All the usual suspects got slammed today – cruise lines, $RCL; airlines $ALK and coal $CNX, all down about 6% from the open.#MarketTiming #SectorTrading #StocksToShort #10KTrade3https://t.co/9esxOUS3u9 pic.twitter.com/DPqxZuuDbe
— The God of Trading (@TheGodOfTrading) October 27, 2020
I thought it strange this last week when the cruise-stocks had a bounce because, according to the news, NCLH (Norwegian Cruise Line Holdings) reported it was cutting crew, cutting expenses and had enough cash to last a year before going completely broke.
That lifted the entire sector?! Are investors paying any attention to this stuff?
At the moment, this sector, as everyone knows, as been in the pandemic news a lot. It is down 60% or so in the last three months.
Passengers and crew were trapped with a lethal virus in quarters nearly as tight as prisons and meat packing plants. There was the “celebrated” moment when President Trump stopped a Carnival Cruise liner from disembarking and made its passengers sit in a ship off San Francisco because he thought infection and death numbers would go up and hurt his his re-election chances.
Early on it was not known what the full implications of that was but now we know.
The Trump Administration, on orders from the boss, was botching the nation’s entire response to on-charging tragedy big time. The cruise companies, maybe more than any other industry, has been truly stuck between the most despicable President ever and the unforgiving deep blue sea. Even Joseph Conrad could not write this sea tale as disastrous as it is.
Right now, the stocks are basing (going sideways) to see what happens next. There is a lot of optimism they can recover once the economy reopens. That hope is so misplaced all I have to say to that is “Good Luck, fellas.”
Two massive problems currently rule the industry’s fortune.
Given all the bad news, customers are going to be a long time coming. Who wants to pay $5,000 to be on a floating death trap? At best, the cruise operators are going to have to give away the trips. At the risk of obvious understatement – let’s just say that will not be good for profits.
But the bigger problem might be who’s going to crew these ships?
Not only were the crews being infected and in some cases dying, but in addition, there are more than 100,000 still trapped on those ships worldwide who can’t get off, who can’t get transportation back to their home ports, who can’t see their families. These are people who have now have been quarantined for two months or more. They have long since realized nobody – not their employers, not the Trump incompetents, not the people they dutiful served — give a damn about them.
So the question arises are these companies ever going to hire any crews again, let alone experienced ones?
What a mess…
So just over that flat ocean horizon bankruptcy and the loss of all shareholder equity looms. Are investors paying any attention to this?
NCLH, CCL, RCL… Cruising to zero.
Bloomberg reported yesterday that the major American airlines used their free cash flow for buybacks and may be bankrupt by May.
Trump is already talking a taxpayer bailout.
How about buyouts instead?
Again and again, these industries (last time it was the banks) recklessly practice free-market capitalism and eventually a crisis comes and again they need a socialist intervention to go on with their business as usual.
Don’t these guys ever plan ahead? Don’t they ever realize all good times come to an end to one degree or another (all bad times too for that matter)?
Isn’t it time for this periodic sucking on the taxpayer tit stops? Maybe a lesson needs to be learned. If the taxpayer is going to have to subsidize and/or finally bail them out in the end, maybe it’s time the taxpayers take ownership.
Not that Trump would know what to do being on the opposite side of his own bankruptcy history but he won’t be President forever (at least I hope American voters have wised up enough to flush the con king).
Anyway, this is what these once high flying birdS look like crash landing together:
On December 6th, the all-important NYSI, measuring longer-term market breadth, turned up signalling an on-coming upswing in the market beginning the open of Monday, December 9th. It was an unusual turn in that it preceded the NYMO short-term breadth indicator.
That doesn’t usually happen unless there’s been a V-bottom in price on the most recent downswing. And, in this case there was, and the NYMO confirmed the rally on 12/11 giving its own buy signal for the open of 12/12 when I wrote this entry below:
Since then most of the major indexes, and their 3x-leveraged ETFs, have been up a cumulative eight days. Needless to say, the market is overbought. CNN Money’s Fear and Greed index is at 90, an “Extreme Greed” level, a level which eventually leads to sells downs.
Consequently, the market could take a dip or a tumble anytime (although with Christmas yet to come everything remains bullish). With that in mind, me thinks it’s time for swing traders and anyone else who feels comfortable taking profits should either tighten stops under the advance or cash out some of the gains.
Among the major leveraged ETFs, TQQQ is 9.0% for the eight days, TNA up 6.3%, UPRO up 6.0%. In the leveraged sector ETFs, TECL is up 10.4%, ERX (remarkably) up 10.3% and SOXL is up a whopping 19.6%. Eight trading days.
Notable stocks in my bellwether group include TSLA up 19.5%, NVDA up 11.3%, SHOP up 7.5%, NFLX up 7.9%. AAPL usually gets the press coverage but it’s a laggard at up 3.6%. Still, it’s just eight trading days.
