#MarketTiming – six days up and what now? – UPDATED

UPDATE: What now?

As suggested in the post below, I expected the market to move up this week, not as much as it did, but no matter.

Anytime one is on he right side of a six-day swing, either up or down, one cannot complain.

In this case, it’s six days up.

TQQQ, the 3x-leveraged and preferred trading ETF for the Nasdaq, gained 22% on the swing. Some major bellwether stocks have powered the six days, AAPL, MSFT, NVDA, AMZN FB, all up six days in a row; TWLO up six days and 73% on the move is by far the most spectacular example I follow.

Swing trading…what more can you say?

But what now?

This could stop right here. The NYMO was down today (see the chart below). How many times have we seen that mark the end, or at least a pause, after a four or more consecutive days up?

However, the all-important NYSI continues to rise so, unless this is going to drop right out of the sky, it’s probably a pause or a stall — it takes time to work off $2 trillion of Federal Reserve funny money spent in all the wrong places.

This has been a long spectacular rally since March, a fast up characteristic of bear-market rallies. If this is the end bullish traders and long-term investors who believe the bull market lives on will be in great danger.

If the market drops here and takes the NYSI negative, watch out…

An always remember there is no profit until you sell.

(click on the chart for a larger view)

Cruise lines stocks cruising to zero

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.

No wonder.

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.

(click on the chart for a larger view)

#MarketTiming – another day, another dollar or two

As market sold off it gaped-up gains Tuesday, the NYMO and NYSI did not turn down.

Today showed why traders always want to be on the same side as those two breadth indicators.

It’s been a great bounce and so far there’s not sign it’s done, except we’re running into a holiday in a bear market. I haven’t studied those occurrences but I would not be surprised if there’s a stall tomorrow.

No telling what more three days of news can bring during a world-wide pandemic.

Anyway, some highlights in this spectacular bounce suggested to start on on the open of March 23rd in this post: Reading history on the #MarginDebt chart. Since then UPRO, the SPX leveraged ETF, is up a whopping 60%, TQQQ is up 52%, TNA 45%; among the leveraged sector ETF’s I follow, ERX is up 82% and SOXL 74%.

Spectacular numbers.

So spectacular in fact that going into the weekend traders might want to move up to the edge of their seats to insure nothing goes wrong with the profits grabbed in this fierce bear-market rally. Investors can go on praying there’s more to come after the harrow plunge they’ve just seen. I hear a lot of happiness among those who did not buy and hold and bought sometime in the past two weeks and a lot of hoping from those blistered by what the hope is a “black swan” interruption of last year’s bull market.

I still believe this is a bounce to be slaughtered because of the unraveling of margin debt discussed in that link above but I guess we’ll see in the fullness of time.

In the meantime, this was my play for today, the SPY 267 in-the-money call expiring today, stopped out once but finished up 149% for the day trade.

Like I said above, another day, another dollar or two…in a spectacular week.

(click on the chart for a larger view)

#MarketTiming – this week’s up leg UPDATED

In Sunday’s post below it was said:

“Monday will be important but I’m going guess… The market is going to pop and take a leg up for at least a couple days this week.”

Got the pop. Got the couple of days up. Anyone sell the open today?

The market gaped on the overnight futures again but a turn-around-Tuesday did not another Monday make. Unlike Monday there was no follow through on the gap today. Although the bull-market-hope-to-be buyers made a game try to bring it back mid-day after the first slip and slide down, but the bear gave a little push with his paw to bring on a true turn-around Tuesday.

There were reversals all over the board.

That mid-day sway was rather nerve wracking for the 274 put that triggered on my SPY day-trading system but, all’s well that ends well. It finished with a 33% gain.

(click on the chart for a larger view)

As for the day itself…

Hmm…. That big black thing on the daily chart does not…well, that does not look good, but the NYMO and the NYSI continue to rise so there is still some hope for the bulls.

(click on the chart for a larger view)

#MarketTiming – looking for a swing leg up…

Nearly every night for past two weeks, the overnight index futures have been trying to mount another leg up for the market from the March 23rd bottom, and nearly every day the bears try to knock it back down.

Actually that’s typical – as J.P. is reputed to have said famously: “The market will fluctuate.”

As a day and swing trader I’m just sitting on the edge of my desk chair waiting to see which way to go.

Technically speaking, the SPY chart is showing an island reversal for the recent spectacular bounce off the market low.

That is bearish.

