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6/5/18
Thomas Thornton

Stalker Alert

One of my old partners of mine would often say I was early with ideas but he knew it was notable because he would then start to focus on the fundamentals to weight risk reward with my technical thoughts.  I call it stalking.  Back in 2012, I started stalking Apple as a short.  What stupid idea I was told by many as the stock had doubled and I there were several upside exhaustion signals on multiple time frames. Apple was in the news everyday as it hit a new all time high and the new iPad Mini was about to go on sale and I believe the iPhone 5S refresh was coming out too.  I had a few short trades get stopped out with tight discipline but I shorted it again right as the new iPad was released and over the next 7 months the stock dropped by 45%.  I've been doing some more stalking lately and getting stopped out by discipline a few times.  The stops have centered around the FANG mega cap tech/consumer names. There are upside signals being triggered on several time frames and some with daily upside Countdowns still in progress.  I've been early.  I'm still wrong.  Yet I know when I start stalking a group or target one name on either the long or short side, it starts to work.  


Last year, around this time I started stalking Tesla.  I knew there was a graveyard of short sellers all the way up yet my indicators tend to work.  I made a few trades that yielded some good gains and a few nominal losses as I looked at it more like a trading stock.  The last short trade was from 351 to 290.  I took my short off that I expect to go to zero.  I was asked by several other shorts why I covered?  I had seen a downside exhaustion signal that was a bullish signal yet I stayed with it believing the fundamental story that was deteriorating and that a break was going to happen.  The break didn't happen so I covered.  Sidelines for now.  I can and will put it back on perhaps lower or higher.  The same thing can be said with the FANG names I have been stopped out on - I can and will put them back on when I see fit.   Patience is difficult yet essential with the markets but when you combine using discipline to risk manage when you are in or out of a position, good things tend to follow.  

Overall, I see the markets in the later innings of the latest lift.  Some sectors and indexes have made new highs but importantly many sectors and indexes have not hit new highs.  And sometimes by the time they make new highs they use up a lot of momentum and upside exhaustion signals trigger.  I see that playing out again since the there are many performance chasing tourists in small cap and FANG mega cap tech.  I remain cautious, recommend defensive positioning with a good sized cash percentage.  Tight stops on longs and shorts, reasonable size limits and from the wise words of Art Cashin - "Stay Nimble."



Notable:

  • US Markets - Drift higher with a few indexes and sectors continues.  Sentiment also moving up
  • Hedge Fund Telemetry Trade Ideas  - Made some changes - see below
  • European Markets - Italy continues to look problamatic, DAX looks best in Europe
  • Currencies - A little more pullback needed and expected with the US Dollar
  • Asian Markets - Nikkei and Indian Indexes look risky but FXI China Hong Kong looks ok as a long now
  • Copper and Gold Pair Trade Idea
  • Crude and Energy - At some critical levels now
  • Some recent stock ideas - From Trade Ideas
  • Bond Update - US 10 year right in the middle of the range - tomorrow could be important day
  • 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 57% and this could carry things a little higher


SPY is on day 6/13 with the upside red Sequential Countdown.  This is not an all clear but perhaps it could drift higher


Weekly SPX cash Index to get the upside red Countdown 13 it would need to trade at 2774 which is the close on the 8th red bar.  There is also a green Setup on week 8 of 9 that could have a downside reaction in the next couple weeks too.  


Nasdaq bullish sentiment is at 62% and has a little more potential too.  


QQQ has a daily green Setup 9 today and some 9's have been good inflection points.  When I saw a ton of 9's on the downside at the lows in February I made the call we were going to bounce.  


IWM Russell 2000 is on day 8 of 13 with the upside Countdown I've been showing.  The 13's have been good in the past as well so have the 9's


Dow Jones is on day 4 of 13 yet it really is lacking momentum.  


Top 10 performing stocks of 2018 has an upside green Setup 9 today.  Some pullback is likely


FANG also has a green Setup 9 and finally achieved the upside wave 5 price objective.  I didn't think it would get it but it did


FANG weekly now has an upside pink Combo 13 and a green Setup on week 8 of 9


Transports led the market from November to January but look lethargic now

 
Hedge Fund Telemetry Trade Ideas


Trade Ideas:  stopped on NFLX, added long 5% GE, short 2.5% TXN, INTC, BRK.B.  AMGN is having a hard day today giving back some gains and I am considering doubling up the long position.  

 
European Markets


Italy still has issues and is now on day 3 of 13 with a downside Countdown.  This was a risk I was mentioning a few days ago as it would open on the highs and close lower.  


Italy 10 year yield moved up today on some of the comments from the new government.  Mentioning "living wage" is not bullish for capitalists.  


