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6/18/18
Thomas Thornton

Deep Impact

Twenty years ago, a summer movie called Deep Impact was released with the premise of a large comet was imminently headed towards Earth.  I also lived in LA and  managed some money for one of the producers so I had been invited to the set which was cool and I'm a sucker for disaster movies.  Most of the movie is about the discovery of the comet and failed plans to nuke it in space yet we all knew the big bang would come late in the movie.  More on the plot was that when the comet was first discovered, it was kept secret by the US Government to avoid chaos but when the US Secretary of the Treasury abruptly resigned due to a rumor of an affair with an "Ellie" a reporter found out that there was no affair but an "E. L. E. extinction level event" since he was stocking up on water, canned food and was leaving town.  The secret of the comet headed to Earth was now revealed.  

Sometimes there are hidden signs of preparations for "extinction level events" in the markets.  One of my good friends, who is a high level derivatives trader has been sounding rather bearish and he's generally always bullish.  I equate him with the Secretary of the Treasury who knows what is out there hurling toward Earth and his tone is very much stocking up on water and canned food.  He told me how he saw some of the biggest derivative dealers were bidding for February 30 calls at .25 in the VIX back in January (VIX ripped higher to 50 at the peak in February) and today there are large bids at .10 for VIX August 80 calls.  He said it's like the VIX market is pricing in S&P 2400.  Whoa!  

Could this be setting up for something like what what happened in February?  Perhaps.  Sentiment has now moved back to the elevated zone above 70% and more upside DeMark daily exhaustion signals are nearing.  The amount of attribution in the NDX with just 5 companies is concerning me as I've posted on the Daily Note often this year.  Could one of these mega cap companies be hit by an unseen comet and cause an out sized correction? Is that the "Deep Impact: for the markets?  Today the US equity markets are bouncing off the early lows after the Chinese tariff's were announced.  US traders are accustomed to buying each dip and tariffs are "old news" and not causing much panic despite what I understand China will be backing off so quickly .  In Europe, concerns over Angela Merkel's limited future are being widely discussed with markets selling off in response on very large volume.  I'm not sure what will be the catalyst for a meaningful selloff but I do know the setup is starting to take shape for markets to not have the ability to absorb an unexpected shock.  

Notable:

  • US Markets - Sentiment back to elevated, indexes stalling and Russell 2000 within a day of upside daily exhaustion
  • Hedge Fund Telemetry Trade Ideas - shorted TWTR late Friday, Staples giving back a little and is a buying opportunity
  • European Markets - VERY large volume today with indexes down
  • Asian Markets - China closed but Japan and Korea weak
  • Currencies - Still expect higher USD
  • Twitter - New short idea
  • Faang - Still going up
  • EEM Emerging Markets - Another new low
  • Tesla Update
  • Bond Update - Bonds could be signaling coming risk off
  • 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  75%


SPY now is down a few days in a row after the recent upside pink Combo 13 and green Setup 9.  The red Sequential remains on day 11 of 13


Nasdaq bullish sentiment is at 77%


QQQ still has been the go to place for dip buyers due to the large FANG names holding up the market.  Earlier today the FANG custom indexes were flat while the QQQ was down 85bp.  If those FANG stocks started to drop, consider how much weight they have and how it would drag just about everything else lower.  


Dow Jones is now on day 4 of 9 with a downside green Setup.  If this can complete 9 straight days closing lower than 4 previous closes then the pending upside red Countdown would be cancelled.  Watch the 50 day at 24,630


IWM Russell 2000 is now on day 12/13 with red Sequential daily Countdown.  

 
Hedge Fund Telemetry Trade Ideas


Trade Ideas -

 
European Markets


Euro Stoxx 50 broke back below the 50 day on very large volume


German DAX also down on very large volume.  


Italy still looks weak.  


Euro Bank Index is on day 8 of 13 with a downside Countdown.  Large volume too


France back under 50 day and same story with huge volume


Spain ditto


UK at a 4 week low and just like the others big volume

 
Asian Markets


Nikkei bullish sentiment is at 75%


Nikkei down after the green Setup 9.  Watch the 50 day at 22,400


Korean Kospi dropped hard for the third day in a row


India's Nifty Index stalling here.  Will this go down to wave 3 downside price objective of 9298 or upside wave 3 price objective of 11,306

 
Currencies


US Dollar Index is at 86% and is back in the extreme zone


DXY US Dollar Index is on day 6 of 13 with an upside Countdown


Euro bullish sentiment is at 13%


Euro spot is on day 5 of 13 with a downside Countdown

 
Twitter - New short idea


Twitter has gone parabolic and has some upside exhaustion signals.  I like this short from here.  

 
Faang


FAANG remains on day 6 of 13 with an upside secondary Countdown.  A failure under 3600-3550 would be a sign of risk off

 
EEM Emerging Markets


Emerging Markets EEM ETF still looks terrible

 
Tesla Update


More bad news and the stock is up again!  This is one that I feel should be shorted as a comet is headed their way.  

 
Bonds


Bond bullish sentiment is at 55%


US 10 year yield is now on day 3 of 13 with a downside Countdown.  This is another sign of potential risk off.  Bond buyers thinking a comet is headed to the Earth?


US 2/10 Yield Curve still flattening


TLT Bond ETF is on day 4 of 13.  I like bonds long here.  

 
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:   AMCX, AMSF, EXC, HCI, HNI, JCOM, NEOG, SAFT, SNA, SNX, SWKS, WEX
DAILY DOWNSIDE 13:   CGNX, CLW, CMI, LDOS

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   BDX, CRZO, MNRO, NOG, SIG, SNPS, TFX
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   NONE

Updated: 6/18/18
WEEKLY UPSIDE 13:   ABT, AKAM, AMGN, KMPR, RMD, SYK
WEEKLY DOWNSIDE 13:   NONE

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:   AA/ LN, CAP FP, ELE SM, KINVB SS, LUX IM, PGHN SW, PHNX LN, QQ/ LN, TSCO LN, VNA GR
DAILY DOWNSIDE 13:  KBC BB

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   AI FP, CHR DC, DKSH SW, INCH LN, INF LN, MCRO LN, ORP FP, PHIA NA, PHNX LN, SOVI SS
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   NONE

Updated: 6/18/18
WEEKLY UPSIDE 13:  AI FP, CAP FP, DSV DC, OCI NA, OMV AV, RR/ LN, STMN, SW, UTDI
WEEKLY DOWNSIDE 13: NONE

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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