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04/25/2018
Thomas Thornton

Great Quarter Guys

This quarter expectations for strong earnings growth in the US were widely used by bullish strategists as a narrative to stay bullish.  I had no doubts that earnings growth would be good (with tax cuts) but I've been saying for several months these high expectations might be too high.  Furthermore, the market has been beat up in the quarter which generally would make it easier for a positive stock reaction after earnings.  Strategists and business television people are pulling out their hair when they see stocks that beat fall after earnings.  It's been a sell the news earnings season.  When the S&P 500 stocks have beat earnings estimates they have gapped up early by about .50% but have traded down about .80% ending the day down about .35%.  When stocks have missed estimates they have gapped lower by 2.75% and continued lower to end the day down about 3%. 

I listen to conference calls daily and analysts have been saying the usual "Great Quarter Guys" while the stock starts trading down.  You can sometimes tell when everyone on the call is watching the stock sink as the demeanor changes.  This is an inside joke on Wall Street with "Great Quarter Guys" and there was even a study done years ago that I found in a Jason Zwieg's WSJ story by a couple accounting professors.  "Analyzing more than 16,000 earnings conference calls from almost 500 companies between early 2003 and the middle of 2013, the researchers found that analysts spoke the phrase “great quarter” roughly 3,000 times. They said “good,” “great” or “strong” more than 215,000 times."  Tonight and tomorrow we have some big weights that I promise will get some "Great Quarter Guys".  

Today's market action started off lower as a continuation from yesterday's selling.  Some of the biggest weights were pressed lower but have since recovered some if not all the losses.  What I have been watching are the downside DeMark Countdowns in progress on some of the major indexes, sectors, and stocks.  This gives me confidence that lower lows are in our future.  The hard part is that one must endure some of the choppy face ripper bounces.  Speaking with a hedge fund manager who is one of the better traders I know we agreed that a capitulation type event hasn't yet occurred and there still seems to be many buy the dip people as the 200 day moving average holds once again.  

Lastly, the weakness in the equity market this year has had a few things absent that typically happen with rates and currencies.  That might be starting to change (volatility) and I'll address as it happens in the coming notes.  


Notable:

  • US Markets - Sentiment still moving lower.  Downside Countdowns in progress
  • Hedge Fund Telemetry Trade Ideas - No changes.  
  • European Markets - DAX is proxy of which direction it goes next - ECB tomorrow FYI
  • Bloomberg World Index - Another one that has to determine next direction
  • Lightning Round - Various stocks and thoughts
  • Currencies - USD, EURO thoughts
  • Asian Markets - FXI and Hong Kong in a tight range
  • Crude Update
  • Gold and Silver Update - Gold Futures has a downside DeMark exhaustion today
  • Bond Update - My conviction on the TLT long trade is being challenged.
  • DeMark Screens - Daily, Weekly, Monthly upside/downside exhaustion signals within the S&P 1500 and Euro Stoxx 600

US Markets


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 20%  down from 30% the previous day.  


SPY has bounced from when I grabbed this chart but the story remains the same with a downside Countdown on day 6 of 13.  


Nasdaq bullish sentiment is at 30% down from 42% the previous day


QQQ is on day 7 of 13 with its downside Countdown.  It's bounced off the lows and considering the sharp move in the past few days some backing and filling is quite possible with some big weights reporting in the next two days


FANG + Index has a downside Countdown on day 6 of 13.  Like the QQQ this could see some backing and filling but ultimately I expect it to be lower


Dow Jones is on day 7 of 13 with its downside Countdown.  BA reported good earnings and is up 2.5% and they are the largest weight in the index.  


IWM Russell 2000 has been holding the 50 day and this index has been one of the better ones on a relative basis.  

 
Hedge Fund Telemetry Trade Ideas


Trade Ideas:  No changes today.  We received a lot of responses yesterday when asking how you would like to get updates.  We should have news on this soon.  I want to be clear that my risk tolerance is different from yours and if you feel the need to make changes to lock in gains or take losses with your own portfolio - please do.  I am a hedge fund trader that can be quite aggressive at times.  I am human and make mistakes with ideas and losses have to be taken.  

 
European Markets


DAX is similar to many other European indexes as it has been knocked down and needs to find a direction.  There is a downside Wave 3 price objective of 10,691 or an upside Wave 3 price objective of 13,087.  Breaking recent lows and highs will be the tell.  

 
Bloomberg World Index


Bloomberg World Index also has downside and upside Wave targets.  

 
Lightning Round


AMZN has bounced from this low today yet the downside Countdown is on day 7 of 13.  This one happens to be one I am nervous being short with earnings tomorrow.  


FB reports tonight and the stock has been horrible all year.  There is a lower downside Wave 5 target of 131.  Tonight they report and they have an 11% implied move expected.  I would bet they have scoured the FB office couches to find every penny for this quarter.  So they could see an initial move up but they give guidance on the call and that could be weaker causing a sell off.  


WMT is on day 12 of 13 with a secondary downside Countdown.  I am doing a little work on this one for a long idea perhaps soon.


GE has their annual meeting today and it's not going well as there are many upset shareholders including former employees and retail holders.  This stock was the poster child for buy and hold.  One woman on CNBC said she could never sell her stock as she would take a huge loss.  This isn't the type of thing I want to hear as people always sell lower.  I was short GE all last year and turned positive on it in December at 17 but stopped myself out at 15 since more negative disclosures kept coming after the kitchen sink guidance last November.  It might be a buy soon if it can dip lower and hold the recent lows.  


