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6/26/18
Thomas Thornton

The best way to measure the start of a correction

One of my favorite technical guys used to say the best way to measure the start of a correction was how well the market bounces after the first initial breadth thrust lower.  Yesterday's market pullback had very negative breadth attributes as well there were 136 new 20 day lows within the S&P.  When there are more than 250 new 20 day lows, I start to look for washed out signals.  Interestingly yesterday's decline was very much dominated by the stocks that have done the best in the quarter.  JC O'Hara, the new MKM technical analyst (I like him) on his note today said "Weakness has been evident at month-end. The last two -1% down days were May 29 and April 24, both within a week of month-end. A portfolio that avoids the last five trading days of each month would be up +5.1% in 2018 compared to remaining fully long the S&P 500, which returned +1.4% year to date. Thus, month-end selling is a factor to consider."  Back to thoughts on today's bounce - Breadth on the NYSE was -1818, and on the Nasdaq -1594.  Today the bounce only has breadth up for the NYSE at 850 and for the Nasdaq an "eh" reading of +450.  The NDX has 64 up and 39 down but the FANG stocks are bouncing although all of the big weights are trading below yesterday's open and none above yesterday's high. Even the Russell 2000, the index that is supposedly "tariff immune" is barely above the midpoint of yesterday's range. Thus, the bounce verdict today would be guilty of lack of commitment by the buy the dip people.  Further risk lower is likely into the end of the month and quarter.  

Today I have am introducing the Hedge Fund Telemetry "Extend and Pretend" Index of 20 names that are extremely extended with many long holders who are pretending these gains are sustainable.  The index is up 44% for the quarter and is showing signs of topping.  Details below

Notable:

  • US Markets - Sentiment had a big drop and indexes are nearing support

  • Hedge Fund Telemetry Trade Ideas - Took some profits today on some things and added some gold exposure

  • Gold - Starting some Gold exposure but I might be a little early

  • Currencies - USD and Euro in a defined range.  Yuan continues to drop

  • Extend and Pretend Index - Bonkers

  • Crude Thoughts

  • FANG - Not a convincing bounce so far

  • A couple Trade Ideas Updates

  • Wine as an investment - Not the time to be a buyer of auction wine

  • Bond Update - I still like Bonds long and believe a risk off environment is being signaled by bond strength.

  • 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 44% down hard from 59% and below the critical 50% middle point


SPX Index is on day 8 of 9 with a green Setup.  This either has to hold or new downside red Countdown will start - like the Dow has now.  


SPY same with the downside green Setup and when the 9 is fullfilled (remember Setup's are 9 consecutive closes under 4 previous closes) the pending upside red Countdown on day 11 of 13 will be cancelled.  Again, the 270 level is support.  


Nasdaq bullish sentiment is at 45% and down from 62%.  Sometimes when there is a big drop or rise in sentiment like this a bounce happens and sentiment makes a lower high


NDX is up today but far from yesterday's high and that would be the most constructive thing if one is bullish


Dow Jones now is on day 2 of 13 with a new downside red Sequential Countdown


IWM Russell 2000 ETF is having a good day but still is below yesterday's high

 
Hedge Fund Telemetry Trade Ideas


Trade Ideas -  Took off INTC short +11.47%, GIS long +7.11%, half of PG +6.5%.  Added long GLD, NEM 2.5% sized, and short NVDA 2.5% sized.  Took off GIS with earnings tomorrow.  Details on these below

 
Gold - Starting to go long


Gold bullish sentiment is at 10% and has been depressed for 6 weeks


GLD today has both downside red Sequential and pink Combo 13 exhaustion signals and with that I am starting a 2.5% sized position long in GLD in the Trade Ideas sheet.  


Gold Futures is only on day 10 of 13 with it's red Sequential Countdown and on day 12 of 13 with the pink Combo.  There very well could be a little more downside before it starts to move up.  I am likely early


GDX Gold Miners has had a pending upside red Countdown however the green Setup on the downside is on day 8 of 9 and tomorrow could lock in the 9 and thus cancel pending upside red Countdown.  Again, trying to be educational with the indicators.  


Newmont Mining did get the 13 recently on the downside and I added a 2.5% sized long on the Trade Ideas sheet today.  

 
Currencies


US Dollar bullish sentiment is at 75% and has backed off the recent extreme levels.  


US Dollar Index is up today and doesn't matter much unless it moves above 95 or below 94


Euro bullish sentiment is at 33% and has been moving up more than I would expect for the slight move on the Euro


Euro is down today and I'd watch for a break of 1.16 or 1.17


China Yuan continues to weaken vs the USD (inverted)

 
Extend and Pretend Index


The Extend and Pretend Index is up 44% this quarter.  This is just bonkers!   The stocks in this custom index are:  AMD, CMG, DECK, EA, FB, FIT, FOSL, HUBS, LULU, MOMO, NFLX, RH, SHOP, TIF, TSLA, TWTR, UA, UBNT, W, ZG.  


Shorter term 60 minute time frame shows the large drop yesterday and the nominal bounce today.  A failure to make a new high would potential open up a wave 3 downside target of 2608 and that would be felt by the managers who are holding these and living in denial.  

 
Crude Thoughts


Crude has been on a roller coaster and bullish sentiment is back to 57%


WTI crude trades well off the recent low.  Like I said yesterday, it's either going to 80 or 60.  Buy above 72 or sell under 64.  


XOP has been the best of the energy ETF's and while the others have really weakened after the upside exhaustion signals in May this one has a new secondary upside Countdown on day 11 of 13.  Don't get too complacent as I expect this to drop into next month.

 
FANG Update


As much as FANG is having a good day, it really needs to get back above yesterday's high.  

 
A couple Trade Ideas Updates


PG has done well and today I cut the 5% sized long to 2.5% with the upside red Countdown on day 12 of 13.  I want to buy dips in Staples.  I sold PEP long yesterday and GIS today ahead of earnings tomorrow.  


NVDA was added again as a short idea with a 2.5% sized position.  It broke the 245 support and I have to believe the weakness in Crypto will hit this when they report

 
Wine as an investment


I have owned some nice wines over the years and the investment has been quite good.  This wine index has upside exhaustion signals and thus may I suggest holding off of any wine auction big purchases.  

 
Bonds


Bond bullish sentiment is at 68% and continues higher.  I expected 70% we should see it soon


TLT Bond ETF is on day 5 of 13 and quietly trades well as a long.  


US 10 year yields still look lower with the downside Countdown on day 5 of 13.  

 
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:   CF, FRAN, FRT, GPS, LOW, NR, RMD
DAILY DOWNSIDE 13:   AME, HII, RTN, VAR, XYL

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   BK, CF, DECK, EAT, ENSG, HUBG, M, MATX, MDSO, MNK, OSIS, PTC, SCSC
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   AOI, SRCL

Updated: 6/25/18
WEEKLY UPSIDE 13:   BLKB, CRVL, GOOG, HMSY, IDXX, JCOM, MATX, NEE, NP, NWBI, PAYX, SHLM, TBI, VIVO
WEEKLY DOWNSIDE 13:   CPWR, PRA

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:   BOKA NA
DAILY DOWNSIDE 13:  BTG LN, CA FP

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   GLB ID
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   CO FP, KBC BB, LLOY LN, TNET BB

Updated: 6/25/18
WEEKLY UPSIDE 13:  EDF FP, INF LN, MTX GR, OCDO LN, SCHA NO
WEEKLY DOWNSIDE 13LRE LN, MAESKB DC

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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