In addition the chart patterns I watch most closely — the NYSI and NYMO — are decidedly bearish. After getting wildly and rapidly overbought on the bounce, they have retreated with both highs below highs on the NYMO and a drop below the zero line on the NYSI. In bullish times it usually take three or four NYMO highs below highs to stop a rally. In bearish times it may take but one and several lows above lows to mount one. So far that has been true again (see the NYMO/NYSI line in the middle of the first chart below).

Long term investors, if they are in this market below current price levels, are losing time (at least a year, maybe as much as Trump’s entire term). If they are in at higher price levels they are truly trapped, losing time and losing money.

Regardless, I keep hearing both groups wishing and hoping — and pleading for — more bounce, either to cut paper losses or to get out.

So what’s next?

Having said all the bearish stuff, let’s take a look at the a couple short-term rally possibilities.

The NYMO, despite the current bearish pattern, just did something that is normal in bullish times and is at least a glimmer for a another leg up. It has dipped to the zero line three weeks (15 trading days) from its low. Three to four weeks into is normal for a twelve to fourteen week McClellan Oscillator cycle; it happens all the time in bull markets. Could this be a hint this is the week to try for more upside? A bit of relief, a surge of hope for the bulls? Maybe.

In addition, every day I tabulate all the stocks on my nifty-fifty stock list as to whether they are on buys, buys-overbought, sells, sells-oversold. Have been doing that for years, and it is a list that talks.

See the histogram on the second chart below for reference.

I’ve said before any time 40 or more of those stocks are on sells that is either the bottom of a swing or the beginning of the bottom of the swing. On the chart below, that tallies as 30 or more (stocks on buys minus stocks on sells). The red box mark each time this has happened.

During bull markets, when the nifty-fifty start up again, they either lead or confirm the next up swing. But since February that has not been case. No need to guess why that is so. Whenever a reliable indicator has a change in behavior, it screams there is SOMETHING BIGGER GOING ON HERE! My stock list is one among several technical indicators that have just announced the bear is out of his cave (and he’s given the world a vicious virus besides).

But…like the glimmer on the NYMO, there is a glimmer here also. The stocks on sells has been under forty for three days (there is no four days on this chart), and for the past two of those days it’s been slowing slogging its way higher.

Monday will be important but I’m going guess… The market is going to pop and take a leg up for at least a couple days this week.

Needless to say, I could be totally wrong about this since I am arguing against the NYMO and NYSI at the moment, the two most important measures of market psychology there is.

If so…well…it will be a short…again.

(CLICK ON THE CHART FOR A LARGER VIEW)

(CLICK ON THE CHART FOR A LARGER VIEW)

$TSLA – #DayTrading #ShortStrangles for a steady 15% weekly gain

Despite being stopped out twice during the five days last week, TSLA short strangles once again had a double-digit gain, 15%.

This strategy since introduced here six weeks ago, in early February, on TSLA, a volatile stock with liquid weekly options, has had a double-digit return every week.

The cumulative gain is now 76% for the six weeks on a maximum margin requirement (as calculated by the CBOE) of $20,000 per contract.

The values on the table below for last week’s short-strangle trades are per contract.

The reference for this strategy is this link: $TSLA – Day trading short strangles for simplicity’s sake.

(Click on the table for a larger view)

#STOCKS — $BA and its birds of a feather…

This is what happens when the US taxpayers put up $50 or so billion dollars to buy your company and then don’t take it away from the shareholders.

BA (Boeing) is up 85 percent this week (in four days) thanks to the general market bounce and being a large part of a $50-billion taxpayer bailout in the stimulus bill.

It’s up 55 percentage points higher than the next nearest stocks in the DOW Industrial Average (CVS, UTX, HD).

All those percentage points this week for a company that was crying for a bailout even before the market selloff, and a company that last week shut down its operations in the Puget Sound area (laying off 7000 employees) even before the Washington State Governor ordered ALL essential business closed to fight the virus.

It turned out in the last couple of years, Boeing has become the poster child of all of American corporate malfeasance. Buying back stocks with tax breaks instead of attending to core businesses. Taking advantage of artificially low interest rates, courtesy of a loose Federal Reserve, to add debt and to hide diminishing earnings per share. Having wildly over paid chief executives. Those guys at Boeing a few years back moved their executive offices to Dennis Hastert’s district in Chicago when he was Speaker of the House – just before he was indicted and sent to prison. Having atrocious labor relations. They moved an entire manufacturing division to South Carolina to avoid the unions in Seattle and had to admit later they would never make up the multi-billion-dollar shortfall it took to train those yahoos to make airplaines. And finally, characteristically in the Trump era, the company got caught slipshod production values, but not before it killed a lot of passengers in two crashes. Simply said, it’s probably more known for the Max-737 and that fuck-up grounding of what? A third of the fleet?