GS continues lower and is on day 6 of 13 with its Countdown.  227.82 is the Wave 3 price objective  Check out how well the last upside Wave 3 and 5 price objectives were


MSFT reports tomorrow night and has seen two big down days.  The implied move is 5.2% and they have seen the stock lift 7/10 quarters the day after.  I have no strong view on this one but if they fade this it will be a big tell for tech


TGT is starting to appeal to me on the long side if this can make a new high in April.  I might add this into the trade ideas too


TSLA has been trading around 280 and looks like it's about to autopilot its way down.  Short interest in TSLA was reported yesterday and in the past 2 weeks it increased by 6.5 million shares to 38 million shares.  This is 30% of the float yet with the increase in volume the days to cover short interest ratio is 2.91.  One has to weigh the  risk reward not by just the fundamentals (they are clearly horrible) but the mechanics of trading this stock.  They report May 2nd and could announce something like a new car (Model Y) to distract people from the nearly $1 billion loss in the quarter.  The Tesla conference calls are quite hysterical with Elon.  Can't wait!  

 
Currencies


US Dollar bullish sentiment is at 63% and is trying to make a move higher after being in a tight range


DXY US Dollar Index had an upside exhaustion red 13 Countdown yesterday after finally making a breakout.  I am always skeptical of breakouts when there are exhaustion signals.  Maybe this can reach the Wave 3 upside price objective of 91.86?


Euro bullish sentiment is at 58% and hasn't broken 50% yet.  ECB tomorrow could see some action


Euro is about to make a new closing low for 2018.  It's now in Wave 5  with a downside price objective of 1.20


British Pound continues lower under the 50 day

 
Asian Markets


FXI Hong Kong China ETF remains in a tight range


Hong Kong Hang Seng Index is on day 12 of 13 with its Countdown  


700HK Tencent is on day 7 of 13 with it's red Countdown.  There is a green Setup 9 too and perhaps a bounce short term is near

 
Crude Update


Crude bullish sentiment is at 77% down from 84% the previous day


WTI Crude Futures remains in an uptrend.  There is an upside Countdown on day 5 of 13.  It's not an ideal entry here and frankly I regret not buying this lower in February when the positive seasonality begins.  

 
Gold and Silver Update


Gold bullish sentiment is at 50% down from a recent high of 80%


Gold Futures finally got the daily downside red Countdown 13.  I will be adding this to the Trade Ideas if we can get a price flip up (trade higher than 4 previous closes)


Silver bullish sentiment is at 37% and stalled recently at 50% which as you see is now the clear breakout level


Silver Futures reversed very hard with the recent green Setup 9.  I like silver still and might add it to the Trade Ideas too.  

 
Bonds


Bond bullish sentiment is at 25%


TLT Bond ETF had yesterday both a red Countdown 13 and green Setup 9.  I added it to the Trade Ideas with a small 2.5% sized position.  My conviction is not that strong as sentiment only hit 25% and I would prefer something like 10%.  The next charts also are biting into my conviction


US 10 year yield had an upside green 9 however there is now an upside red Countdown on day 2 of 13.  I want to see a turn in the next couple days or else I could exit the trade


10 year futures is right at support but has the same Countdown too

 
DEMARK SCREENS - Daily, Weekly, Monthly Upside/Downside Exhaustion Signals

Daily/Weekly DeMark upside/downside exhaustion signals (Sequential) Weekly updated on Monday's.  Price flips occur when a stock closes higher/lower than four previous closes.    

S&P 1500 Universe: 

DAILY UPSIDE 13:   BOFI, CPRT, MED, SYK, UMBF
DAILY DOWNSIDE 13:  ANIK, B, BFS, BMY, LECO, MAN, MLM, MNST, MTD, NSC, ODFL, PRGS, TGI, TKR

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    AIR, APA, BABY, CPRT, CRY, CW, EMR, GFF, IVC, MANT, NBL, SCL, SYK
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   HBHC, HBI, HOG, NFG

Updated: 4/23/18
WEEKLY UPSIDE 13:   AAPL, ALGN, AVAV, BCOR, CBSH, CCMP, COP, CY, EMN, FCFS, IEX, KFY, LRCX, NSP, PLT, PSX, RYN, STMP, STX, ZION
WEEKLY DOWNSIDE 13:   KMB, SKT

Updated: 4/2/18
MONTHLY UPSIDE 13:      
MONTHLY DOWNSIDE 13:     

Euro Stoxx 600 Universe:

DAILY UPSIDE 13:   ALO FP, RSA LN, SU FP
DAILY DOWNSIDE 13:  ATO FP, JMT PL

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    ATCOA SS, BOL FP, HELN SW, IPN FP, NCCB SS, RRTL GR, RWE GR, SAND SS, TEL NO, WDH DC
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   CON GR, JMT PL

Updated: 4/23/18
WEEKLY UPSIDE 13:   BN FP, HL/ LN, PHNX LN, PSN LN, VNA GR, WKL NA, WTB LN
WEEKLY DOWNSIDE 13:   NRE1V FH

Updated: 4/2/18
MONTHLY UPSIDE 13:     ASSAB SS, BEZ LN
MONTHLY DOWNSIDE 13:  CPI LN



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