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5/11/18
Thomas Thornton

Sausage Making

I used to tell people hedge funds are like sausage.  You love the taste of sausage but you don't want to see how it's made, and with hedge funds you like the returns but you don't want to see how it's made.  Within a long short fund there are times when nothing is working when you have your longs going down and shorts going up.  Most of the time, you live in this manic depressive world where you have half of your book working at a time.  There are times when you sell at the lows and buy and the highs just to have things turn on you.  Sometimes you have to plant the seed of an idea and wait for it to sprout.  Many times you plant something and it doesn't grow and it turns into a weed.  You have to pull the weeds and plant new seeds constantly.   It's a struggle of being patient and impulsive.  There's shoulda coulda woulda at times too.  The main point is when you stay focused on your process combining all of the macro ingredients it usually turns out as you expected.  

Markets are starting to show signs of slowing on the upside today after a long streak of gains.  The dollar has to be watched closely as it is the first tell on which way global markets are headed.  I suspect the dollar will come in a little and consolidate and then move higher.  Small cap stocks have been very strong and I have some thoughts on them below.  Energy stocks could be near a top of sorts with some upside exhaustion signals starting to appear on my radar.  Energy has been by far the strongest sector in the past couple months as XLE is 9.3% above the 50 day moving average while tech XLK is only up 5% above the 50 day.  

Hope everyone has a good weekend.  Comments below are a little brief as I have a meeting.

Notable:

  • US Markets - Sentiment increased,  Indexes stalling here after yesterday's 60 min time frame tactical upside exhaustion signals
  • Hedge Fund Telemetry Trade Ideas
  • A look at Russell 2000, Mid Cap, Small Cap, and Micro Cap - Smaller the better
  • European Markets - More upside exhaustion signals in play
  • Currencies - USD and Euro at extremes on sentiment causing a pause in the trend
  • Asian Markets - Nikkei getting closer to upside exhaustion and Hang Seng lifting
  • Crude and Energy Update - XLE upside exhaustion and others are nearing exhaustion
  • Buyback Index - Daily, Weekly, and Monthly View
  • SAP - New short idea
  • Biotech - Long Idea
  • Bond Update - Bonds remain in no man's land
  • 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 55%


SPY now above April highs which is a positive but can it hold?


Nasdaq bullish sentiment is at  53%


QQQ looks to be stalling here today.  Does this look like a head and shoulders top?


Dow Jones is barely at the April highs.  Still messy

 
A look at Russell 2000, Mid Cap, Small Cap, and Micro Cap


IWM is at the highs seen twice before.  Up 8% quickly used up a lot of momentum.


Mid Cap 400  is lagging the IWM and Small Cap


Small Cap 600 has moved above the previous highs and tagged a DeMark upside Trend Factor target.  


Micro Cap also at the previous highs and is on day 7 of 13 with an upside Countdown.  

 
Hedge Fund Telemetry Trade Ideas


Trade Ideas - Not much change in pnl from yesterday.  I did shake it up and move things around.  Sometimes it's cleansing.   Sold GE long, covered DAL, TXN, AXP, HD.  The last 3 were losses.  Added NVDA, SAP, OXY short and AMGN long 2.5% % size.

 
European Markets


Euro Stoxx 50 is stalling with the green Setup 9 and has a red Countdown on day 9 of 13.  Keep in mind UK, France, and Italy have had upside exhaustion signals this week


Here's the UK FTSE 100

 
Currencies


US Dollar bullish sentiment is at 86% in the extreme zone


DXY is consolidating as expected before another leg higher.  A higher USD will really throw a lot of crowded trades into a panic.


Euro bullish sentiment is at 16% up from 9% the previous day.  Can't wait to see the COT data tonight


Euro bouncing with that sentiment number

 
Asian Markets


Nikkei is now on day 10 of 13 with an upside red Countdown


India's Nifty is on day 9 of 13 with an upside Countdown


Hong Kong is lifting out of this base.  Could be something developing here

 
Crude and Energy Stock Update


Crude bullish sentiment is at 87% and it's extreme


WTI Crude Futures is on day 9 of 13 with an upside red Countdown


THIS IS IMPORTANT XLE ETF has an upside red 13 Countdown exhaustion today.  Other energy ETF's are a few days behind with exhaustion signals


OIH Oil Drillers are on day 9 of 13 so the end of this move is within sight


XOP Oil and Gas is on day 10 of 13


OXY was added to the trade ideas on the short side today with the upside exhaustion signal.  It is also the move overbought at 19% above the 50 day moving average


XOM is on day 6 of 13 with an upside Countdown and I might add it as a long to pair up with OXY

 
Buyback Index


There is an index for everything these days and here's the Buyback Index of companies that are buying back stock.  The daily has not broken the old highs


The weekly has an upside exhaustion this week thanks to Apple


The monthly is on month 11 of 13 so perhaps a top in the Summer

 
SAP New short Idea


SAP has ripped higher since March.  There is an exhaustion signal on the German local shares and the ADR's


This the ADR and it's thrown over a little from the exhaustion.  I added this to the trade ideas short side

 
Biotech Long Idea


IBB had another downside exhaustion and has turned up.  I like healthcare in the Summer and this one could move up 10%.  100 is support and use it as a stop if your getting long here.


AMGN has a good record over the years with the DeMark indicators.  The recent downside exhaustion perked me up on this and I stalled pulling the trigger as a new secondary downside Countdown started.  I am going to focus on the first exhaustion with is lifting and starting a green Setup count.  I added it to the trade ideas with a 2.5% sized position.  

 
Bonds


Bond bullish sentiment is at 29%  


US 10 year yield does not have much of a trend and I am neutral for now.  I would say the odds for a move higher with the red Countdown on day 4 of 13 are decent.  


TLT Bond ETF still is in no mans land

 
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:   CRS,  CVLT, EQR, FBP, GWW, INTU, MDCO, OXY, PSX, SHLM, UBA, UBSI
DAILY DOWNSIDE 13:  UEIC, VECO

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   IDXX, SMRT
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   FRED, PRA, SCOR, VRTX

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:   FP FP, HIK LN, LDO IM, MRW LN, SAP GR, SPX LN
DAILY DOWNSIDE 13:  NONE

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    TTL IM, BME SM, ENGI FP, LDO IM, RACE IM
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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