Nevertheless Boeing, admittedly, is also so important to the US economy it is truly too big to die. It does not, however, need yet another corporate bailout by beleaguered US taxpayers.

It needs to be nationalized.

Instead, it’s pretty much leading the bounce and flying in the same thin bear-market air as the rest of the market.

And along with it, there are the rest of the birds feahtered in its bailout nest. AAL (American Airlines) up 45%, DAL (Delta) up 44%, UAL (United) up 39%, ALGT (Allegiant) up 39%. We all love these airlines, right? Love the service? Paying for extra bags? Getting stranded by canceled flights?

And the food, airline food, now that’s the best the world has to offer, right?

See the chart below. Big pop. And, of course, it better not come down with the next decline otherwise the big check from the taxpayers will be wasted.

(Click on the chart to get the picture)

Reading history on the #MarginDebt chart

For anyone who pays attention to FINRA margin debt this market crash was no surprise.

If there was anything surprising about what is now 30% plunge in the SPX, it was that it took so long to happen.

I had a clear warning here as far back as six months ago in this post:

Margin Debt – setting up a S&P 50% plunge?

Now all I can say is anyone who was not paying close attention to margin debt or was disregarding its warning was asking to get their stock profits ripped apart.

Once margin debt starts down, it feeds on itself with margin calls leading to stock sales and more margin calls leading to more stocks sales with each jolting decline in the market. And besides the profits lost, there is time lost, sometimes a lot of time lost, before the market can even begin to recover.

If we take a look at the history on the chart below it’s pretty obvious the divergences between margin-debt and price of the SPX foretells the market sell-offs. In 2000 and in 2008 margin debt dropped down (the black boxes on the chart) while each time the market went higher for a few months before plummeting. Again these last six months (another lower black box lower than the previous peak), history repeated.

Granted it’s hard to believe as the market keeps going up and up the bull will ever end — earnings seemed good, the Fed was on board, Trump was bragging on Twitter at each new high — but long-term investors could not ask for a better advance notice it was their time to sell or at least tighten their stop-loss levels to preserve capital. All this market needed was one small trigger for the full unwinding of margin debt to usher in a bear market, instead it got a big one. But if it hadn’t been the Covid-19 pandemic, it would have been something else.

Now that the bear market has begun, margin debt is indicating it is not done yet.

History says, like in 2000 and 2008/2009, the S&P500 is going down around 50% before this bear market is finished. If history repeats again, there is another 20 or so percent more downside to go.

Margin debt during this long bull market went higher than either 2000 and 2007 so there’s no telling how that’s going to play out. From its 2019 peak it has a lot farther to fall – and if the news keeps getting worse — since the US, thanks to a lying President and his incompetent Federal administration is getting a late start on coming to grips with the pandemic it’s possible it could be more than 50%.

If the dire damage being done to the economy is not mitigated sufficiently by a Congress that was supposed to have a stimulus package out last week and hasn’t managed get one done yet or if the stimulus is too small or if it’s aimed at the wrong people, we could be looking beyond a historical 50-percent decline to something more like 1932.

You ask me, we’re at a point when we need a Franklin Roosevelt in the White House and instead we’re still stuck with worse than a Herbert Hoover.

But as history shows on the chart, whatever the final decline is to be, it’s likely it won’t be until after a big bounce any a week, any day, any minute now.

This market is massively oversold and it’s a positive sign that governors and mayors, allied with scientists and health-care providers across the country, have taken over the front-line fight against the pandemic as Washington goes on dithering.

The trouble with the margin-debt numbers is they are reported a month late so one pretty much has to guess, based the price action during the month, where the debt level might be in the current month. While we can see the SPX crash here in March on the chart, the margin debt line is only up to date through February. I would assume from the current price action in March it’s now a lot lower, probably akin to that drop in 2008 marked by the black vertical line.

If so, we may be closer to a bear-market bottom (six months or so) than the pattern in 2000 (which took about three years).

Regardless, the bounce, which could be spectacular, is not going to be a resumption of the bull underwater long-term holders are hoping for. More likely it’s going to be a bull to be slaughtered so severely by the next bear move no one, as despair sets in, will be looking to buy any stocks.

