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5/10/18
Thomas Thornton

Defying Gravity

Another day and stocks seem to defy gravity once again.  The sentiment has improved and if you're a bull on CNBC you can't contain yourself.  Stocks are now up five days in a row with the NDX up over 5% for May.  The best May for reference in the past 10 years was up only 4.32%.  75% of the gain in the NDX can be attributed to just seven companies and Apple is 30% of the over gain.  I've been stubbornly selling into the lift while adding to some selective longs.  Why on earth would I do such a thing?  First of all I will jump on my sword and admit I pressed too early this time and and have put myself in the defensive position for the month and it's not something I'm happy about.  Second, the sell in May and go away is something that is valid when looking at individual sectors that have historically seen peaks at the beginning of May followed by some real weakness.  Below I highlight some of the sectors most at risk.  Third, I utilize several time frames into my process and I've been watching and waiting for upside exhaustion signals with the 60 minute time frame.  The main point of DeMark indicators is that the signals do not have smart sellers that come into the market with upside highs but buyers exhaust themselves which means there isn't anyone left to buy.  The move in the mega cap tech is pretty unique too as this is a chase and by no means a short squeeze.  Those big cap stocks have about 1% of the float short.  When these stop going up the move lower could be severe without the natural buyer or short covering.  If you did happen to get long into this latest lift, don't be greedy and remember to ring the register.  Kudos to you.  

On another topic, thanks for all the nice emails regarding our new weekly currency note.  It will come out on Wednesday's.  We are thinking of another early very brief note before the US market opens too.  Let me know what you think.  

Notable:

  • US Markets - Sentiment increasing with strong action for the 5th day.  Upside 60 min time frame exhaustion signals starting.  SPX seasonality, NDX month to date attribution
  • Hedge Fund Telemetry Trade Ideas
  • European Markets - UK is nearly exhaustion on the upside joining Italy and France - Heads up EUROPE should work lower in the coming days
  • Goldman Sachs Financial Conditions Index -  There is stress in the system starting
  • Technology Update
  • Asian Markets - Nikkei bullish sentiment is extreme yet perhaps upside exhaustion on daily and weekly happens next week
  • Seasonality - Take a look at these charts and you maybe won't think I'm that nuts
  • Apple - Should start to top out here
  • A few recent ideas
  • Bond Update - Neutral on the TLT.  2/10 spread flattening today
  • 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 47% and for sure it will pop above 50% later today


S&P Seasonality starts to play a roll going forward


SPY I'm being told is breaking out.  It's above April's high and perhaps breaking a trend line but we've seen this before.   


SPY on a 60 min tactical time frame has upside exhaustion now and THIS has been one of the  main reason's I've stubbornly held short.


SPX Index 60 min ditto.  The other day I mentioned 2710 was possible on the upside as I expected this upside exhaustion near the April highs.  


Nasdaq bullish sentiment is at 48% and it says a lot when the tech lovelies are 'breaking' out and sentiment remains subdued


QQQ is up 5% for the month of May.  The biggest increase in May in the past 10 years was 4.32%.  Some people might look at this chart and see a head and shoulders top forming.


NDX attribution month to date shows 75% of the gains due to 7 companies.  30% is Apple.  This won't last.  


IWM Russell 2000 has been the one index I've said looks better than the others.  People are screaming for a breakout and perhaps it will happen but look at the next chart


IWM 60 min tactical chart  has seen a cluster of upside exhaustion signals.  It should pullback soon.  

 
Hedge Fund Telemetry Trade Ideas



 
European Markets


UK FTSE 100 on day 12 of 13 with upside Countdown.  


Italy another down day after the recent upside exhaustion


DAX has green Setup 9 today and should pullback from here

 
Goldman Sachs Financial Conditions Index


The Goldman Sachs Financial Conditions Index is an index factoring interest rates, movements in the dollar, the S&P 500, and credit spreads. This is the long term chart of the index with each dot representing a weekly reading.  Back in January when I was extremely cautious about the markets I showed this index making a 20 year low with downside weekly exhaustion signals.  When this lifts it's a sign of more stress in the markets.  


