Divergences don’t matter…until they do…

Over and over again, especially in bull markets, prices keep going higher despite divergences on internal indicators, but when a tumble comes, a “pull back”, even a crash and one looks back at its beginning there is usually a divergence there.

Or a cluster of divergences.

So as of today, we have one in CNN Money’s “Fear And Greed” Index. That index has been wildly over bought as prices have surged on most major indexes (in the SPY ETF surrogate for the S&P 500). It is back off, risen again and as of today put in its divergence by making a lower low while SPY has hugged its high (see the chart below). It is not infallible but if history do tell, it is a reliable context (not the red lines on the chart and subsequent market drops).

And wonder of wonders, the FINRA Margin Debt reading for October came out today (see the second chart below). It is a monthly and always a month behind so there’s always some guess work to be done in real time, but this reading is, indeed, ominous.

Besides having risen way beyond the debt levels of both 2000 and 2007 before those bear markets arrived, it has now been carving out a ledge pattern on its chart (sometimes called a bear flag) for the past few months as the market keeps rising into thinner and thinner air.

Why ominous?

Note it’s the same pattern that was in place as the market was making highs last time and, when it finally fell apart, it was the precursor of the bear markets in both 2000, and 2008. Is it different this time? Is it ever different this time?

History, history, history.

This is to say nothing of the divergences on the McCellan Oscillator (the NYMO) with its Summation Index (the NYSI) declining for the past 10 days even as the market as advanced.

Does this mean we’re about enter a bear market?

Maybe not, divergence don’t always matter. But if a bear comes roaring now there is a good chance when we look back to this day this cluster of divergences will have mattered.

(FEAR AND GREED – CLICK ON THE CHART FOR A LARGER VIEW)

(FINRA MARGIN DEBET – CLICK ON THE CHART FOR A LARGER VIEW)

#MarketTiming – Some notes on the NYSI

MARKET TIMING SIGNALS FOR 8/22/2019.

Long-Term Breadth (the NYSI): Sell DAY 3
Short-Term Breadth (the NYMO): Sell DAY 1
Price (the Nasdaq COMP): Sell DAY 1
Volatility (the VIX): Sell Day 1
Nifty-50-Stock-List: 19 BUYS, 8 NEW BUYS, 4 OVERBOUGHT; 31 SELLS, 4 NEW SELLS, 17 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 16, Falling, EXTREME FEAR LEVEL.
Bellwether Stocks: 12 UP, 3 DOWN.

WHAT?

Going into the end of the week last week the market looked ready to rally strongly but Trump tweeted again and China talked and that was that as the Dow swooned nearly 700 points on Friday.

Despite what the nincompoop in the Oval Office has to say, trade wars are not easy. Here’s an assessment of that — THE COST OF A TRUMP TWEET.

Needless to say, when stuff like this holds sway the market has become absurd. But even in the midst of this news and dribble-driven market technical indicators, though inconsistent for a day or two, in the end will again stabilize and win out.

Let’s take long-term breadth, the all-important NYSI, as an example. Formulated by Sherman and Marian McClellan is the long-term measure of the McClellan Oscillator (the NYMO) registering gyrations on the NYSE advance/decline line. It is pretty much the broadest measure of mass market psychology and direction.

Except for a “ledge” at the very end of July (ledges are made to fall off of) and a couple of blips up last week when the market wanted to rally the NYSI has been falling since July 17th. As one focuses on the day to day moves in the market, it is often easy to overlook the longer term when breadth is is bearish so I thought I’d take a quick look back at NYSI’s damage on much of the market in the last month or so.

See the ETFs and stocks in the chart panel below for illustration.

Since the NYSI July 17th turn down, a little more than a month ago, TQQQ, the Nasdaq 3x-leveraged ETF has declined 12.5%; TNA, the Russell small-cap 3x-leveraged ETF has fallen 18.8%. Among notable bellwether stocks on my list FB is down 9.3%, AMZN down 10.9%, TSLA down 16%, NFLX 9%, GS 6.8%, and WYNN a whopping 22.9%.

Obviously, the NYSI is a powerful read on market direction, both on the upside, and now on the downside, and most stocks follow the general market.