On Twitter I’ve been suggesting $10K trades for traders with not much capital, primarily as option trades. Today, for instance, a $10,000 trade in the SPY 292 put, today’s expiration, would take home a nearly $13K profit.
Spectacular, yes, but definitely not an everyday event. And it is a trade in options that, risk-wise, is probably beyond most amateur traders.
So I’m thinking, for fun and practicality and discussion’s sake, to say nothing of the entertainment purposes here, I’m going to scale this all back to $10,000 trades in stocks and ETFs, and $1,000 trades in options, and I’m going to state cash gains and losses instead of percentages. (Of course at $10k and $1K still translate easily to a percentage count too.)
As they say, show me the money…
For example right now, since the all-important swing-trading signal, the NYSI, measuring long-term market breadth, turned down September 24th, giving a trade entry for the open of September 25th, a mere six trading days ago, $10,00 in the 3x-inverse-leveraged ETFs (they go up when their index goes down) would have earned approximately %581 in SQQQ, $,1031 in TZA, $800 in SPXS, the major Nasdaq, Russell, and S&P index ETFs.
In the sector inverse ETFs, $10,000 in financial FAZ would have earned $915, in the biotech LABD $1,868, in the semi-conductor SOXS $468, and the energy-based ERY $2021.
We are talking only six trading days and only $10,000 to trade.
To state the obvious, most stocks move with the general market, and more obviously almost all stocks move like all stocks in their sector.
And this may be no more obvious than with the gold stocks.
I’m always surprised at the endless discussions of which gold stock to buy. Gold bugs, particularly, love this stuff — this one, or that one, or maybe that one. One stock picker or another has very good arguments for each of their choices, fundamentals, technicals, some buddy’s opinion, whatever, but they all ignore the obvious — they’re talking about trees when there’s a forest out there.
Take a look at the charts below.
Five of those charts are stocks and three are ETFs, but hide the symbols and company names for each chart and who would be able to tell which NEM and which GOLD, which is AEM and which is NUGT? The patterns essentially all look the same (like fir trees in a fir forest).
But actually they are not the same. I have the same swing-trading system on each of those charts. Now look at the numbers in the white flags on the lower left of each chart. Those are the total returns year-to-date per $100K committed to each swing trade (calculated also to easily show percentage gains for the system).
Obviously, there is a difference between the stocks and the ETFs. The leading stock in the sector, KL, is up 17%, while RGLD, lagging, is up only 1.4%; a prominent name like Newmont Mining (NEM) is up 14%. On the other hand, the leveraged ETFs, NUGT and JNUG, are both up 82% and even GDX, not leveraged, is up 25% – same time frame, same trading system.
The trading system here is not the point. It is just here to illustrate that too often traders and investors can’t, as they say, see the forest for the trees.
Haven’t done much in this sector for a couple of years since Trump started promising to bail out the companies with taxpayer subsidies, but in recognition how much time and how many times I spent shorting these stocks in the past I’d like to wave good-bye to CLD, Cloud Peak Energy, the latest in a long line of stocks in this dying sector flushing sharehold equity down the shaft — Patriot Coal, Walter, Energy, Peabody Coal (bankrupt and reorganized), Arch Coal (bankrupt and reorganized), Westmoreland Coal.
This company, CLD, actually planned at one time to ship coal to China through my backyard but the environmentalists in the neighborhood took care of that.
Good riddance to the Cloud Peak’s stock!
P.S. This news forced me to take a look at the sector. I should have been paying attention. Almost every stock’s chart looks like BTU (see the chart below CLDP). They all feel apart at the same time, in June. Something must of happened. Maybe investors realized someone was not necessarily true to his word. Duh.
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.”
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.
Just for fun…
Let’s say the Republicans retain both Houses of Congress on Tuesday — that the so-call “Blue Wave” never reaches shore.
In that case Trump will have even greater carte-blanche to do whatever he wants and since he will be running non-stop (every day except golf days) for reelection, the top item on his broken-promises agenda will once again be wasting taxpayer dollar on his so-called “Border Wall.” Idiotic, yes, but there is money to be made bottom-fishing this sector and the stocks for concrete, steel, construction equipment and construction companies like CAT, CX, USCR, VMC, EXP, SUM.
See the charts below.
Long a short in this bull market (“broken promises”) they could have more than the bounce of the last few days, maybe even a rally on growth prospects as middle-class taxes (isn’t that all that is left to draw from?) get funneled to their coffers.
Now let say the “Blue Wave” not only arrives, it turns out to be tsunami as the Democrats take not just one but both Houses of Congress.
Having learned their lesson the Democrats realize there’s victory in jobs, jobs, jobs and the Party finally launches a massive program (FDR-sized!) to restore America’s deficient, crumbling infrastructure (to try to raise it to the level of the rest of the industrialized world or, as trains go, at least better than Bolivia), fueled by taxes on the one percent (who can afford it and then some…). Smart, yes, and there is money to be made bottom-fishing this sector and the stocks for concrete, steel, construction equipment and construction companies.
See charts below.