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8/21/18
Thomas Thornton

When risk looks like reward

One of the more difficult things to do is to buy low and sell high simply because there is the fear of losing money or these days losing out on further opportunity. All you hear about in the press is "breakout" like there is no risk and it's import to be aware in the US, there are numerous upside exhaustion signals triggering as they did back in January with the S&P 500, S&P 100, Dow Jones Industrial Average, Russell 2000, 3000 and the Nasdaq 100 is on day 12 of 13 with it's upside Countdown.  I have always found that there is power in numbers when signals like this trigger around the same time. In a similar analysis, back in May, I spotted a lot of downside signals within the most oversold sector, Consumer Staples and since May it has been one of the best sectors.  There will be opportunities to buy again with lower risk entries in the US again.  I had hoped we would have seen more this year but that might be a function of such a long bull market that people are accustomed to buying shallow dips.  Again we'll have better entries on the long side in the US.  You can stay long the market if you want but with all of these signals that are triggering the risk is about as high as it gets based on the DeMark Sequential and Combo models.

In Europe and Asia some opposite downside exhaustion signals are starting to trigger.  Outside of the US most of the markets around the world are down on the year.  The conundrum is would it make sense to short the US and go long Europe and Asia?  That strategy has not worked out in the past beyond a small pair trade gain from time to time.  If the US does turn lower then the world will likely be hit too.  My current thoughts are that you can buy some European and Asian markets with  tight stops.  I like the US Bond market with the wildly short bearish positioning and if bonds starts to rally it would likely be a risk off event in the equity markets.  Tom DeMark has been developing some new indicators and one of them  (The MB) is "getting close to a sell" from what I hear.  Combined with his most popular indicators triggering the potential for a reversal soon is highly probable.

  • US Markets - Tons of upside exhaustion signals
  • Hedge Fund Telemetry Trade Ideas  - Made some changes today below
  • Cumulative Breadth Update
  • Nasdaq Summation Index - An early warning indicator
  • Transports Update
  • Currency Update - Dollar cooling
  • European Market Update - Euro Stoxx 50 went long small
  • Global Market Update - Downside exhaustion ex US
  • Asian Market Update
  • Crude Update - Will there be another lower high?
  • Gold Update - Trying to turn
  • Bond Update - I like Bonds long
  • 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  73%


SPX daily has Combo 13 today


SPY same setup as SPX cash


Nasdaq bullish sentiment is at 65%


NDX Index getting closer


Dow Jones Industrial Average has both Sequential and Combo


IWM Russell 2000 Sequential today


Midcap today


Small Cap Monthly is on month 12 of 13 so in a couple weeks this could trigger.  


Despite the new highs on the Small Cap index there are fewer individual new 52 week highs


Russell 3000 (basically all the US stocks that matter) has a red Sequential 13 today with Combo near


Russell 3000 hits a new high but fewer stocks vs January are hitting 52 week highs

Hedge Fund Telemetry Trade Ideas


Trade Ideas -  Added to short AMD, DIA, IWM, Reduced short TSLA.  Bought long EEM, FEZ, INTC 2.5% size on all trades

 
Cumulative Breadth


Back in 2007 there were upside exhaustion signals that were a little early on the S&P 500 breadth


The recent signals have now seen a throw over on S&P breadth but I'd still use these signals as important as it might take a little time now with the index upside signals in play


NYSE cumulative breadth was topping but ripped last week.  There will be a Combo 13 tomorrow on the upside

 
Nasdaq Summation Index


The Summation Index is a mix of breadth and volume and the NASI has been dropping.  It is barely above zero and if this breaks I do expect the indexes to fall hard

 
Transports


Transports Index on a weekly time frame has some upside exhaustion and these signals have been very good in the past.   

 
Currencies


US Dollar bullish sentiment is at 79% and has been dropping from the extreme 96%


US Dollar Index is dropping and I expect it to cool off some more.  


Euro bullish sentiment is at 26%


Euro Spot trying to turn but will face resistance soon


Yuan has strengthened in last few days but not much

 
European Markets


Euro Stoxx 50 has a price flip and this is why I added FEZ as a long today


German DAX also trying to turn but has made so many lower highs I need to see more mojo

 
Global Markets


Bloomberg World Index


EEM Emerging Markets ETF trying to move up and needs to breakout above 44


Vanguard World Ex US really shows how bad things have been outside of the US markets.  I think this is an interesting setup here.  

 
Asian Markets


Nikkei bullish sentiment is at 56%


Nikkei still in tight range


China trying but needs more time and upside


FXI might be added to the long side again


India with secondary upside Countdown Sequential but has a Combo 13 today

 
Crude Update


Crude bullish sentiment is at 68%


Crude lower highs or will this move higher?  70 is a big level

 
Gold Update


Gold bullish sentiment is at 18% and is actually at the highest level early July


Gold trying to turn and with the largest short position ever with gold this could get going

 
Bond Update


Bond bullish sentiment is at 72%


US 10 Year Yield

 
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:   AJG, AMGN, AXP, BGS, BRK/B, DISCA, ESRX, HPT, KORS, PAYX, SCL, SNPS, STE, SWN
DAILY DOWNSIDE 13:   NWSA

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   ANF, ASGN, CNC, DIS, JACK, RGS, SRDX
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   HCC, IBKR, IPI, WYNN


Updated: 8/20/18
WEEKLY UPSIDE 13:   DG, FORR, KSS, LII, MRK, MSCI, MSFT, NEE, ORI, ORLY, POWL, URBN, V, VVI, WMT, WWW
WEEKLY DOWNSIDE 13:   LL

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:   COLR BB, SWEDA SS, TATE LN
DAILY DOWNSIDE 13:  BBY LN

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   SKY LN
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   ABF LN, ALO FP, ATC NA, DIA SM, FCA IM, KGX GR, PPB ID, STERV FH

Updated: 8/20/18

WEEKLY UPSIDE 13:  ADM LN, GJF NO, HSX LN, SWMA SS
WEEKLY DOWNSIDE 13JUP LN, KPN NA, SAB SM

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




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