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5/16/18
Thomas Thornton

Energy Sector Focus

Today's note will have a special focus on the energy sector and my positive call on energy stocks is likely nearing an end from the 4/2/18 downside exhaustion buy signals.  Let me be clear, I know I am early as the daily upside exhaustion signals have been just starting to trigger with several ETF's and stocks, yet my goal is to condition you to see what is ahead.  The area within the energy sector I have had the strongest conviction has been within the drillers and specifically Schlumberger SLB.  I still like the company but I took profits on it today with the Trade Ideas page so I stay true to this call.  Energy also is nearing the end of very positive seasonality that started in late January.  Commitment of Traders report on Crude has seen speculators set up exceptionally long but in the last few weeks some of that bullishness has tapered.  On my PPO Monitor (Percentage Price Oscillator) the energy ETF's have been at the top of the ranking system too (% above/below the 50 day moving average).  The energy ETF's are above the 50 day moving average between 9.6% to 14% compared to the Russell 2000 +3.6% and S&P 500 1.9%.  Again, there could be a little more upside ahead in the sector but risk reward from here says to start taking some exposure down in the group.  

Notable:

  • US Markets - Sentiment decreased, Setup 9's locked in for a few indexes - should see consolidation ahead
  • Hedge Fund Telemetry Trade Ideas - Stopped on BBY and took profits on SLB
  • Italy - Stocks and Bonds both weak
  • Currencies - USD and Euro sentiment is very extreme.  
  • Asian Markets - Nikkei remains on day 12 of 13.  Shanghai has wave 4 locked in, Tencent should bounce
  • Gold Update - No bottom yet
  • PPO Monitor - Illustrates how overbought Energy ETF's currently are and how Staples might be turning up
  • Energy - Crude, Natural Gas, RBOB Gasoline - sentiment is very overbought
  • Energy ETF's - Upside exhaustion signals starting to trigger, ratios vs SPX also triggering
  • Bond Update - 10 Year Yield should continue higher
  • 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 46% back under 50% and down from the recent high of 57%


SPY has now the green Setup 9 today cancelling the downside pending red Countdown.  A downside reversal or stalling out should occur with this signal just like the 9's worked on the downside in February and March.  


Last year we heard a lot of about the # of days without a 1% move up or down.  This year we surpassed the 8 years.  Generally when there we see more 1% days, they are more challenging years


Nasdaq bullish sentiment is at 43% down from the recent high of 53%


QQQ did lose the upside green Setup 9 count with yesterday's gap down.  The red Countdown is still in play.  


Dow Jones also has the green Setup 9 today and I expect some consolidation ahead


IWM Russell 2000 did make a new ATH today and achieved the green Setup 9.  The 9's have seen good inflection in the past on both the upside and downside.  

 
Hedge Fund Telemetry Trade Ideas


Trade Ideas - Stopped on BBY, sold SLB.  One loser and one winner.  

 
Italy


Italian FTSEMIB Index has reacted properly with the recent upside exhaustion signals.  


The weekly of the Italian 10 year looks likely to break out higher.  The upside Wave 3 price objective is 3.18%.  Keep in mind this a weekly chart and it could take some time play out.  

 
Currencies


US Dollar bullish sentiment is at 91% and the USD should consolidate.  I don't expect this to be the top however


DXY US Dollar Index is on day 6 of 13 with an upside Countdown and should consolidate back under 93 which would open up wave 4 and that would be followed by an even higher move for wave 5


Euro bullish sentiment is at 10%.


Euro is on day 6 of 13 on the downside

 
Asian Markets


Nikkei remains on day 12 of 13 with the upside Countdown.  Previous signals on both the upside and downside have worked well  


Shanghai Composite Index has bounced but locked in wave 4 of 5 with a downside 5 wave pattern.  The 5th wave downside price objective is 2904.  


Tencent 700HK reported earnings after the close and they beat and that's helping the EEM ETF today.   They did well with Fortnite which every kid seems to be addicted to these days

 
Gold Update


Gold bullish sentiment is at 10% and I expect it to stay down under 25% for a while since there is a downside DeMark Countdown in progress


Gold Futures is now on day 2 of 13 with its downside Countdown  

 
PPO Percentage Price Oscillator Monitor


The PPO monitor force ranks indexes and ETF's by % above/below the 50 day moving average.  If you're interested in having this monitor let me know (Bloomberg users only).  What's important here today is how the top 3 ETF's are energy and they have been up there for over a month.  The % above the 50 day is overbought and now with the upside DeMark exhaustion signals starting, these should start to fade.  On the other hand, yesterday I made a point how Consumer Staples is starting to show signs of a bottom.  Besides the downside DeMark signals within Staples, XLP is poking above the 10 day moving average by .7012% and nearly is above the 20 day.  When Energy starts to break the 10 day and 20 day it will be another sign that these are done.

