$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)

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)

UPDATING $RACE – Ferrari heading to the pits

This is a look back.

In August there was this post:

It’s been a great run for Ferrari but its $RACE is run

In which it was said:

If this race was hill climb, RACE obviously finished in the money.

Nothing like stair-steps in an uptrend.

But, a couple of observations: 1) the stock has not had a breakdown from a boxed consolidation until recently; 2) there’s also a small head-and-shoulder top formation inside the box; 3) when leader flag it’s a warning for the general market too.

So what now? It’s short the bounces until it makes a new high, and as long as it continues breaking to the downside.

And keep in mind this could be a warning in a possible transition from bull market to bear market.

Simply put, no stock goes up forever. At least not in a trader’s world. I’m sure Warren Buffet might disagree but then he’s been investing in a century time frame.

Since August, RACE has a rally back up to 140 and has rolled over as expected. That failing rally was the opportunity for long-term investors to take profits and get out.

See the chart below which has been updated from the chart in the link.

Obviously the trend has changed to a downtrend. RACE, step by step, is now building a down staircase.

Its race run Ferrari is pulling into the pits.

(click on chart for a larger view)

Five sessions in the marijuana stocks

Going into the market selloff last month, marijuana stocks were the leading sector in the market.

The stocks were flying on Constellation Brands certification of the sector’s profit potential with a $4-billion investment in Canopy Growth Corporation (CGC), then came Canada’s blanket legalization of the weed, Michigan in this election becoming the 10th state to legalize recreational uses in the U.S., following pot pioneers Washington and Colorado and others.

And now Jeff Sessions, the leading federal marijuana-legalization opponent, has been forced to resign as U.S. Attorney General. While Trump forcing Sessions out no doubt has more to do with Robert Mueller’s Russia investigation, it does have the side effect of removing another obstacle in the road to a possible national legalization.

The leading stocks in the marijuana sector surged today on the Sessions news but they were already on the run with the market bounce.

Long-term breadth (measured by the McClellan Summation Index) turned up after a 40-day decline on October 31st, giving a clear market-timing signal to buy the market on the open on November 1st, five trading days ago.

CGC is up 23.7%, TLRY 41.8%, CRON 29.2% and the ETF for the sector, MJ is up 16.9% (see the charts below, the white flags on the lower right tell the gains far per $100K invested).

In addition GWPH, a stable medical marijuana stock that has been around for a long time in the US, is up 8.9%.

All in five trading days. This sector is a perfect example of the splendid simplicity of the long-term breadth signal. Coming into the market selloff as a leading sector, it was highly likely (almost a certainty) that as the market’s drop stopped, the sector’s stocks would bounce fast and high…so to speak.

(click on the chart for a larger view)

#Stocks for the #BorderWall

Just for fun…

Let’s say the Republicans retain both Houses of Congress on Tuesday — that the so-call “Blue Wave” never reaches shore.

In that case Trump will have even greater carte-blanche to do whatever he wants and since he will be running non-stop (every day except golf days) for reelection, the top item on his broken-promises agenda will once again be wasting taxpayer dollar on his so-called “Border Wall.” Idiotic, yes, but there is money to be made bottom-fishing this sector and the stocks for concrete, steel, construction equipment and construction companies like CAT, CX, USCR, VMC, EXP, SUM.

See the charts below.

Long a short in this bull market (“broken promises”) they could have more than the bounce of the last few days, maybe even a rally on growth prospects as middle-class taxes (isn’t that all that is left to draw from?) get funneled to their coffers.

Now let say the “Blue Wave” not only arrives, it turns out to be tsunami as the Democrats take not just one but both Houses of Congress.

Having learned their lesson the Democrats realize there’s victory in jobs, jobs, jobs and the Party finally launches a massive program (FDR-sized!) to restore America’s deficient, crumbling infrastructure (to try to raise it to the level of the rest of the industrialized world or, as trains go, at least better than Bolivia), fueled by taxes on the one percent (who can afford it and then some…). Smart, yes, and there is money to be made bottom-fishing this sector and the stocks for concrete, steel, construction equipment and construction companies.

See charts below.

(click on 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)

$LVS $WYNN – “No one knows how to bankrupt casinos like I do.”

