#MarketTiming – Bulls doing what they needed to do

What they needed to do was to push the market up some more.

In the process, the all important long-term breadth (the NYSI) has turned positive to go along with the short-term breadth (the NYMO) and price indicators with SPY finally edging above its 280/282 resistance (see the charts below).

That would suggest more advance to come. The upturn in the NYSI is buy signal for tomorrow’s open

But maybe not without a dip first, a “turnaround Tuesday”?

There are shaky signs that remain in this tricky time in the market. It’s kind of scary to jump in now with the market already up essentially six days in a row, both the Russell and the Dow at at the moment lagging the Nasdaq and the SPX as if not all the generals are as yet on the battlefield. My nifty-50 stock list has 29 stocks on buys and has been declining since last week, even slipping again today from 31 on buys Friday. CNN’s Fear and Greed Index is at a “greed” level and still working on divergence trailing the market’s up move these last six days.

Still, at this point there is no choice other than to be long until further notice.

Given that the NYMO/NYSI is positive and also has a cycle that usually runs ten to fourteen weeks (the sell down ending six trading days ago was in the 10th week) breadth could launch the market into rally into say…May…and maybe making a new high along the way.

I’ve been asked to explain what’s on the the triptych of stock charts below. They are an illustration of what I talk about over and over again as I try over and over again to simplify, simplify, simplify.

The top part is whatever is being traded on the signals. In this case TQQQ. Could be AAPL, GE, NFLX, options, whatever. The middle part is NYMO and NYSI. The next lower part is obviously SPY. Also use the Nasdaq composite here on other charts. And finally the bottom part is the profit reading, set for $100,000 in order to easily see the percentage move. The white flag on the lower left is the booked profit percentage on the signal year to date. The white flag on the lower right is the current profits if the signal is in play.

The chart on the left is the short-term breadth signal for March, in the middle is a pure price signal for March, and on the right is the long-term breadth chart, YTD (it is set to go long again tomorrow).

Remember this is day trading and swing trading, no long-term buy and hold in my world (far too risky).

(click on the charts for a larger view)

#MarketTiming – tricky, tricky, tricky…

So the market did not go down Friday as expected here.

And it may have switched gears to rally some more to the upside.

While long-term breadth, as measured by the McClellan Summation Index ($NYSI), continues to decline, short-term breadth ($NYMO) turned up Friday with a low above a low on its chart (see the green circle on the charts below). In bullish times, that is an aggressive traders buy signal. In bearish times, not so much.

Now if the Summation Index turns up, which it needs to do in short order (like Monday…), it could be the start of several weeks of rally. And if it doesn’t, and the low above low on the NYMO is canceled out, which seldom happens in bull markets but is common in bear markets, we will again, immediately be looking at a likely down swing again. One that could be big.

A lot hinged on Friday’s market action and now more may hinge on Monday’s.

The the first chart on the left below is based on the long-term breadth signal year to day. Because of this monster rally that ended at the end of February, TQQQ, the leveraged ETF for the Nasdaq is up 48% for the year. It is flat now but will go long if the NYSI turns up. TQQQ on the center chart is riding the short-term breadth signal and is currently up 14% for the year. It will go long on tomorrow’s open (Monday’s open). The chart on the right is a purely a price-base signal (I say “buy the yellow, sell the blue”). It has booked 3.1% profits and is currently up 5.1% on this latest on-going upswing.

If the market rallies tomorrow again, it is likely all three will be long at the same time. That is truly bullish.

IF not, then it won’t be bullish. As I said, much hinges on Monday for now. Tricky, Tricky, Tricky.

(click on the chart panel for a larger view)

#MarketTiming – “a gift for the bears”…

I expect the market to go down tomorrow.

Really? Why?

Long-term breadth, as measured by the McClellan Summation Index (the $NYSI) is declining, and today short-term breadth, as measured by the McClellan Oscillator (the $NYMO) turned down after basically a four-day bounce in the market, but more importantly, timing-wise, this NYMO pattern is more than the usual turn down.

In this case it is a “high below a high below the zero line.”

And whenever this happens I believe it is a gift for the bears.