In despair is when a new bull market can be born.

But I could be wrong. It could be different this time. Uh, huh…

(CLICK ON THE CHART FOR A LARGER VIEW)

Reading history on the #VIX chart…

Ah, yes, I remember it well… In fact I’ll never forget…

I began investing in the stock market in September of 1987. My wife was having our second child that month. I figured I had to make some financial provisions for the future. I was beginning to make some extra money so I put our savings into the stock market. I bought stock in Compaq and Intel. The stocks were roaring up and continued to rise. I was a very happy young father.

Then about four weeks later on October 19th, the market crashed. In a panic I sold all the stock. That was on the Tuesday after Monday’s crash. That time was in so much chaos it wasn’t until Saturday before I got the fills to learn we had no savings left.

I didn’t tell my wife. She was busy with our newborn. I had a job so we had money coming in. I didn’t want to worry her. But I was virtually catatonic for weeks, until Dec 4th, 1987 (coincidentally our anniversary), when the market made a successful retest of the crash lows.

That was the day I learned what matters most in trading the market – no matter what happens, it’s all happened before.

History, history, history.

There is the famous curse, usually attributed to George Santayana, that “he who does not learn from history is doomed to repeat it.” In the stock market it’s the opposite – “he who learns from history is is blessed to repeat it.”

Which brings us to the VIX, the Volatility Index.

The mass psychology of the market – because money is always at stake – is either in some degree of fear or some degree of greed with both emotions filtered by time.

While history serves as context, the VIX measures the market endless wheeling back and forth between fear and greed. The index itself runs opposite the other major indexes, the S&P500 (the SPX), Dow Jones Industrial Averasge, the Nasdaq Composite…in other words, it runs opposite the market.

When the VIX is low the market is in a bull market, and most stocks are rising, virtually all stocks, and when it is high (as it is now), the market is a bear market, and stocks go down, virtually all stocks.

But the VIX says more than the obvious.

Right now because we’ve just finished a very long bull market there is a lot of belief that the recent stock crash is just a temporary drop and prices will soon be hurtling upwards to new highs.

And yet…right now the VIX says “not so fast.”

Consider the chart below showing the VIX with a monthly chart of the SPX.

I’ve outlined the effect of the VIX on the general market.

First, let me say what I consider the key levels on the VIX itself. Under 15, the market is in a steady advance, a bull market. At 25, the market is in a normal “correction” and the price will soon continue to climb. But if the VIX rises through 25 convincingly and vaults past 40, it ia a bear market. At that point the VIX will have to convincingly fall back through 25 before stocks can in general begin to move up again.

On the chart the red vertical rectangles mark the periods in which the VIX last went through 40 and dropped again below 25. In the 2008 bear market it took eight months before prices began to rise again. Although it doesn’t show here on a monthly chart, a weekly chart of 2010 has the VIX also above 40 (marked by the red circle on this chart) when it took five months for the prices to rise again. In 2012, it took four months for prices to rise gain.

These are measures of time.

I am suggesting this is the time it’s going to take for the current bear market to subside so prices can rise again in a steady climb. Months at best, and even then only for those not holding long term. This crash has caused a lot of damage and a lot of stock holders are trapped at higher levels (the entire advance from the day Trump was inaugurated as President has been erased). William O’Neil of Investor Daily called this “overhead supply,” meaning those holding stock above current prices will be looking for bounces to get out so going forward is going to be a choppy ride and it’s going to take time to work off the effects of the bear.

To say nothing of the fact there are very few signs the market has, as yet, quit falling.

Still, there’s more…

By my reckoning the VIX is also a calendar. The market always has a bullish bias (this is America after all!) but there are months and even years lost along the way.

The shaded blocks on chart below illustrate the time it takes for prices, once the bear market has begun, to regain their former highs. For instance if one invested in the market at the top in mid-2007, it would have taken more than five years to breakeven; in the 2015/2016 and 2018/2019 corrections approximately a year each to regain the losses, or move sideways to new highs.

When the bull is going strong, everyone forgets it takes just one down day for a bear market to begin. Of course, until it’s later and one can look back, no one can know which down day, like February 20th this year, is THE DAY.

Which is also why since December 4th, 1987, as a day and swing trader, and having learned the market’s history, I sell, every time, on the first day down.

(CLICK ON THE CHART FOR A LARGER VIEW)