When it’s falling be short or be in cash. And long term investors should resist “bargains” and wait for the turn before initiating new positions.

In other words, don’t fight it.

WHAT NEXT?

With short-term breadth turning down today with a high below a high in negative territory (see the second chart below), that is a renewed sell signal so the expectation is the market goes down tomorrow and maybe the rest of the week.

But who knows for sure these days? Some fools might think they hear a positive tweet, or China playing its own game may stand by and let the market bounce.

(click on the chart panel or a larger view)

(click on chart for a larger view)

$SPY – dead cat or not, the open always matters…

MARKET TIMING SIGNALS FOR 7/18/2019.

Long-Term Breadth (the NYSI): Sell DAY 2
Short-Term Breadth (the NYMO): Buy DAY 1
Price: Buy DAY 1
Nifty-50-Stock-List: 17 BUYS, 9 NEW BUYS, 8 OVERBOUGHT; 32 SELLS, 2 NEW SELLS, 8 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 47, rising, NEUTRAL LEVEL.
Bellwether Stocks: 7 UP, 8 DOWN.

WHAT?

In yesterday’s post it was noted that:

“The market will go down until it doesn’t, and granted, that could be even as early as tomorrow. The VIX remains below 15, which is a bullish level indicating this is likely a pullback and not a serious correction.”

The is pretty much what happened with a gap down before recovering.

While all three of my end-of-the-day signals were on or went to sells on today’s open in options trading and day trading the open always matters.

See the charts below. Color-coding on the these TradeStation charts has been getting simpler and simpler.

Those trades were triggered by the open for each option. They are set for $10K in each trade (what I call the “10KDayTrade” on Twitter) only to make calculating the percentage gains and losses easier. So $10K in 296 call for Friday’s expiration made about $5,900 into the close on the black chart on the left and the brief trade in Friday’s 298 put on the blue chart to the right lost about $900 so the net today across both trades was about 50%.

WHAT NEXT?

Today’s recovery was enough to turn up the NYMO which is a cautious buy signal. I say “cautious” because long-term breadth is declining. Consequently, today’s turn could be a dead-cat bounce with the downward slide resuming in short order. It’s a trade worth taking with a tight, impatient stop — in other words for me it better go my way right away or I’m going away.

At same time, tomorrow’s open, like today’s, is going to matter in both options and day trading. As far as I’m concerned SPY options are always a day trade. Stocks are a different game. Based on today’s close, stocks on my bellwether list to watch for longs tomorrow are AAPL, FSLR, SHOP, TWLO, and NVDA while BABA, WYNN and QCOM may be shorts.

The open for each will tell the story.

(click on the charts below for a larger view)

$SPY – the slide from the top continues…

MARKET TIMING SIGNALS FOR 5/8/2019.

Long-Term Breadth (NYSI): SELL FROM 5/6.
Short-Term Breadth (NYMO): SELL FROM 5/6.
Price: SELL FROM 5/6.
Nifty-50-Stock-List: 18 BUYS, 3 NEW BUYS, 7 OVERBOUGHT; 32 SELLS, 1 NEW SELLS, 16 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 41, FALLING, FEAR LEVEL.
Bellwether Stocks: 5 UP, 10 DOWN.

OF NOTE SPY OPTIONS:

SPY CALLS AND PUTS, BOTH, were down on the day as a tight sideways chop all day slammed premium for Friday’s expiration on both sides of the market. (See the charts below for how bad it was.)

The most nimble of options traders could make money, at great risk, buying the yellows And selling the blues on the charts below, but not much. The not-so-nimble could lose a lot.

WHAT:

It appears the market has been moving on Trump tweets. That is as absurd as it can get since he should not be tweeting about any of this and the market shouldn’t be paying any attention to any thing he tweets. The New York Times broke a story on ten years of his tax returns during a time he lost more than a billion dollars, all of the money his father gave him a lot more. Surely, one of the worst businessmen in history but a major-league con-man. His beloved Twitter has hung #BillionDollarLoser on him.

If the market focuses more and more on the Trump administration turmoil in Washington, it is likely to unstable for some time.

WHAT’S NEXT?