Take a look at the blue vertical lines on the chart below, which mark each time this pattern has repeated in the past six months. Focus on what happens next. It is always what happens next in the market that matters — not many indicators are consistent as this one – a sell off every time and usually hard downs the next day (tomorrow).

In addition, the SPX and Nasdaq Comp both clicked down today (to state the simply obvious, every dip or swing or slide or whatever the market wants to do to the downside has to begin with one down day), and VIX, after four days down, clicked up, giving its own first-day sell signal. Furthermore, my nifty-50 stock list which has 41 stocks on sells a week ago Wednesday rallied to 42 on buys yesterday before clicking down to 39 on buys today. CNN Money’s “Fear and Greed Index” is at a “greed” level trying to diverge with the rally highs. AAPL, by far the most important stock in the market and one capable of triggering a sell off all by itself, gaped up today on top of a five consecutive days up, but then sold off below its open (putting a black candle of indecision at a high on its chart).

But more important than any of that in my expectation is high below the high below the zero line, the gift for the bears, a gift in bull markets let alone in what may now be a bear market.

Okay, what if it doesn’t sell down? Well, that will be particularly bullish and I’ll take that up when and if it goes that way. As Trader Vic Sperandeo would say “if the market doesn’t do what’s expected, it usually does the opposite twice as much.”

(click on the chart for a larger view)

#DayTrading $SPY and #Stockoptions…

The contents of this blog entry was first posted here last November about trading SPY options on the long side. I have added “stock options” to the title above because the strategy basically works with weekly stock options.

There are so many options strategies in the stock market the head spins – a straddle, a strangle, a naked and/or a covered put and/or call, a calendar, a condor, an iron condor, an iron butterfly (isn’t that a rock band?) and any combination of any of these for hedging purposes, for capital appreciation or preservation, for gambling. Mind boggling.

But buying options… Buying options, just plain buying a call or a put, everyone will say is a “fool’s game.”

Regardless of whether a trader buys calls or puts on index ETFs like SPY or QQQ or IWM, or buys options on stocks, there are only three things that can happen – the option goes the trader’s way (good), or the option goes against the trader (bad), the option goes sideways with price decay over time (also bad).

Two out of the three possibilities for the option buyer are losers. What fool would want to play that game?

But is it really a fool’s game?

Doesn’t have to be. Not for day traders.

Let’s take SPY options as the prime example — very liquid across multiple strikes, tight spreads, hardly any time decay on a trade for only a day, a stop-loss is close by and immediate, and the profits, if there is a trend for the day, can be substantial, even rather astounding.

Also great for scalping on any time frame intraday.

The key, as always, is persistence, discipline, experience, and an entry signal the trader is comfortable with taking.

#MarketTiming – today’s “gasp” in the slow rollover…

Yesterday in this link below it was suggested that there might soon be a collective market gasp as the fierce bear-market rally might becoming to an end, possibly as soon as today:

$SPY – the slow roll over?

The rollover didn’t show up all that much today in the indexes but if the leverage ETFs across the most prominent sectors are any indication (see the illustration below), this could be the start of something big for the bears.

Besides the solid gains in these leveraged ETFs (see percentage change column on the chart below), 42 of the stocks in my nifty-50 stock list were in the red. That was mass selling, a veritable blood bath on the day. SPY puts in or at or near the money on the open, expiring today, were up a minimum of 93% from today’s open (the 279 put was up 243%, showing there is nothing “slow” about a rollover on an expiration day).

In addition, CNN’s Fear And Greed Index appears to have topped again at an extreme greed level and turned down (see the SPY chart below). And the VIX has edged up above 15 again, a key level in the ebb and flow between bull and in this case more importantly bear markets.

Again, as it was coming into today, the market looks primed for more down side. As long as the breadth indicators (NYMO/NYSI) are negative, shorts are in play.

(click on charts below for a larger view)

(click on the chart for a larger view of SPY in relation to CNN’s Fear And Greed)

$SPY – the slow roll over?

Given how sprightly the rally since December has been it’s hard to call a top. Actually it’s hard to call a top anytime but bear-market rallies are especially tricky.

