Wednesday, October 28, 2015

Latest Margin Debt Figures Send An Ominous Signal For Stocks

by Jesse Felder, The Felder Report
The NYSE margin debt numbers for the month of September were released today revealing a very significant milestone for the stock market. As of the end of September, both stocks and margin debt have seen their 12-month rate of change turn negative after margin debt-to-GDP had risen above 2.5%. The last time this happened was April of 2008, as the stock market crash during the financial crisis was just getting started. The time before that was December, 2000, the very beginning of the dotcom bust.  (more)

$XHB SPDR S&P Homebuilders (ETF) on the Verge of a Death Cross

SPDR S&P Homebuilders (ETF) (XHB) — This ETF tracks the S&P Homebuilders Select Industry Index. The top 10 holdings in XHB are Helen of Troy Limited (HELE), Williams-Sonoma, Inc. (WSM), Lowe’s Companies, Inc. (LOW), Home Depot Inc (HD), NVR, Inc. (NVR), Allegion PLC, A. O. Smith Corp (AOS), Aaron’s, Inc. (AAN), D.R. Horton, Inc. (DHI) and Restoration Hardware Holdings Inc (RH).
I last recommended XHB as the Trade of the Day for participation in the homebuilding industry on July 10. At the time, the fundamental and technical picture for the group appeared bright, and I said: “This is not a trading recommendation; however, for investors seeking representation in the homebuilder group, XHB is an excellent and relatively inexpensive method of producing solid long-term gains.”

Now, however, labor shortages, higher prices for homes and falling revenues of suppliers have put a price lid on companies in the industry and the homebuilding ETF.

XHB topped on Aug. 19, above $39, but within three days, the ETF days fell to a low under $32. Rather than rebounding and establishing an uptrend, XHB formed a right triangle with bearish implications.

Selling has consistently outpaced buying volume, and the 50-day moving average is just a fraction from crossing through the 200-day moving average, which would result in a death cross — a long-term bearish signal.

Long-term investors who own XHB may want to continue to hold for a recovery in a year or so. But others should sell shares at the market price. Traders should consider buying put options on XHB.

Vera Bradley, Inc. (NASDAQ: $VRA)

Vera Bradley, Inc., together with its subsidiaries, designs, manufactures, and sells handbags, accessories, and luggage and travel items for women of all ages under the Vera Bradley brand. The company offers totes, crossbodies, satchels, clutches, and backpacks bags, as well as baby bags and lunch bags; accessories, such as wallets, wristlets, eyeglass cases, jewelry, and scarves; and travel products comprising rolling luggage, cosmetics, and travel and packing accessories, as well as travel bags consisting of duffel and weekend bags. It also provides home products, including mugs and tumblers, as well as textiles products, such as aprons, beach towels, throw blankets, and comforters; offers apparel/footwear, stationery, merchandising, and gift card products; and licenses its products. The company sells its products through two segments, Direct and Indirect.
Take a look at the 1-year chart of Vera (NASDAQ: VRA) below with my added notations:
1-year chart of Vera (NASDAQ: VRA)
VRA has formed a key support level at $12 (green) over the past two months, which had also been a prior resistance back in July. In addition, the stock is declining against a short-term, down trending resistance level (red). These two levels combined have VRA stuck within a common chart pattern known as a descending triangle. Eventually, the stock will have to break one of those two levels.

The Tale of the Tape: VRA is sitting within its triangle pattern. A short trade could be made on a break of support or on a rally up to resistance. A long trade could be made at support or on a break through the triangle resistance.