I made up the quote in the headline on this post but I’d bet the first thought of everyone — EVERYONE — who read it was Donald Trump said that?!

He might as well have (maybe he has sometime in his daily incoherence). Before he got into the money laundering business with the Russian Oligarchs, he owned casinos in Atlantic City. They all went broke.

He doesn’t own any gambling palaces anymore but it appears as President he’d like to help bankrupt those of his friends as well, like a hobby on the side. Both Sheldon Adelson and Steve Wynn are big Trump supports. Or at least they have been. Looking at what’s happening to the shares of their companies, one wonders if they still are. If they are, what’s the matter with them?

This probably has to do with the way Trump has managed to get the Chinese to quit playing games of chance but who knows? Maybe it’s just his “golden touch” in casinos is contagious? Or maybe, a more obviously, it might be, as much as fools wants to tout the supposed merits of a businessman in the White House, every fool needs to remember the last one was Herbert Hoover.

The worst is likely not over for LVS and WYNN, and the down staircases like these here (see the charts below) are likely going to get built soon in a lot of other stocks, and a lot of market sectors (even now take a glance at housing stocks and bank stocks and place bets).

(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)

$SPY – Market breadth takes a toll on a “Big Wednesday”

In surfing lore, there is the myth of “Big Wednesday.”

The myth was immortalized in the 1978 cult film “Big Wednesday,” written and directed by John Milius, who also wrote such movies as “Jeremiah Johnson”, “The Wind and the Lion” and “Apocalypse Now.” It was Milius’ contention elite surfers cannot acquire true greatness, legendary greatness, until they face and overcome the great waves, the legendary waves that rise and surge and rage along the California coast from out of almost nowhere. No one know why they come or when they come but as the movie puts it: “They always come on Wednesdays.” Maybe what Milius had to say about surfers should also be applied to market traders and investors.

Today was a big Wednesday in the stock market.

The Dow was down more than 800 points, the Nasdaq more than 300, the SPY nearly 100 points. Big moves out of, I guess one could say, flat surf on Tuesday.

Actually this was no real surprise.

There have been signs everywhere. The general market indexes have been rising in price to all time new highs for the past month in defiance of long-term breadth as measured by the McClellan Summation Index, the $NYSI (see the declining red dots on chart below). That was rather amazing to watch, particularly the way the NYSI kept falling day after day despite the lingering bullishness on the indexes, and in the end, as always, the NYSI took its toll.

In a head-to-head battle between price and market breadth (the sum of all stocks rising and falling) it may be hard to tell when the battle will end but it will end with breadth winning every time.

Long-term breadth is the most effective indicator of mass market psychology there is.

Even as market appeared to be rising on a few tech stocks alone — AMZN, FB, NFLX, NVDA, GOOGL and most notably AAPL — breadth was saying the bottom was falling out. When those stocks began to crumble (look up charts of FB, NFLX…), this day became all but inevitable.

Signs everywhere. Besides the obvious relentlessness of the NYSI, the economy-sensitive housing stock have been falling for months with the banks beginning to tumble with them (many of the banks broke major price supports today just like in 2007-2008); news low began to outpace new highs in late September and accelerated on October 4th (which also happened in 2007-2008); there were also rare whispers under the surface like the day the Dow made a new high while more than 50% of the SPX stocks were below their 50-day moving averages (last seen at the exact market top in 2007).

So is this the beginning finally of the bear market to come that is just as inevitable? Don’t know yet. The market can plunge farther now (as I write this it is in overnight futures trading); it could even crash. But it won’t be a bear market for sure until it rallies and that rally fails below the previous highs in the price of the major indexes.

I seldom have anything to say about fundamentals, since the technical trumps the fundamental every time, but probably I should mention when one considers what comes next, the here-and-now is a bull market that is ten years old, interest rates are rising, unemployment is at its lowest level in forever, margin debt in stocks is near its high and at an astronomical level; there has been a tulip craze in crypto-currencies, a mania in block-chains, and the strongest sector in the market right now is the weed patch, marijuana stocks.

If this is the death of the bull and the birth of a bear, everything I’ve just mentioned will not be with us much longer.

(click on the chart for a larger view)