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)

#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)

#MarginDebt – a sign of quiet desperation?

I gotta say, as a day trader, I’m beginning to wonder if this is the most bearish bull market ever – gap it up overnight with futures, sell it down all day.

I suspect this could be a sign some big boys are desperately trying to slip out of the market without anyone noticing, but what do I know about such machinations?

Needless to say, margin debt is at astronomical levels in comparison to 2000 and 2007. Since the chart below was published for August, the SPX has gone to a new high in September. We will not be able to see what margin debt has done at the same time since the data going into the chart calculation is assembled monthly (why is that?). But even if it goes to a new high also (a sure sign of continuing greed), it will only mean the bull market has more time to rise but also at an ever more risky height from which to fall.

(click on the chart for a larger view)

$SPY – Can Orange Become The New Black Swan?

Four days up in a row for SPY and TNA while the Nasdaq, long the leader, now lags…

At the close of the day forty-one of the stocks on my nifty-50 stock list ended in the buy column with fourteen overbought.

Short-term breadth was up again but is now in overbought territory. Usually it takes time to unwind that even when it turns down.

Long-term breadth has been rising now for just three days, giving worthwhile advances in most everything — 40 out of the 50 stock on my list advanced today, and 41 or the 50 are positive on this three-day upswing. It should be noted if long-term breadth turns down now it will put in a fairly serious divergence with the SPY new high (see chart below).

Which bring us to the news?

I don’t ever trade the news but just taking in some market perspective one wonders if something is going to come along and blindside the complacency of this bull advance? Like the odd VIX spike today. Like AAPL gone crazy and possibly running out of buyers besides AAPL itself. Like some sector gone so frothy so fast it signals irrational exuberance has crossed over into insane exuberance (see the pot stocks in the post below).

Or like two of those closest to the jabbering President of the United States suddenly going down coincidentally on the same day, one with a guilty plea and flip, and the other found guilty on 80 criminal counts that could get him 80 years in prison. Trump claims always to be the best, be the greatest, know more than anyone else, likes setting records…how boastful can he be when his administration racks up more convictions than any other, including the Nixon administration?

What’s it mean to the market? As I write this, I see futures are down, with the Dow futures reversing the day. This bull market has been able over and over again to erase the overnight falls in futures. What if this time it doesn’t?

I guess then we might be able one day to look back and say: “Whattaya know…Orange
was the new black…SWAN!”

(click on the chart for a larger view)

$DBX – An IPO easy to buy at the right price…

When a hot IPO is launched, as was the case with Dropbox (DBX) yesterday, the headlines are usually how much it leaped over it initial offer price. That is a worthless commentary. Unless one is on some broker’s favored clientele list, it is impossible to have the stock and to be able to sell it on that leap.

So what to do?

With IPOs this is actually one of the easiest decisions in stock trading. Simply note the high price and the low price on day one of the IPO. Those are the lines in the sand.

Buy on a close above the high of the first with a stop loss below the high of the first day. With DBX that buy is a close above 31.60. If the stock drops back below that number, take the loss (likely small) and forego the anxiety of being locked into a foolish IPO buy made on whatever day. If it rallies from there, it could trend up and become a longer-term investment.

$SPY – beginning another hard up leg…

The general market continued higher again today.

Interesting one-day moves in the top five stocks on my Nifty-50 stock list: TAL up 5.2%, WTW up 10.2%, EDU up 7.9%, PODO up .58%, and FSLR up 3.2%. All in all, 36 of the stocks on the list advanced.

Long-term breadth is still declining but it often lags a market move as short-term breadth begins to give glimmers of a blast to the upside (see the green circles on the rising lows on the chart below).

This is a bull market that just keeps charging, and will apparently until it doesn’t anymore.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Sell (Day 15).

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

CONTEXT:

SPY CLOSE – 258.85
QQQ CLOSE – 153.79
CNN MONEY’S FEAR AND GREED INDEX: (69 rising, greed level).
NIFTY-50 STOCK LIST: 28 Buys; 12 Overbought, 7 Oversold, 12 new buys today, 5 new sells.

(click on the chart for a larger view)

#MarketTiming – as breadth goes so goes…

The long-term breadth indicator I use, which is the McClellan Summation Index, turned down last on 10/17 giving a sell signal for the open of 10/18. Utilizing the New York Stock Exchange advance/decline stock line, one of the broadest measure of market movement there is, it has been, and continues to be, one of the best reads on market direction. Maybe the best.

It defines the market’s longer-term trend.

So what has happened to stocks since the market’s sell signal (or short signal)?

Just some examples (see the chart panel below) – of the 10 stocks on my bellwether stock list, as of today’s close, nine are down, led by TSLA with a 9.1% short profit and BABA with a 5.1% profit. Nine stocks down. In seven trading days.

(click on chart for a larger view)

$SPY #MarketTiming – warnings, warnings, but…

After eight consecutive days up, SPY turned down Friday. I have to laugh. The decline was twenty-three cents – on a $254 ETF. Hard to get even the least big bearish about that.

And the Nasdaq Composite eeked out another gain for its ninth day up in a row.

Bears must be pulling their hair out by now. Won’t this market ever go down?!

But I have a feeling that bulls are starting to feel the possibility that whenever this rocket trajectory ends, the booster will fall. At that point, the question will be can the payload stay and hold in high orbit after the rocket is gone?

