If you are having difficulty seeing this email, you can view in your browser or click here to print.

Every so often someone will talk about an analog with 1987 and people right on cue, dismiss it.  The pattern is actually pretty important as it's the downside five wave sequence I've been highlighting all week.  Today Tom DeMark was on Bloomberg TV discussing the current market and he talked about the green Setup 9's that are prevalent today on many indexes.  This green Setup count is when there are 9 consecutive closes lower than the 4 previous closes.  A Setup 9 can be a decent inflection indicator within a range and has to occur before a red Sequential Countdown can start.  The Sequential Countdown solidifies the trend up or down.  Whenever Tom gets on TV it's 2 minutes and Tom's thesis takes 2 hours to explain.  He said he felt there could be a "bottom" today.  He was cut off after he mentioned the pattern in 1987  and 1929 when the market was down 10% and there  was a green Setup 9 on the downside where it bottomed for the next 3 weeks whereas another upside Setup 9 was triggered but on the upside.  The first down move in 1987 was the 1st wave down and the bounce was the corrective 2nd wave, and the 3rd wave was the crash.  I posted some charts of 1929 and 1987 to illustrate the pattern vs what's going on now.  As you all know, my goal has always been to explain the DeMark indicators basics and to highlight what's most actionable and relevant.  

Another notable development has been the steep drop in bullish sentiment from all time highs in January.  My call to raise cash for months with the backdrop of the extreme bullish sentiment readings perhaps was overly cautious into the last ramp higher but it proved to be the correct call.  The beauty of the Daily Sentiment Index is that it moves to extremes vs other polls that have a 'neutral' component.  You're either bullish or bearish.  S&P bullish sentiment hit 96% bulls on 1/22 and I even recommended raising more cash.  Yesterday it hit 9% bulls.  Before you think this is the low and  you go all in long, here's what happened after bullish sentiment hit 4% in 2015 and 2016.   SPX bullish sentiment hit 4% bulls on 8/21/15 when the index was already down 7.5% and it continued lower by 5% over the next 4 weeks and then in 2016, SPX bullish sentiment hit 4% bulls on 1/8/16 when the index was already down 5% and it continued lower by 10% over the next 5 weeks.   

Can I see a bounce ahead?  Yes. When and from what level is a question everyone wants to know.  It's likely it will come either Monday or Tuesday and picking a level with precision is nearly impossible.  Getting long on a Friday after a week like this isn't my idea of going into the weekend stress free.  My call is that the markets will make a lower high and then lower lows.  A bounce will initiate the newbie shorts who will learn about squeezes and embolden the buy the dip people again however they will have a much quicker sell trigger as this week will be fresh in their minds.   That being said, I could be wrong and another scenario could happen where the Setup's turn into new downside red Countdowns which I see happening now in Asia and Europe.  As I have stressed, if you're trading this fun be nimble and trade with disciplined stops.  

Lastly, we picked a hell of a week to upgrade our software programs!  I am sorry for some of you who had disruption in delivery as well a few bugs within the note yesterday.  Thank you for your patience and continued support.  Have a great weekend!  

Notable:

• Sentiment and US Markets - A look at the current setup with 1987 and 1929
  
• Global Markets - These are concerning how there was no bounce with the Setup 9's
  
• US 2/10 Yield Curve - Steepening ahead
  
• USD and Crude Sentiment - Moving in opposite directions
  
• DeMark Screens

SPX bullish sentiment is at 9%.  Ladies and gentleman, this is why we follow sentiment. 

Nasdaq bullish sentiment is at 10%.  Amazing move down from all time high in bullish sentiment at 97%

CNN Fear and Greed Index is now at 8%.  I love this index as it shows what people are doing vs what they are saying.  This correlates with the other polls and is partly why I think a bounce could happen soon.  

SPX daily shows the downside green Setup 9.  The clusters of upside exhaustion signals into January and one on the high was telling.  

Here''s the Dow Jones in 1987.  Tom DeMark was referencing that first Setup 9 after the upside 13's suggesting a "bottom".    The first down move was 10% similar to now.  I don't have the wave numbers on here but that first down move was wave 1 and the bounce was wave 3.  Wave 3 was Black Monday.  Let's not get ahead of ourselves expecting a 22% drop in a day but what will be essential is after the bounce and then when it breaks the wave 1 low the risk lower is huge.

How about 1929?  The first down move also had a green Setup 9 on the first move down then a small bounce and then the crash. Again, breaking the first wave 1 down move was fatal.  The SPX bottomed around 17 with the crash and then had 10 bounces of 10% or more all the way lower 3 years later bottoming at 4.40.  

Bloomberg World Index had a bunch of upside exhaustion signals on a daily time frame like other indexes.  Small pullbacks or brief stalling out happened but with other longer term time frames exhausting with the latest one the risk increased.  This has a downside Setup green 9.  This has to bounce Monday

The Nikkei had a perfect upside exhaustion and now has a concerning downside Countdown on day 3 of 13.  I could see another 10% lower.

Shanghai Composite Index has gapped down twice and has a new downside Countdown on day 2 of 13.  

SXXP Euro Stoxx 600 has downside red Countdown on day 3 of 13.  I've been saying forever how different Europe has looked vs other markets.  

The more narrow Euro Stoxx 50 did have a downside Countdown exhaustion but there now is a secondary Countdown on day 3 of 13.  This happens when a trend is very strong.  

The daily of the 2/10 yield curve is steepening after some exhaustion signals.  Many people think a flattening curve is ahead but this could be the start of 5 wave up.  

The monthly of the 2/10 has some exhaustion signals too suggesting a steeper curve ahead.  The periods of sharp moves up in the curve were really difficult periods for the markets.  I think people think a steeper curve is good for banks and the market.  Really??

USD bullish sentiment is at 51% up from the recent low of 8%.  I turned bullish on the Dollar vs the crosses based on this and the recent downside DeMark exhaustion on DXY

Crude bullish sentiment is at 43% down from a recent high of 96%.  Crude also had an upside DeMark exhaustion on the upside too.  Throw in the super bullish positioning and this wasn't hard to expect.  

Unsubscribe me from Hedge Fund Telemetry

Hedge Fund Telemetry LLC, P.O. Box 4675, Greenwich, CT 06861, United States