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8/6/18
Thomas Thornton

Minty Fresh Breadth?

I have found over the year bullish biased people focus on several indicators and at usually the wrong time.  One of them is the AAII sentiment poll which is my least favorite poll since it asks people if they are bullish/bearish OR neutral.  When someone is put on the spot and they can avoid looking wrong by saying neutral - they will take that choice.  They rarely ever will mention when the poll gets overbought as they cherry pick the data. I have used the Daily Sentiment Index that asks if you are bullish or bearish much as if a hedge fund manager is going to ask you when you have a position you have to take.  "Oh I am neutral"... "You're fired".   Nobody gets paid to be neutral.  

The next one is cumulative breadth.  Defined as " The AD Line is a breadth indicator that reflects participation. A broad-based advance shows underlying strength that lifts most boats. This is bullish. A narrow advance shows a relatively mixed market that is selective. Narrowness participation in an advance (or decline) sets up the divergence signals. An advance with narrow participation is unlikely to keep up with the underlying index and a bearish divergence will form. Similarly, a decline with few stocks participating is unlikely to keep up with the index and a bullish divergence will form. These divergences can help chartists identify potential reversals in the underlying index."  Despite the textbook definition which says we must have negative divergences at tops pullbacks can and sometimes start at a peak in cumulative breadth.  It did in January right before the 10% correction.  And not to my surprise those that look at cumulative breadth missed the entire down move and many are still waiting for their stocks to get back to January levels.  I get how they see it and for the most part they are right but the indicator is such a lagging indicator that when you are managing real money, you can't make a bearish call after a 10% move lower.  

How about participation when indexes are near or at all time highs?  Shouldn't there be a lot of stocks hitting new 52 week highs too? In January at the peak there was 33% of the S&P 500 hitting 52 week highs and with the index 1% away from the January level why are there only 5% of the index hitting new 52 week highs?  I use this as a more actionable form of breadth measurement. Furthermore, the Nasdaq hit a new high in June with 11% of the index hitting new 52 week highs and it is within 1% of that high yet there is only 3% of the index hitting new 52 week highs.  

Lastly, the Nasdaq 100 year to date attribution has been narrow.  Very narrow and more than other years as it typically has seen the top 5-7 names account for 50% of the gain.  For example the top 3 stocks Amazon, Apple and Microsoft together have attributed 60% of the gain.  Amazon has attributed 27% of the gain and the largest negative attribute has been Comcast taking off 1.6% off the index.  This is important since it puts a lot of pressure on these mega cap stocks to continue to lead the Nasdaq 100 higher.  I studied this in 2000 and exhaustively back in 2007 when I was at my hedge fund and it was helpful ahead the bear markets.  (I have the updated chart below)

As I have been showing the US indexes with daily upside DeMark Countdowns nearing upside exhaustion signals and we are getting closer and combined with very high bullish sentiment headed into the seasonal weakest period of the year, let the others tell you how wonderful cumulative breadth is or was or should be or whatever. 

I'm going to be sending trade ideas by email starting tomorrow.  I hope to have 1 or 2 per day.  Let me know your thoughts.   A lot of today's report.


  • US Markets - Sentiment, Daily - near exhaustion again combined with extreme sentiment.  Lots of breadth indicators
  • Hedge Fund Telemetry Trade Ideas  - Covered MSFT for a 1% gain.  No follow through
  • Top 2 XLF Weights and how I am setting up another JPM short trade with layered time frames
  • Coke vs Pepsi - Pepsi won but they both made huge gains
  • Tesla Update - Upside Daily DeMark exhaustion 13 today
  • Sotheby's - A sign of a weakening high end consumer?
  • Currency Update - Some levels breaking on GBP and Yuan
  • European Market Update - nothing to do as they gave back gains today a sign of weakness
  • Global Market Update -  Ex the US everything else looks terrible
  • Asian Market Update - Watching China make new lows
  • Crude Update - still going up
  • Gold Update - Sentiment an positioning is set up uber bearish
  • Bond Update - Mixed picture but with the very bearish positioning I lean on the side of lower yields ahead
  • 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  78% and will be higher on tonights reading (out around 5pm on the site)


SPX daily on day 10 of 13.  Maybe we'll see a new high but with the upside exhaustion signal ahead the 'breakout' will be a false breakout


This is the chart of % of SPX stocks making 52 week highs.  Or lack of stocks making 52 week highs.  5% vs 33% from January highs.


Commitment of Traders report still shows large speculators set up bullish although they did lower bets a little last week.  


S&P cumulative breadth is on day 11 of 13 (it is an end of day reading) The previous upside 13's worked ahead of pullbacks


Nasdaq bullish sentiment is at 76%


NDX Index on day 8 of 13.  The bounce off the 50 day will be what we watch on the next reversal


NDX YTD attribution - look at the green %index move column an the red %index move columns.  This matters more than ever with the largest mega cap stocks now with market caps at or new $1 trillion.  A 10% pullback would be a significant loss affecting a lot of people


Nasdaq Summation Index is a measure of breadth and volume and it has been dropping and nearly has broken zero.  When under zero the market tends to fall pretty hard.  I'll update tomorrow after today's action.  This is an early indicator


Morgan Stanley went negative on large cap tech recently and part of the reason was this high correlation


RYT equal weight tech ETF vs XLK Tech ETF (weighted with big mega cap names).  The ratio has seen the equal weight under perform thus I conclude the gains are coming more from the mega cap general vs the field soldiers


Russell 2000 still looks like a rolling top but holding the 50 day for now.  