Weeks ago it was suggested here this would be the rally to make everyone one believe the bull market has resumed, and it has been that kind of rally.

There is famous, familiar chart of investor emotions in the market (see below) that shows the various stages of market emotions from despair to euphoria and back again (see below). It’s worthwhile review that chart every so often and ask one’s self how am I feeling now. This is especially true for long-term holders and retirees who have their savings tied up in the market.

Looking at the chart below I would suggest we are at the “Return to Normal” stage. For any swing trader who played the upswing this has been a fantastic rally. For investors it’s been a big sigh of relief.

But… There are signs now that sigh may be about to become a gasp.

Long-term breadth, as measured by the McClellan Summation Index, the most important indicator of mass market psychology, turned bearish four days ago after several warnings from the declining highs on the McClellan Oscillator itself. My nifty-50 stock list has failed to get overbought since the rally’s kick-off’s first few days. While the indexes have worked higher, the stocks have rotated and paused and in some cases fallen under the surface (take a look at the rollover in the banking sector).

Weed stocks lead again (check out CRON up 87% on the YTD summation index run up or GWPH up 71%). While there’s a growth logic to the marijuana sector, that’s still just as crazy as the dot-com bubble of yesteryear.

Despite all those warnings until prices follow internals and drop with conviction (which could happen any day now, even tomorrow), and the VIX jumps back above 15 (it closed at 14.74 today), the sell off may not happen, and if the SPX, or in this case the SPY run up past the resistance at recent highs, it might go to all time highs before the bear market resumes.

Doubt that but we’ll see.

(click on the chart for a larger view)

#DayTrading stock options in the “Fool’s Game”

Let’s call this a “Fool’s Game” trilogy.

Three days experimenting with buying calls or puts (calls in this instance) according to the rules of the “Fool’s Game” suggested here for day trading SPY options on a lucky November 13th last year in this link: IS It A FOOL’S GAME?.

The basis of the entire strategy is the simplicity of going long calls or puts (what’s been called the “fool’s game”). The cost is clear since it is simply the cost of the option itself with no shorting margin requirements, no covered stock scenarios, no spreads or complicated attempts to calculate delta and neutralize theta and try to fill the four legs of iron condors both going in and trying to get, and no more god knows what else…

This is this simple: buy calls if you believe it’s going up, puts if you think it’s going down.

The results trading SPY options, either in the money or at the money on the nearest expiration — Monday, Wednesday, Friday. were astounding last year, and earlier this year (that system is currently experiencing its biggest draw down since I began tracking and trading it). Both because of the “astounding” and the “biggest draw down”, I decided to take a look at stocks using the same criteria as outlined in this link: DayTrading Stock Options two days ago.

The criteria for selecting AAPL, FB, BABA, NFLX and TSLA for the trades is noted in that link.

The first day of this experiment, Tuesday this week, netted 13.2% in trades that triggered in all five of those stocks (I highlighted TSLA on a chart in a post below), and netted 37% on trades is four of the stocks yesterday (see charts in the post below). FB options did not trigger a trade that day.

Very fine returns for the system, and much to be learned in its context.

Today (see the muddle of charts below), the trades in calls lost 8% on options traded on four of the stocks.

Still, a good three days overall.

But as I mentioned there was much to learned in context – a logical intraday stop on the NFLX trade (the first blue candle as seen on the NFLX chart below), would have cut the total loss to only 3%. Stops, needless to say, like with all systems, need constant examination and re-examination.

I looked into this because I’d been told day trading stock options can’t be done. This week may be an outlier but as far as this “trilogy” of day trades has gone, it has been done.

(click on the chart for a larger view)

#DayTrading stocks in the “Fool’s Game”

Don’t quite have it together yet, but am working on developing a strategy to day trade stocks mostly because I’ve been told it can’t be done.

It is based on the basic idea of buying calls and puts as a simple way to play options, calling it, tongue in cheek, “the Fool’s Game”:

IS It A FOOL’S GAME?

The game has been played mostly with SPY options for the liquidity, the three-times-a-week expiration days, and the measure of market breadth they provide.

