#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 $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)

A falling $BID takes its toll…

Sotheby’s (BID), the art-auction house, has always been a telling market indicator.

It often confirms the market’s direction when the stock and the indexes are in sync but more importantly it sometimes leads at the turns, not at the exact turns in the shift from bull to bear and back again but as a warning, often far in advance (see the chart below).

When BID is no longer in sync with the general market, it is time to question the market’s current direction.

I have written about this before in this link:

$BID and $TIF – What do the rich folk do?

If the question is actually relevant, one could argue that when the rich quit buying art, it won’t be long before they are selling stock.

(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)

$SPY #Options – Trending Day 31 in the “Fool’s Game”

When something looks too good to be true it usually is.

“Usually” IS usually, but so far this year not this time. This day-trading strategy developed last November – dubbed in earlier posts here “The Fool’s Game” – has had 31 days like to day since the start of this year.

A trending day.

I define a trending day as any day the SPY calls or the SPY puts or a combination of both gain more than 100% on the day trade. All trades are solely long. Today was up above up 125% despite the 56% loss on the calls at the beginning of the day as puts ran hard into the close (see today’s color-coded charts below).

Think about that for a moment…31 days of 100% or more, a $10,000 or more profit on each $10K traded. As they say, “that’s a lotsa money!”.

Good thing too because on the 178 trading days so far this year that did not trend, the strategy has lost money. The biggest draw down was 640%. That is not a typo, $64,000 trading $10K every day.

Yikes!

Obviously day trading options, any options strategy, has to be with no more than a fraction of anyone’s total capital.

I’ve learned some market rhythm day-trading the closest in-the-money strike on the nearest expiration I never knew before. Friday’s are truly freaky gaining 48% of all the money for the strategy on the year, with Monday Monday being good to me too, racking up 28% of the profits; Wednesday follows with 24%, Thursday with 15%, and Tuesdays absolutely suck, barely in the black at 1%.

And no matter what this takes persistence, discipline and years of experience.

Did I forget to mention the staggering total amount trending days have made so far this year over and above the losses on the non-trending days?

(click on the charts for a larger view)

#MarginDebt – the divergence that kills the bull

I been taking note of margin debt, now recorded monthly by FINRA, since last spring with the warning that it was at astronomical levels in relation to itself in 2000 and 2007.

One early post solely on margin debt this spring noted that the market was likely to make new highs while margin debt failed to the do the same (see the charts below). It is difficult to time precisely when this distribution is going to matter since it is always reported a month late. During lag, one can only speculate what it going on it with behind the scenes, so to speak.

Linked here,I called that:

Declining Margin Debt – the bullish scenario

And linked here more recently on October 1, it was suggested this may be the month when debt takes its toll:

Margin Debt – a sign of quiet desperation?

It’s been noted in posts here that even as the market moved up to new highs it appeared during the day that there was selling going on. I guessed that was big players were trying to edge off margin debt. Behind the scenes the advancing stocks were narrowing, the new lows at the bottom of the market were beginning to outpace the new highs at the top. Everywhere there were signs – wackiness was going on all over the place., marijuana stocks became the leading sector, some low priced stocks, like YECO, would go up 500 percent (in a day!); one by one bellwether stocks, FB, NFLX, TSLA, AMZN and finally even AAPL took hits; the housing stocks have been declining all year and finally banking stock have joined them.

In that October post above, I called this late stage the “most bearish bull market” I’ve seen.

But now margin debt is finally the revealed rub.

Each time the levels of margin debt in 2000 and 2007 became unsustainable, the subsequent decline led to bear markets in which the S&P 500 index declined 40% to 50% (see the charts below), and now when it drops it will be dropping from an even higher height.

Can a 40-50% bear market happen again? You can bet half your portfolio on it.

Once margin debt begins to unravel, it will feed on itself — when the margin calls come, it is either put up more money or sell the stock. Selling the stock drives it lower and brings more margin calls. Nothing else will matter, not fundamentals, not news, not hopes, not dreams.

Why is this important? Depends on one’s age. When it happens, it will take years and years – five years? eight years? 13 years? – to recover the prices the indexes are at right now.

It appears, now that we can see the new high in the market and the fact the margin debt did not follow, that process has begun behind the scenes, so to speak.

Of course big bull markets can fool (see 2016 in this one on the charts below), and might try soon since the market is currently deeply oversold and the Christmas season is traditionally bullish, but it can’t fool history forever. History is the best indicator of the fear-greed-time market psychology there is since it repeats and rhymes all through time. In the end history will tell.

(click on the charts for a larger view)

$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)

The $SPY $10K day trade for 26.7%

Just a quick note on the $10K SPY options day trade for Thursday.

The long signal triggered just after the open and rose to a 97% peak (see the chart below) and closed the day up 26.7 percent, $2,670 for each $10K trade (see the white profit flag on the lower right). The is the day trade, start to finish.

Note, though, I consider a 100% gain a “trending day”, which are obviously the most important days to capture. Had this position passed above that threshold it could be locked in that profit level with a trailing stop. Just missed it today. Shucks!

However, it also should be noted that light blue candle after the peak on the chart was a chance to take at least some profits – the $10K was up 56.9% at the point. Short-circuiting the day-trade has not be more profitable over the long run this year than just letting it ride, but there at times when it just looks so obvious…

These trades are all day trades, either in the nearest in-the-money SPY calls or puts (in this case the 283 call, expiring Friday, and are closed at the close of each day. There was no signal for the puts today but on some days there are both calls and puts in play. My entry signal is proprietary, and should be tuned to any individual trader’s courage and risk tolerance.

Keep in mind, these posts are only for entertainment and educational purposes and should not in any way be construed as trading or investment advice.

Wednesday in the $10K Day Tradeā€¦Final gain 14%

The SPY options trade had huge swings on the Fed announcement today.

The action was not in the calls which never triggered a system buy despite the AAPL news and gains, but in the 282 put, expiring today, first a plummet (see the chart below), then an immediate snap back to a new high for the day before a final grind down into the close. At its low the trade was down 43% and at its high up 84%, all within 20 minutes.

It was enough to make a trader, long the puts, as dizzy as whirling dervish.

Despite the gyrations, at the close the day trade managed to nab a 14% profit, $1469 on the $10K committed to the trade (see the white flag on the lower right of the chart below).

Still, not a bad day in options no matter what.

(click on the chart for a larger view)