I have signs that all is not well under the surface. Once again. This bull market has defied every one of these downswing attempts for quite some time now. In my swing signals, short-term breadth and volatility whipsawed again to a sell, leaving only price rising (based on the Naz Comp up 9 consecutive days!). Long-term breadth remains positive but short-term breadth is slowly losing momentum (see chart below), which is always a big warning sign. Maybe this time that high below a high in the upper portion of the chart will be THE WARNING of the tumble to come. Fear and Greed clicked down from 95 to 92. Both those numbers are too high and unsustainable. My nifty-fifty stock list has been slowly rolling over from 39 on buys Tuesday, to 38 on Wednesday, to 37 on Thursday, to a bit bigger slip to 28 on Friday, and also registered 14 new sells on Friday.

Warnings, warnings, warnings, but until SPY follows through with more downside and the Nasdaq composite joins it in a notable drop, one can only say the bull market rages on, delighting buy-and-hold investors and driving swing traders crazy.


SWING TRADING SIGNALS:

PRICE: Buy. (Day 8).
SHORT-TERM BREADTH: Sell. (Day 1).
VOLATILITY: Buy, (Day 1).

CONTEXT:

SPY CLOSE – 254.37.
QQQ CLOSE – 147.66.
LONG-TERM BREADTH: Buy (Day 30).
CNN MONEY’S FEAR AND GREED INDEX: (92 falling, extreme greed level).
NIFTY-50 STOCK LIST: 28 Buys; 18 Overbought, 3 Oversold, 3 new buys today, 14 new sells.

(click on the chart for a larger view)

$AAPL – the stock that is the market…

The story of an otherwise lackluster consolidation day was AAPL’s event to announce its new iPhone, TV stuff and the latest edition of its watch.

Almost any day in the market is an AAPL day since the the stock is so big (an unprecedented $830 billion market cap) that is shakes and rattles every index it is in.

So today started out with the stock gaping up and immediately selling down, taking the Nasdaq with it.  It then chop-choped back up to its high of the day as its event opened.  There is a common saying the stock market that goes “buy the rumor, sell the news.”  Well, the traders indeed sold the news, taking the stock down two points into the close.

See the charts below.

For day traders that was just fine.  AAPL’s news was worth 40% in its in-the-money puts from the open of its “event” to the close of the market, 80% at the greatest measure of its tank from its high on the news. If one shorted its “news” in the stock itself, it would have been worth two points to the close. Five-hundred shares and one could actually afford their over-priced phone. A thousand shares one could buy two and give the second one to your kid.

To your kid! A thousand-dollar phone! You must be kidding!

And P.S.: that was supposedly good news.

So what now?

AAPL had an “outside day” which is a continuation pattern in technical analysis and since the stock came into the day on an upswing it is likely to recover today’s small drop and continue higher.  Especially since it has enough cash on hand and the prospect of a lot more to buy its own stock.

As for the general market all three of my swing signals remain on buys, and long-term breadth is accelerating somewhat to the upside so there is more rally to come.

SWING TRADING SIGNALS:

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

CONTEXT:

LONG-TERM BREADTH: Buy(Day 12).
CNN MONEY’S FEAR AND GREED INDEX: (64 rising, entering greed level).
NIFTY-50 STOCK LIST: 31 Buys; 19 Overbought, 3 Oversold, 6 new buys today, 9 new sells.

Bellwether stocks meeting 5-minute day-trading criteria for a buy on the open:  NFLX, FSLR, BABA, BID.

(click on the chart or a larger view)

$TSLA – Is it the best long-term investment since $AAPL?

I am not much for Peter Lynch type anecdotal evidence as a basis for either fundamental analysis or technical analysis in the stock selection but one of my sons, who is 28 years old, recently gave me a lecture on the future of Tesla (TSLA) that actually made sense.

He believes TSLA will one day be the biggest market-cap stock in the market because it is the Apple (AAPL) of the car market.  His reasoning, at the risk of oversimplification, is that Apple’s iPhone took the world by storm for one reason beyond its intrinsic quality and usefulness – it dominates because it happened to be introduced to the market at the exact moment that his millennial generation was able to afford to buy the iPhone.  Now the TSLA is introducing its Model  3 at a price and a moment when the same millennial generation is reaching the point in their lives when they can want and afford one.

Simply put, he tells me, everyone he knows is on the Tesla waiting list for the Model 3.

According to reports, reservations for the car are now averaging 1800 per day and have far surpassed the 500,000 mark – http://money.cnn.com/2017/08/02/technology/business/tesla-earnings/index.html.

And if the reviews are any indications, that number is only going to increase as Tesla gets closer to delivering the vehicle – https://www.cnet.com/roadshow/auto/2018-tesla-model-3-review/.

And, more simply put from a long-term investment point of view, he points to AAPL”s current market cap north of $800 million and TSLA’s current market cap at $57 million and says “do the math.” TSLA has room to move up 14 times its price today.  Can this be true?  Well, when AAPL introduced iPhone in 2007 its stock was selling at a split-adjusted $11 per share.  It is now sells at close to $162 a share – 14 times its price at the iPhone’s introduction ten years ago (how about that?!).

So, as they say on Wall Street, what’s a price target on the upside for TSLA – $800 or so a share…

(click on the charts for a larger view)