 
Energy - Crude, Natural Gas, Gasoline


Crude bullish sentiment is at 83% and remains in the extreme zone (>80%)


WTI Futures still has a pending upside exhaustion.  It's on day 9 of 13.


The weekly of WTI recently had upside exhaustion signals which have overshot.  It's in wave 5 on the weekly so I still feel concerned about the risk here


Brent Crude Futures has actually been a better tell vs WTI and there are now several new upside exhaustion signals in play now.  Should have the green Setup 9 tomorrow.  Brent gave the first downside exhaustion buy signal back under 50


Natural Gas bullish sentiment is at 79% down from 82% the previous day.  Sentiment and price are on different planets


In December I went long Natural Gas with the hope of a breakout over 3.00 as sentiment went from very bearish to positive.  I went neutral recently as I had not patience for this chop fest.  


RBOB Gasoline bullish sentiment is at 78% and down from a recent peak of 84%


RBOB Gasoline Futures weekly recently had upside exhaustion signals which are still in play


RBOB Gasoline daily has upside exhaustion in the past few days.  It's in wave 5 too so a significant pullback is due

 
Energy ETF's


XLF was the first one to trigger on the downside and on the upside.  


XOP has a pink Combo 13 and green Setup 9 from yesterday and its on day 12 of 13 with the red Countdown.


OIH has lagged the others and is on day 11 of 13 with the red Countdown, on day 12 of 13 with the pink Combo and has a green Setup 9 today.  


XOP vs SPX on a relative chart shows the huge out performance since 4/2.  There are upside exhaustion signals now present


Same story with the XLE vs SPX ratio.  Again XLE tends to lead and is early


Analysts love energy stocks


Energy Sector Seasonality gets challenging going forward after the big run  


COT data shows the extreme bullish positioning with speculators.  This is a real risk for energy longs with so many traders positioned this way

 
Bonds


Bond bullish sentiment is at 20% and I expect this to continue lower


US 10 year yield is now on day 7 of 13 with an upside Countdown.  

 
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.    

The upside 13's are sell signals and downside 13's are buy signals.  Price flip's are confirmation signals that increases potential for a price trend change. For example, if you are long a stock and there is an upside 13, you will want to take cautious action by selling down or out of a position.  If initiating a short sale with the upside 13's, we tend to start with a 1/2 size and add with the downside price flip.  The opposite is true for when there are downside 13's.  Take a 1/2 size position and add with the upside price flip.  The DeMark Indicators are designed to assist the user with buying into weakness and selling into strength to anticipate trend exhaustion. Selling into a rally and buying into a decline often afford the opportunity to exit a trade without too serious a loss if wrong.

S&P 1500 Universe: 

DAILY UPSIDE 13:   ARQL, PTEN, XOXO
DAILY DOWNSIDE 13:  CLX, CNX, NUE, PEI, PPL, VSAT

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   AAT, DRE, DRH, EQR, EXR, HCP, HST, INTU, KRC, MMSI, O
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   CEVA, ISCA, JACK, UEIC, WMT, XL

Updated: 5/14/18
WEEKLY UPSIDE 13:   ABBV, APTV, CTXS, SPGI
WEEKLY DOWNSIDE 13:   NONE

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:   CDI FP, CEZ CP, DC/ LN, KER FP, LISN SW, RTN LN, WDI GR
DAILY DOWNSIDE 13:  HEI GR, ORK NO

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    CAST SS, ENG SM, HO FP, MONY LN, RTN LN
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   NONE

Updated: 5/14/18
WEEKLY UPSIDE 13: BOL SS, BPE IM, CAST SS, CHR DC, EO FP, FDR FP, IFX GR, RDSA NA, RHM GR, SHB LN, SMDS LN, TEMN SW, TOP DC, TSCO LN
WEEKLY DOWNSIDE 13:   KOMB CP

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



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