German 10 year yield dropped a little today in a 'risk off' manner


German DAX Index looks the best in Europe right now as a long as long as 12,500 holds


Euro Stoxx 50 is trying to bounce.  A break under 3430 and all bets are off on the long side


Euro Bank Index still has risk to the downside

 
Currencies


US Dollar bullish sentiment is at 76% and has worked off some of the extreme sentiment from 94%


DXY needs a little more weakness to get the wave 4 locked in so we can see the wave 5 upside price objective.  


Euro bullish sentiment is at 19% and that's up from the recent low of 4% bulls


Euro should bounce a little more perhaps to 1.19

 
Asian Markets


FXI Hong Kong China ETF has a constructive base with an upside wave 3 price objective of 50.27.  If you go long 45.50-46 is a stop out level


Nikkei bounced a little more from the 50 day where we expected it to bounce.  I'm more negative on Japan than other Asian markets.  


India Nifty 50 had another upside red Countdown 13 and is back to the 50 day.  A move under 10,400 is the risk.  


India's Sensex Index same story.  This looks risky to me.  

 
Long Copper Short Gold


Copper bullish sentiment is at 38% and is starting to move up from this base


Copper Futures isn't the prettiest of charts but is on day 9 of 13 with an upside Countdown.  This could be a short lived but decent trade


Gold bullish sentiment is at 10%.  Yes it's oversold but I want to see the downside exhaustion


I've been neutral on Gold Futures with the downside red Countdown on day 5 of 13.  Getting a combined low level of sentiment and the exhaustion is how I went long in December to January.  


Copper vs Gold ratio is on day 5 of 13 with an upside Countdown.  Yes you can do this as a pair trade

 
Crude and Energy


Crude bullish sentiment is at 35% and continues lower


Brent Crude is right at the 50 day.  73.10 is important support too


Bloomberg Energy Index also at the 50 day.  Note the pending upside red Countdown on day 4 will be cancelled if and when the green Setup count on day 7/9 completes.  (A green Setup down needs to close lower than 4 previous closes)

 
Some Recent Stock Ideas


BRK/B broke the recent support after the downside 13 and even though I covered the short I had for a profit, I put this back on as the relative performance just looks weak.  They own a railroad, insurance and banks which don't look so strong.  


FB has an upside red Countdown 13 today.  Even though I was short this and was stopped out, I added it back today with just a 2.5% sized position.  Under 190 and I will press.


GE was added back to day as a long 5% weight with the green Setup 9.  I traded this recently on the long side and took profits a little early and was upside with myself but now I get a new shot at a decent price.  Keep in mind, I have a 5% stop on this which is a little tighter than usual


TXN is another one I stopped myself out of and have been stalking this waiting for the upside exhaustion and today we have it so I added a 2.5% short position.  The last one too a few days to turn so just be patient.

 
Bonds


Bond bullish sentiment is at 46% and back under 50%.  I wonder if bond sentiment will make a higher low and then go back up.  


US 10 year yield is in the midpoint of the last couple weeks.  Tomorrow might start to tell us which direction in the short term.  

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

Daily/Weekly DeMark upside/downside exhaustion signals (Sequential) weekly updated on Monday's and monthly on the first day of the new month.  Price flips occur when a stock closes higher/lower than four previous closes and increases conviction of a price turn.



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:   BDX
DAILY DOWNSIDE 13:   NONE


DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   ADC, WPX
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   NONE

Updated: 6/4/18
WEEKLY UPSIDE 13:   AES, ASH, BA, CA, FTNT, IDTI, IPAR, MCHP, ORN, XOXO
WEEKLY DOWNSIDE 13:   DIS, EGOV

Updated: 6/4/18
MONTHLY UPSIDE 13:    BJRI, IDA, NSP, PFS, PVH, SCSC, SYY, TSCO, VDSI, VLO
MONTHLY DOWNSIDE 13:     CLW, LQDT

Euro Stoxx 600 Universe:

DAILY UPSIDE 13:   FER SM, IHG LN, INDV LN, JMAT LN, LEG GR
DAILY DOWNSIDE 13:  NONE

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   RMV LN
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   ANDR AV, ASM NA, BBVA SM, BKIA SM, CON GR, INDUA SS, ING FP, JMT PL


Updated: 6/4/18
WEEKLY UPSIDE 13:  AHT LN, ASML NA, AZN LN, DSY FP, LR FP
WEEKLY DOWNSIDE 13:  MS IM

Updated: 6/4/18
MONTHLY UPSIDE 13:     ADS GR, AMEAS FH, AV/ LN, BVS LN, DG FP, HELN SW, HLMA LN, ITRK LN, LEG GR, NESTE FH
MONTHLY DOWNSIDE 13:  NONE




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