$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 Trade…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)

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)

$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)

$SPY $QQQ – finally a gap and fall that’s worth some money

The general market gaped up today, ran higher, quietly rolled over, then roared down into the close.

It was the quiet at the highs of the day that was a bit eerie. VIX was up (as it has been for the two previous days) and that’s not supposed to happen as the indexes advance. The NYSE advance/decline line was almost immediately below its open. The SPX tagged 2800, the Dow ran through 26,000, and then everything just stopped and reversed. At first, it was almost as if Coyote from the Roadrunner cartoons had again run off his cliff and had yet to plummet to the valley floor below and then like a car that runs out of fuel going up a steep hill.

In the end the day felt like SPX 2800 and DOW 26,000 could be nice round numbers to leave behind.

If one looks at the close in comparison to yesterday’s close it appears as if nothing much happened today. But the close today is deceptive. The close does not quite register the initial leap and the final fall.

And it was a fall worth something. On my $10K weekly options model, the intraday sell signal on the in-the-money QQQ 166 put raced up to a peak gain of 167% and finished the day up 127%; the SPY in-the-money 280 put peaked at 94% and finished the day up 51% (see the white flags on the lower right of the charts below).

If there more downside to come?

Over and over again, this bull market has said no and charged ahead after every little downside glitch. It will continue to do so until it doesn’t. After today’s reversal from higher highs, long-term breadth turned negative making all of the sells on my swing signals shorts (see table below). If today turns out to be the time the bull does not charge higher, well then…it will be a bull that dies with a sigh instead of a snort.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Sell (Day 1).

PRICE: Sell. (Day 1).
SHORT-TERM BREADTH: Sell. (Day 2).
VOLATILITY: Sell, (Day 3).

CONTEXT:

SPY CLOSE – 276.97
QQQ CLOSE – 164.02
CNN MONEY’S FEAR AND GREED INDEX: 75, falling, extreme greed level).
NIFTY-50 STOCK LIST: 23 Buys; 18 Overbought, 7 Oversold, 0 new buys today, 9 new sells.

(click on the charts for a larger view)

$SPY – Sideways to down?

After four days up in a row most of the major indexes are due for a pause.

The market is overbought almost across the board. In my nifty-50 stock list, 29 of the stocks are overbought (that is a lot), of the nine 3x-leveraged ETFs I follow eight are overbought.

Given how much bullish momentum is in the market it is most likely it will be a sideways move, and if down, not down much (see chart of SPY below).

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Buy (Day 14).

PRICE: Buy. (Day 4).
SHORT-TERM BREADTH: Buy. (Day 4).
VOLATILITY: Sell, (Day 2).

CONTEXT:

SPY CLOSE – 273.42
QQQ CLOSE – 160.92
CNN MONEY’S FEAR AND GREED INDEX: 75, rising, greed level).
NIFTY-50 STOCK LIST: 34 Buys; 29 Overbought, 4 Oversold, 6 new buys today, 3 new sells.

(click on this SPY chart for a larger view)

$SPY $QQQ – long calls for a 100% day trade

THE FOOL’S GAME – BUYING CALLS AND PUTS

The play in the Fool’s Game today was obviously calls just after and above the open (see charts below) for QQQ first, then SPY.

The SPY calls have stalled so far at up 12% but the QQQ calls (with the Nasdaq Composite at plus 90 points) have hit 100% for the day, $10,000 profit on a $10K commitment to the in-the-money 156 call, making this a day option day traders live for.

(click on the chart for a larger view)

$SPY $QQQ – A December Rally to hate Part Two

A DECEMBER RALLY WORTH HATING PART ONE

The market was up to its current tricks again Tuesday. Came into the day with a signals blaring buys and the market sold off.

As noted in the link above this has been going on pretty much all month. One day a buy, the next day a sell…hasn’t mattered much except as a fade. But one can’t fade signals developed over years of experience in the market or the signals won’t matter anymore, nor will the years of experience. Finally, when a11 is in doubt, there is a moment of obvious follow through that may indicate all is back on track.

That may be today.

Yesterday, all my swing signals turned again to sells (see table below). Long-term breadth was still moving up for the third day in a row, but limping. Still, if all was right in stock-market world, today should go down on the short-term signals, even gap down. Instead, tricky as its been, it gaped up…

Then sold down fast. …Hmm, that may be the indication all is back on track. If so, it could be the passage of the Republican tax plan, as many have suspected, might be the hammer that breaks the bulls back – a classic sell-the-news event.

Hard to know that for sure, but the market has been too tricky lately — too tricky — and that too may mean something. Trader Vic Sperandeo once said if the market doesn’t do what it’s expected to do, it will do the opposite twice as much. Of late, there has been an awful lot of bullish belief out there. Sentiment turns slowly and often too late, often not until it’s obvious the market is not doing what it is supposed to do.

Is this the day? As with everything in the market, we will, as the great Ed Hart of the old Financial News Network used say, “know in the fullness of time.”

P.S. Didn’t get a chance to post this Tuesday because of other pressing matters, and wouldn’t you know it on a day like today I overslept (I live on the West Coast).

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Buy (Day 3).

PRICE: Sell. (Day 1).
SHORT-TERM BREADTH: Sell. (Day 1).
VOLATILITY: Sell, (Day 1).

CONTEXT:

SPY CLOSE – 267.17
QQQ CLOSE – 157.7
CNN MONEY’S FEAR AND GREED INDEX: (73, falling, greed level).
NIFTY-50 STOCK LIST: 35 Buys; 22 Overbought, 3 Oversold, 1 new buys today, 6 new sells.