All sell signals remain in place – as usual this is a market can can go down as long as it wants and turn up any time. That sharp drop in the calls and the rise in the puts in the last twenty minutes of the day on the 10-minute charts below may hint there is more downside to come right away tomorrow but news, like a trade deal with China, can intervene.

This is a dangerous time for short-term traders. On the longer term, every bear market begins (or resumes) on a single down day and that day was six days ago to start this current slide.

(click on the chart for a larger view)

$XLF – Fighting an urge to short the bank stocks

The banking stocks appear on their charts ready for a quick flush down.

If anyone ever doubted the birds in a sector fly together, those charts below should relieve the doubts. Again and again, the major bank stocks’ charts look the same as history repeats and repeats, and again it looks like time to tumble.

So why do I say “fighting the urge”?

Simply put, there are extenuating circumstances. While they all stalled together Friday with XLF, the financial sector ETF, even ending the week in a dreaded doji and GS setting up a clear black-candle of indecision, long-term and short-term breadth in the general market, measured by the McClellan Oscillator and Summation Index on the NYSE advance-decline line (the NYMO and NYSI) remain positive.

Note the last time these stocks sold off in mid-March (see the charts below), the NYMO/NYSI was negative. No so this time, which probably means any drop here will be no more than a dip.

However, for nimble traders, scalpers, there could be a shorting opportunity on breaks below Friday’s lows on these stocks with Friday’s highs as an initial stop loss level. It might be easier to to buy puts for the same play. One thing about a trade like this, if it doesn’t do what the setup says, nothing is done. If it does, there could be a quick profits. And sometimes a scalp like this can get carried away into a real decline and a bigger profit.

And after essentially an eight-day rally across the board in the market (SPY is up eight days in a row), there is a chance a surprise could come to the down side.

If so the bank stocks will feel it.

(click on the chart for a larger view)

#Coal – waving good-bye to Cloud Peak Energy $CLD

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!

CLOUD PEAK ENERGY ANNOUNCES SUSPENSION OF TRADING

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.

(click on the chartS for a larger view)

#DayTrading Stock Options – Puts

The quote from this link three days ago continues to be my prevailing opinion on the market action for stock options:

#DayTrading Stock Options in the Fool’s Game

With the all-important long-term breadth now declining, stock options trading has shifted to the puts.

Long-term breadth turned down on 2/28 triggering sells, and bearish swing context for the general market from the open of 3/1. Despite the blip up Friday, market direction remains most likely to be down.

In additions, short-term breadth turned down today in negative territory, and prices across the indexes reversed a gap up on the day.

Hence, going long puts. See posts below for more discussion on criteria for the trades.

Today, the big four bellwether stocks I’m using for this options strategy — AAPL, BABA, NFLX, TSLA (see charts below) — racked up a 57.4% gain for the $10k committed to the trades ($5,341).

Still, for the record, today’s gain merely brings the week’s total so far to breakeven. Although the market turned negative with long-term breadth turning down, the rollover to the downside has been slow, and has just begun to register in the options day trading.

In general, the market could bounce here. There is news tomorrow – the employment numbers — and the trading going into he rollover was so tight the market is getting overbought rather quickly on the pull back. None of that matters to this day-trading strategy, which opens each day some time (and only sometimes) after each open and always is closed on each close. On an overall positive day it’s likely the buy signals in the puts will not trigger.

(click on the charts 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)

$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)

$FB – run amok and tumbling down…

Facebook (FB) has been able to run on its own since being founded and going public.

So what, as it turns, does the company do? It runs amok.

As the NEW YORK TIMES INVESTIGATIVE REPORT revealed this week the company has been reckless and irresponsible and instrumental in the Russian invasion of the US 2016 elections, and its executives have “delayed, denied, and deflected” criticism through the entire controversy.

We’re talking sheer greed here, capitalism as its ugliest.

But it appears its time of running unfettered is up as Congress focuses on bringing regulations to finally make it responsible for the harm it has done and to insure that it does not do it again. In the end Facebook will be better off for it…or it will be dead (hard to believe? remember MySpace?).

As a result the FB stock (see chart below) has proved once again in financial markets’ store there all always both escalators up and escalators down,

Regardless, to state the obvious, while investors may see profits evaporate in fleeting time, traders can make money on both the ups and and the downs.

(click on the chart for a larger view)