But what about stocks?

They have to be liquid and as close to expiration as possible – weeklies. And they have to be big prominent popular stocks. To start off I’ve selected AAPL of course (it practically is the market on a weekly options basis), and FB, BABA, NFLX, TSLA. All solid, sometimes big, movers. But even with these one can’t eliminate the randomness (sometimes they move with the rest of market, sometimes they don’t) and the risk of news out of the blue related solely to the individual stock itself.

Still, as the great market wizard Trader Vic Sperandeo once said: “if it moves, I’ll probably try to trade it”

So stock options on a day trade using strikes close to the money on the open and closed at the end of each day. As I said above not completely confident in this but today TSLA gave a glimpse into the possibilities. This is a strategy for day trading, but it is likely it will be more suited to scalping.

On the chart below, I’ve color-coded my buy and sells signals (each trader needs to work out their own). Simply put, I say to myself “buy the yellow, sell blue.” In TSLA today, a trade set at $10K (to easily show the percentage gain) in the nearby out of the money 295 call (TSLA opened at 292.11) resulted in a 74% gain ($7,400) in just under two hours, a scalp sort of…

I suspect today was a best-case scenario but maybe not…

To be continued…

(click on the chart for a larger view)

Here’s a sneak peak as possible a best-case

$SPY – it doesn’t even rhyme, it repeats?

History…

Back in December there was this post:

$SPY – Simple black candle tops…

In which it was noted:

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.

And it was further noted going into that December black candle:

“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.

The December black candle (see the chart below) started the plunge into the December 26th buy signal from which we have rallied again to…you guessed it…280 on the SPY! Lots of traveling around in the market to go almost no where. Swing traders love this — after all what a rally! Long-term holders must sit grateful that it’s not as bad as it was…but is it going to get any better for them?

Well, we’ll see. Like last time we were here, there are again simple black candles everywhere: besides SPY (the chart below), and QQQ they are in a slew of ETFs – TAN, FAS, SOXL, FNGU, TNA, TQQQ, UPRO — as well as DB and C in the banks and no less than eight staring me in the face in my nifty-50 stock list (that a lot for a single pattern all at once).

So what’s it mean? Maybe nothing since all-important long-term breadth continues to rise, but then short-term breadth (measured by the McClellan Oscillator, $NYMO), continues to wind down (see the lower portion of the chart below), giving warning signs of a turn to the downside coming near. To keep it simple, let me say it will not surprise me if a dip starts Tuesday and goes down a while.

(click on the chart for a larger view)

#MarketTiming – the rally to fool everyone continues

Been on vacation and been lazy so haven’t updated this blog for a month or so.

No matter. Nothing has changed much since first getting the buy signal on this upswing way back on the open of December 24th in this POST BELOW. Along the way I made the quote below in this entry back on January 7th — Santa leaves behind a “fast up” rally. :

So what now?

Probably more upside but it would be prudent to set stops to preserve swing profits. I’ve cautioned in the posts below that this longer term is a relief rally, and likely just the kind of rally the market uses to make everyone believe it’s the resumption of the multi-year bull.

The key here is go along for the ride but guard against being fooled by how fast the up.

This is still my overall opinion. This is a bear-market rally. It has been and continues to be spectacular but it is still likely to be the rally to fool everyone into believing the bull is alive and well. And maybe it will turn out that it is but no matter. The key is be long as long as it lasts but don’t fall in love with it.

Long-term breadth, as measured by the McClellan Summation Index, the $NYSI (obviously the most important stock market timing signal there is), has been rising now for 37 trading days and yesterday short-term breadth, as measured by the McClellan Oscillator, the $NYMO, turned up from a dip last week giving a renewed general market buy signal for today’s open (see the chart below).

It is a notable uptick since the $NYMO, as it often does ahead of a downturn, was giving warnings that the rally was flagging but the new low above a low in the $NYMO pattern (see green circle on the chart) suggests there is at least a week more of rally to come.

So, as I said above, nothing much has changed this year. The trend is up. Be long and don’t even think short. For now.

(click on the chart for a larger view)