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As said yesterday, earnings season is a guessing game.  Last night Alphabet (Google) reported top and bottom line earnings beats and the the stock jumped 3% quickly however when people started to read the release and not just the headlines the stock gave it all back and closed flat after hours.  Today it's down 5% on the day.  Caterpillar reported big beats on the top and bottom line and the stock was up 4% in the premarket.  I didn't go through the entire report but I watched the price action and after the initial spike with volume it started to trade under the VWAP (volume weighted average price) and that gave me a clue that somebody did read the report who was likely a sector specialist said sell the stock.  I tweeted out I was going to short CAT if it stayed under the VWAP.  The stock opened and went a little higher than the VWAP but then dropped under and tweeted again I was short.  Below I go into a few things that I used to get me into the trade with another "Anatomy of a trade".  And by the way, each thing I show can be used to enter a long trade too.  

One thing I've been waiting for was a downside DeMark exhaustion signal on the TLT Bond ETF.  Despite it not being a 10 year bond ETF but a blend with longer duration, it happens to the be the most liquid bond ETF proxy.  It had a good upside signal a little while back so this might be worth getting long bonds.  With this signal I bought TLT with a 2.5% size position in the trade ideas section.  The equity markets continues to offer more risk than reward on the long side so be nimble and stay with a decent size cash position.  

Notable:

• US Markets - Sentiment should fall some more into bearish territory.  Speculators are still setup very long the SPX futures.  Countdowns on all the major US indexes continue.  FANG looks horrible
  
• Hedge Fund Telemetry Trade Ideas - Added CAT short and TLT long
  
• European Markets - British FTSE 100 acts great but should consolidate and Euro Banks should consolidate or break hard
  
• Currencies - DXY a bit of a mixed picture with an upside exhaustion on daily.  USDCHF looks to reverse here
  
• Asian Markets - China and Hong Kong is a show me story.  Japan should consolidate at least here
  
• Anatomy of a trade - Caterpillar short from today
  
• Bond Update - TLT downside exhaustion.  10 year yield greet Setup 9.  
  
• DeMark Screens - Daily, Weekly, Monthly upside/downside exhaustion signals within the S&P 1500 and Euro Stoxx 600
  

Here's a link to the Hedge Fund Telemetry market sentiment page with 40 charts of sentiment including equities, bonds, currencies, and commodities updated each day.   

SPX bullish sentiment is at 30%

Commitment of traders report from last week shows continued elevated levels of long exposure with speculators.  This should be of concern.  Today they will calculate this week's reading (out on Friday) and I would bet anything it's down next week

SPY is on day 5 of 13 with its downside Countdown.  This chart was grabbed a little early as the market has drifted lower since

Nasdaq bullish sentiment is at 42% and with all the the tech and FANG names getting hit today this will be down significantly

QQQ is on day 6 of 13 with its downside Countdown  

Dow Jones is on day 6 of 13 with its downside Countdown

The original FANG (FB, AMZN, NFLX, and GOOGL) custom index is on day 6 of 13 with a much deeper downside Wave 3 price objective

Trade Ideas:  Added CAT short earlier today.  Price is lower now and maybe not worth chasing now.  Added TLT bond ETF long.  More on these below.  By the way, we are trying to come up with a decent solution when new trades are added with either an email.  I just don't want to overload people with too much email.  I'd love to know your thoughts.  

FTSE 100 continues up and is on day 6 of 13 with an upside Countdown.  It could get a little choppy going forward

Euro Banks has an upside green 9 Setup and should consolidate or flat out drop to the Wave 5 downside price objective of 116.67.  

US Dollar bullish sentiment is at 64% a new recent high.  

DXY US Dollar Index on a daily time frame just triggered the upside exhaustion red 13 as we have been expecting.  Maybe it drops back down and gets the Wave 4 then up to a Wave 5 target?  I'm still neutral here on the Dollar

The weekly time frame on DXY had a recent downside exhaustion and has bounced enough to get into the 4th wave of 5.  The downside Wave 5 price objective is 85.43.  I don't have a great call here on either side so I won't force it

Euro bullish sentiment is making a 2 month low at 55%.  

Euro continues to have support at 1.22 and then 1.20.  It's hard to trade this so I remain neutral

Swiss Franc bullish sentiment is at 12% bulls - this is oversold

USDCHF has a green 9 Setup and could bounce from here.  

Bitcoin actually looks like it's trying to bottom.  I have no interest in trading this for myself but I know many of you do.  It could be starting a new upside Wave 1 through 5 pattern.  It's also on day 3 of 13 with an upside Countdown.  

FXI Hong Kong China ETF gapped up today and needs to clear the 50 day (red line) for a move towards 49.64 the upside Wave 3 price objective.  

Shanghai bounced last night and I want to see if they can do it again

DXJ Japan ETF has an upside green 9 Setup and should consolidate here and perhaps break down and go for the downside Wave 5 price objective of 49.48

I subscribe to a lot of different research sites and Bespoke is a good one.  This chart was a good tip off that sales have already started to peak around the world

CAT short interest is HALF of what it was almost a year ago.  The % float short is only 1.54%.  This told me there was nothing to fear for a short squeeze of any magnitude

As I mentioned earlier, the VWAP in the pre market was 160 and it started to trade under and I knew the wave pattern had a downside Wave 5 price objective at 130.  There was also a green Setup 9 today.  Keep the thought below on that Setup 9.  This is the daily chart

This is the weekly of CAT and it also had a downside wave pattern with a weekly Wave 3 downside price objective of 126.  You see the big move in the last year?  That was propelled by short sellers covering.  Sometimes you just have to wait for them to blow themselves up.  

The monthly time frame had an upside red Sequential 13 and a pink Combo 13 and the record in the past has been exceptional.  Many of you might recall how in Q4 I had been calling for a top in the industrial sector with monthly upside exhaustion signals starting to trigger.  I might have been a few months early.  

Remember that green Setup 9?  Setup 9's (sell Setup) need to have 9 consecutive closes higher than four previous closes and if that pattern is interrupted then the count is cancelled.  

Bond bullish sentiment is at 27% for the second day in a row.  I was hoping for a lower number on the sentiment to match with the downside DeMark exhaustion signal on the TLT

COT data shows a very large short position with speculators and it's crowded.  A short squeeze is quite possible with a potential risk off move in the equity markets.  

TLT did get the downside Countdown 13 and a Setup 9 together.  This worked well on the upside and should on the downside too.  If it can stay above the closing low from February and lift higher there is now a Wave 5 upside target of 124.36.  It's a tall order but possible

On the US 10 year yield the DeMark Trend Factor indicator has an upside target of 3.01% close enough for me with the upside green Setup 9

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