S&P 100 Index is on day 10 of 13

 
Hedge Fund Telemetry Trade Ideas


Trade Ideas - removed MSFT short with a 1% gain.  I expect when the reversal comes the PNL will reverse pretty fast.  The gains in the mega cap names have really surprised me in the past quarter

 
Top 2 XLF Financial Weights


Berkshire Hathaway reported over the weekend and the report was good and the stock has continued up.  when this initially gapped up on the potential for a larger buyback I said at the time this should work higher but I didn't want to chase.    It is now on day 8 of 13 and the 13's have been good sell signals n the top.  I was short this in the first half of the year.  And yes BRK is the largest weight in the financials sector despite it owning a railroad, and tons of other non financial assets.  


JPM also was a good short for the first half of the year and now on the daily chart it has moved back to being the most overbought large cap financial on my PPO monitor. +7.5% above the 50 day.  This is the daily chart that should see an upside exhaustion in the next 10 days.  I will be shorting that signal since...


The weekly of JPM has a red Countdown 13 this week and previous signals have worked well even in a strong market.


Furthermore, the monthly is on month 12 of 13 and the past two signals were ahead of very significant pullbacks including in 2007 where it dropped 70% and it made a new high 6 years after the signal


Famous TV financial twitter person is a pretty good sentiment read.  

 
Coke vs Pepsi


Coke has done very well since we went long and even more after we doubled up the size.  It is now on day 8 of 13 and I think this continues albeit from her the risk reward is not great


Pepsi has been even better so I guess they won the Pepsi challenge

 
Tesla Update


Tesla upside exhaustion Countdown 13 today.   Been waiting on this and at these levels if you are not short, this might be a good spot to lay out a position or buy puts.  

 
BID Sotheby's - A weakening of the high end consumer?


My old portfolio manager was into this stock since he had big interests in the art world so I seemed to follow it over the years.  The downside Countdown is on day 3 of 13.  A sign of the high end consumer weakening?  

 
Currencies


US Dollar bullish sentiment is at 90% and this is extreme.  It hit 94% recently and had a minor pullback which was what we expected


US Dollar Index is trying to make a new closing high for this move and it would change up the wave pattern.  It would revert back to wave 5 with the potential wave 5 upside price objective of 98.  A higher USD would be more of a concern for so many markets.  Especially China, Emerging Markets, Commodities.  


COT data shows large speculators increasing their bullish positioning on the Dollar but have a long way to go before they hit levels seen in recent years


Euro bullish sentiment is at 31% and down from recent high of 46% (under the important 50% level)


Euro Spot is not turning after the latest downside exhaustion.  This is a big tell when the signals do not cause a reaction.  


British Pound Sterling bullish sentiment is at 15% and looks like what happened during 2015-16


Sterling continues lower with secondary Countdown and nearing the downside wave 5 price objective


Chinese Yuan did not bounce again and tonight will be very important if the 6.90 is crossed to the downside

 
European Markets


Euro Stoxx 50 gave back early gains today


German DAX also gave back gains


UK TFTSE right at the 50 day.  

 
Global Markets


Bloomberg World Index still doesn't look good.  


EEM Emerging Markets ETF needs a little more downside for the 13 exhaustion


This is what the rest of the world ex the US looks like.  

 
Asian Markets


Shanghai another new low.  


FXI Hong Kong China ETF needs a price flip for me to buy

 
Crude Update


Crude bullish sentiment is at 81%.  


Crude moving up today off the 50 day

 
Gold Update


Gold bullish sentiment is at 11% and still is very depressed


COT data shows a big drop 27% week over week and is very very low now.  People hate gold and I think there is a bounce coming.  

 
Bond Update


Bond bullish sentiment is at 53% and holding the 50% level again


US 10 year is a bit mixed with the DeMark Countdowns.  I feel with the sentiment holding 50% and the massive short position (see below) yield will go lower before higher


COT data shows speculators a very very short the US 10 year and this could be a huge squeeze ahead

 
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:   AIV, AWR, CACI, CASY, CBM, CXW, DAR, ELY,
DAILY DOWNSIDE 13:   DRH, EXPW, FTD, SLCA, SMCI

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   BKS, CXW, FORR, INDB, NWBI, RMD, SRCL
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   CATM, DRIV, ONE


Updated: 8/06/18
WEEKLY UPSIDE 13:   AEO, CLH, ETN, GOOG, KLAC, NOG, PKI, PSX, ROK, SCI, SIGI, THC, UNP, XLNX
WEEKLY DOWNSIDE 13:   HHS, TSN

Updated: 8/1/18
MONTHLY UPSIDE 13:    AIZ, ATR, BIO, CBU, CDNS, CMS, CSX, DGX, EE, FCN, FIX, GTY, HAE, HAS, IDXX, IEX, KSU, MA, NI, NPK, PTC, RLI, ROL, WEC
MONTHLY DOWNSIDE 13:    CIR, HIBB

Euro Stoxx 600 Universe:
DAILY UPSIDE 13:   AIR FP, GALP PL, GPOR LN, IMB LN
DAILY DOWNSIDE 13:  BPE IM, GAM SW, HEI GR, HMB SS, PPB ID, SGO FP

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   SPX LN
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   NONE

Updated: 8/6/18

WEEKLY UPSIDE 13:  DG FP, EDEN FP, HEXAB SS, ZAL, GR
WEEKLY DOWNSIDE 13RYA ID

Updated: 8/1/18
MONTHLY UPSIDE 13:     TEMN SW
MONTHLY DOWNSIDE 13:  CO FP, GETIB SS, RXL FP, TALK LN




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