The close up of the index shows it continually lifting which says there is more stress in the markets.  A move over 99.50 - 100 would certainly be a warning signal for a weaker economy

Technology
 


XLK Tech ETF vs SPX ratio chart shows the dramatic outperformance this month.  There is now some clustering of upside exhaustion signals on the upside like we see in April on the downside


XLK has a green Setup 9 today and is on day 10 of 13 with an upside red Countdown.  And yes this looks like a head and shoulders pattern  

 
Asian Markets


Nikkei bullish sentiment is at 80% after reaching 85%.  It moved from 6% on 3/23 when there was the downside exhaustion 13.  


Nikkei has been consolidating but has an upside Countdown on day 9 of 13 so perhaps a little more upside


The weekly is on week 12 of 13 so it lines up with next week getting the daily upside and weekly.  

 
Seasonality with some key sectors


Consumer Discretionary peaks in the first part of May


Energy seasonality has worked well as the start of the energy move was in early February and now it gets tougher.  


Financials also peaks at the beginning of May and it's why I remain short financials


Industrials peaks here too and will stay short BA and long GE pair trade


Healthcare has been weak and I've been looking at some long ideas in the space for the positive seasonal move


Technology starts to get choppy.  Considering the sector has been very strong I expect the chop to be more severe than usual headed into Q2 numbers


Transports also peak in May and should see a decent downside move into June then a lift and then much weaker into the Fall

 
Apple Update


Apple has been a monster and this is not by short covering.  People are chasing.  The green Setup 9 today has been pretty good with Apple at some inflection points in the past year.  Notice the volume has decreased in the past few days.  Sellers are on strike.  These chasers will turn seller pretty quick with a few down days


The tactical 60 min chart has some upside exhaustion up here.  Its worked well in recent inflection points


Here's Apple's 2018 revenue estimate in red and the white line Apple's price action.  Apple is a product driven company that has product that isn't selling that great.  They have a ton of inventory too.  

 
A few recent ideas


CMCSA reached the Wave 5 downside price objective and has some downside exhaustion signals in play now.  They are trying to buy FOX and competing against DIS.  I like it for the defensive nature of the business


BA is poking above the recent range and I will remain short as a longer term hold.  Recall I sent the weekly chart of this one that is just bonkers.  


BA tactically on the 60 min chart has some upside exhaustion - and has pulled back a little


FB on the tactical 60 min time frame has some upside exhaustion signals and I've been stubborn waiting for these to trigger.  I did double my size to 5% today on the short side.  


Macy's was one I mentioned a week ago as a potential short idea but I was waiting for the upside 13 - it only got to 11.  


WFC is a new short idea today.  There is a lot of support at the 50 level and considering financials have weak seasonality ahead I could see this one breaking down


WFC on the 60 min tactical time frame has some upside exhaustion in play.  

 
Bonds


Bond bullish sentiment is at 23%


TLT Bond ETF still feels directionless.  I remain neutral for now.  


2/10 yield spread continues to flatten

 
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:   ABMD, AMED, CLF, CPT, FISV, KRC, MCO, SJI, TSS
DAILY DOWNSIDE 13:  ANDE, CEVA, LTM, XRAY

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   RYN
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   ABM, AMGN, ANIK, ANI, CMI, GPS, MNK, PBI, UTRH, VAC

Updated: 5/7/18
WEEKLY UPSIDE 13:   AMZN, BRO, FLIR, LH, LYV, TJX
WEEKLY DOWNSIDE 13:   FTK

Updated: 5/1/18
MONTHLY UPSIDE 13: CTXS, HSII, SYK, UFCS, WBS    
MONTHLY DOWNSIDE 13:     AKRX, HLX, HVT, MNK

Euro Stoxx 600 Universe:

DAILY UPSIDE 13:   NN NA, RMG LN, SAN FP, SAND SS, SCHA NO
DAILY DOWNSIDE 13:  FRES LN, NER1V FH

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    AAL LN, BRBY LN, INF LN
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   NONE

Updated: 5/7/18
WEEKLY UPSIDE 13:   ATL IM, BKG LN, COLOB DC, DWNI GR, KINVB SS, LEG GR, RACE IM, STL NO
WEEKLY DOWNSIDE 13:   BMPS IM, VWS DC

Updated: 5/1/18
MONTHLY UPSIDE 13:     HNR1 GR, HWDN LN, MHG NO
MONTHLY DOWNSIDE 13:  AGK LN



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