#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)

$COMPQ – a bounce for the rest of the week…

Once again, the market, particularly the Nasdaq, is oversold in these last rapid-fire down days off the top six days ago.

It is as if it has gone down too far too fast.

So…a bounce.

When the Nasdaq Composite, as measured by the blue histogram on the chart below, plunges to the lower green line, it is almost always, first, the prelude to a bounce, and then oftentimes the next up swing (see previous instances on the chart).

In addition, the Nasdaq is setup again for a “Turnaround Tuesday.” I last wrote about this Tuesday phenomenon Sept. 10th (see the link below), and Tuesday, the 11th, was a huge upsurge across the general market.

“TURNAROUND TUESDAY”

It is possible the market could go lower before the projected reversal into the end of the week but don’t count on it. This is still a bull market and right now the bulls need to prove they can stop this drop and run it up again as they have so many times before.

If the bulls can not rule the rest of this week…well, we’ll get to what that could mean in due time.

I’m expecting a bounce right now. Tomorrow is a day to focus on the open for longs in stocks, options and futures on the major indexes, but I always keep in mind what Trader Vic Sperandeo once said: “If the market doesn’t do what one expects, it is likely to do the opposite twice as much.”

(click on the chart for a larger view)

$SPY – Can Orange Become The New Black Swan?

Four days up in a row for SPY and TNA while the Nasdaq, long the leader, now lags…

At the close of the day forty-one of the stocks on my nifty-50 stock list ended in the buy column with fourteen overbought.

Short-term breadth was up again but is now in overbought territory. Usually it takes time to unwind that even when it turns down.

Long-term breadth has been rising now for just three days, giving worthwhile advances in most everything — 40 out of the 50 stock on my list advanced today, and 41 or the 50 are positive on this three-day upswing. It should be noted if long-term breadth turns down now it will put in a fairly serious divergence with the SPY new high (see chart below).

Which bring us to the news?

I don’t ever trade the news but just taking in some market perspective one wonders if something is going to come along and blindside the complacency of this bull advance? Like the odd VIX spike today. Like AAPL gone crazy and possibly running out of buyers besides AAPL itself. Like some sector gone so frothy so fast it signals irrational exuberance has crossed over into insane exuberance (see the pot stocks in the post below).

Or like two of those closest to the jabbering President of the United States suddenly going down coincidentally on the same day, one with a guilty plea and flip, and the other found guilty on 80 criminal counts that could get him 80 years in prison. Trump claims always to be the best, be the greatest, know more than anyone else, likes setting records…how boastful can he be when his administration racks up more convictions than any other, including the Nixon administration?

What’s it mean to the market? As I write this, I see futures are down, with the Dow futures reversing the day. This bull market has been able over and over again to erase the overnight falls in futures. What if this time it doesn’t?

I guess then we might be able one day to look back and say: “Whattaya know…Orange
was the new black…SWAN!”

(click on the chart for a larger view)

$AAPL – still rising in an ever thinning market

AAPL continues to rise among my bellwether stocks.

The others to some degree or another have sold off in recent weeks (see chart panel below). That would indicate the market is being led higher by fewer and fewer leading stocks. Maybe just one since AAPL is in all three major indexes except the Russell.

However, the general market managed to follow through Friday on the short-term breadth signal and turned long-term breadth up. If all goes well for the bulls we should have a rally for a couple of weeks at least that moves more of the bellwether stocks to the upside.

(click on the charts for a larger view)

Tuesday in the $10K day Trade…Final 10% gain

Tweeted this trade near the highs of the day. SPY 280 Call, Wednesday expiration, up 38%. TQQQ at the time was up 1.5% ($1500 per $100K).

This was a display of a day trade based on the suggestion (see post below) that Tuesday after three days down in the Nasdaq (two of them hard down) would bounce today with an entry into the trade near the open.

Some defense (like a trailing stop) had to be played to lock in gains intraday since once again with long-term breadth still negative there was the possibility of another fade into the close, which happened. Still (see chart below), the SPY trade netted 10% for the day, and TQQQ added another $450 on its $100K buy.

Not a bad return for the day even if the defense stayed on the bench.

Tomorrow, AAPL will be the focus of the day for the general market. The company reported earnings after the close today and rose eight points in the after-market to an new all time high. The question will be can it vault the market higher for the day or will this be a “sell the news” time?

(click on the chart for a larger view)