finance’s “Fear and Greed” Index is down four days to 21, an “extreme fear” level, a neighborhood in which one should consider going long. Yesterday, 40 of the stocks in my nifty-50 stock list were on sells (that is usually the bottom or the beginning of the bottom in any downswing, however small). Today those stocks clicked up to just 38 on sells. The VIX gave a swing buy signal to go long on tomorrow’s open.

And tomorrow is Friday. There have been twelve trending days by my definition so far this year and seven of them have come on Friday. Freaky.

Added all up, tomorrow looks like a run to the upside again and the calls could go crazy, again, if its another trending day.

Or the market could have a monster fifth-day-down crash…but then that would also be a trending day, only in the puts instead.

#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 weekly $SPY options in the “fool’s game”

If anyone wants to take a peek (or another peek) into the link below from Thursday, or look down at the entry immediately below this one, they’ll see it was said: “In other words, I expect the market to shoot up on Friday”.

SPY – CAN THE BOUNCE BECOME A RALLY?

The great trader and “Market Wizard” Linda Raschke once put it very simply: “When you see what you are looking for, jump all over it.”

Well, Friday was a day to look for a rally after the market slid sideways to down all week, and rally it did with the Dow up 343 points, the SPX up 43, and the Nasdaq Composite up 127. TQQQ jumped 4% from its Friday open, UPRO did 3.2% from its open.

Needless to say that is better than money in a bank.

But what about THE FOOL’S GAME I’ve been writing about recently, buying weekly SPY calls and puts as day trades?

Friday that system was up 141% with a combination of trades in the weekly 273 put and the 271 call, both expiring that day. The 273 puts lost $1254 per $10K in the trade while the 271 in-the-money calls gained $14,482 per each $10K trade (there were two) for a total gain for the day of 131%.

The Friday expiration makes for the best day trades in the weeklies. Has been that way all year with this Friday as, obviously, no exception. Its 131% net brought the total gain for the week to 226% — $22,600 for no more than $10,000 in any day trade during the week.

I have not much more to say except to remind that everything said here is for entertainment and educational purposes only, and for my own personal trading journal, and should not in any way be construed as investment or trading advice.

#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)

$SPY #Options on a roller coaster for a losing day trade

Today’s price action in the SPY was truly a day on a roller coaster. Consequently it was the same for the weekly calls and puts.

First, a gap up, then a plunge on the ETF (see the chart on the left below), another bounce into mid-day, and another plunge before a final surge into the close.

The SPY triggered a day trading buy on the calls, which stopped out for a loss 27% loss, $2688 on 10K traded, before reversing to the puts which saw a loss of $602 at the close (see the white flags on the lower right of the charts below, in-the-money calls on the left, puts on the right). That made the total loss for the day almost 33% per 10K traded, a draw down of approximately $3290, the fourth losing day in the past 20 trading days.

However, there were plenty of times defense could have been played during the day. This is day trading after all.

When the call failed to hold its open at 1.79 it could have been stopped out for less of a loss than when the system signal finally sold (the chart below on the left). On the reversal the put trade made up all of the loss on the call and about 11% more at its high (the yellow-coded spike into the last hour on the chart on the right). Selling that gain would have been a gift for the day but even coming down from that high on the puts, there was a breakeven (the end of the first cyan-coded bar)

Defense. Always take the signals, then play defense…

(click on the charts for a larger view)

$SPY $QQQ #Options – Day trading $10K…Final Update

THE FOOL’S GAME – BUYING CALLS AND PUTS

As other bullish week in the bull market begins to draw to a close, the $10K buys in the weekly in-the-money SPY 283 calls and QQQ 168 calls are up 45% and 28% mid-day (see chart below). That is $4500 and $2800 on a $10,000 buy in each index ETF.

Will update on the close.

UPDATE: The week ended with a glorious options trade in the weekly SPY and QQQ options. The SPY 283 call, expiring Friday, was up 130%, $13,300 per $10K traded for the day. The QQQ 186 call, expiring Friday, was up 96%, $9.660 per $10K traded for the day.

SEE UPDATED CHART BELOW.

(click on the chart for a larger view)

#DayTrading #SPYoptions – Ho-hum, another 80 to 120%

THE FOOL’S GAME – BUYING CALLS AND PUTS

Today was again a day to live for in “The Fool’s Game.”

The weekly SPY options bracketing the open at 280.17 — the 279, 280, and 281 calls expiring Friday — netted 80%, 100% and 120% respectively on the $10K day trades. See the white flags on the lower left of each chart below for the cash gains and percentages per $10K committed to the trades of each strike.

Been a lot of days like this in this bull market.

(click on the charts for a larger view)