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9/25/18
Thomas Thornton

Countdown to end of quarter

The countdown to the end of the quarter Friday is underway.  Since 1961, the week following the third Friday in September has produced the most bearish week out of any week of the year.  So far, volatility remained exceptionally low.  Here's what happening:  Earnings blackouts are starting which means corporate buybacks are on hold until after earnings.  $200 billion on Chinese goods went into effect yesterday.  Tomorrow the Fed will raise rates .25bps and $15 billion of MBS will roll off (QT).  Thursday President Trump with meet Rosenstein to decide his fate.  If he quits then Trump can assign anyone to the position without Congressional approval but if he's fired, Congress will have to vote and that will take months.  Friday is very important as most derivative desks around the street estimate a net $30 billion of equities will be for sale from calendar based flow.  And then it is the big mutual fund end of year (fiscal) portfolio rebalance. 

Most of the time the markets respond positively on Fed decision days but with Powell the market has faded gains late in the day.  Will it be five meetings in a row with a fade?  The theme of higher crude, higher rates, and lower USD has been in play now for a few weeks but keep an eye on sentiment as some are getting stretched as well some are late in the DeMark Countdowns.  Perhaps next week will see a peak in crude and rates.  Stocks continue to drift sideways with some breadth measures also showing signs of upside exhaustion.  Like in January/February the depth of market in the US equity futures markets is not very liquid so be prepared.  

  • US Markets -  Still mostly sideways in the past week a little potential left for nominal new highs
  • Hedge Fund Telemetry Trade Ideas - A few changes - TXN, AMZN, ROST
  • Erlanger Type 4's leading the market is a concern
  • Bloomberg Technical Pattern Automated Trade Ideas
  • PPO Monitor - Energy continues to lift to top
  • A few stocks I'm looking at today - A few off the DeMark Screens
  • Currency Update - Stalling action
  • European Market Update - Make or break time
  • Global Market Update - Could see a higher low pullback with EEM
  • Asian Market Update - Nikkei getting late in move
  • Crude Update - Still has upside potential but sentiment is extreme
  • Gold Update - Sideways
  • Bond Update  - A lot of things here today.  10 yr 30 yr, 2/10, TLT, IEF ETF's getting late in the move
  • DeMark Screens - Daily, Weekly, Monthly upside/downside exhaustion signals within the S&P 500 and Euro Stoxx 600 WE ARE NOW HIGHLIGHTING STOCKS ARE MOST ACTIONABLE

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.  When the new website launches we will be adding new charts and historical sentiment data for Euro Stoxx 50, UK FTSE 100, German DAX, French Cac 40.  We will be adding Japanese Bonds, German Bunds, and a few more.  
SPX bullish sentiment is at 74%


SPX daily still drifting sideways in past week


SPY vs RSP (equal weight S&P 500 ETF)  ratio has an upside Sequential Countdown 13.


S&P cumulative breadth reversed yesterday after both Sequential and Combo 13's.  Let's see if this one will work like January


Nasdaq bullish sentiment is at 70%


NDX Index holding in in the past few days thanks to mega cap tech


Dow Jones Industrial Average could be turning after the green Setup 9

 
Hedge Fund Telemetry Trade Ideas

Trade Ideas Sheet - Long and short US equity ideas including ETF's.  We will be overhauling the Trade Ideas Sheets for long only, short only, ETF's when the new website rolls out soon.  There will also be a clearer email distribution with changes.  
Trade Ideas Changes:    Stopped out TXN long +3%, AMZN short -2%.  Added new ROST short 2.5%
Stops on everything.  TSLA 320, GDX 18.35r , VOD 21.95, FEYE 16.00, FXI 41.95, NVDA 275,  QQQ 185.50, XLK 77, SPY 295, XLY 118, AXP 114,  WHR 120, XRT 53, IWM 172, XLV 95, BRK/B 225, IBM 153, DIA 275, XLI 81.50, IBB 123, AMD 35, ROST 100.50

 
Erlanger Type 4's at levels that are concerning


Erlanger Research is the best for short interest analysis.  They separate stocks into four types.  The two most important are type 1's which are heavily shorted squeeze candidates and type 4's which are stocks that have very little short activity and thus have potential to fall when sell offs happen since there isn't the natural buyer (shorts) to support it.  
Currently the number to type 4's are above 10% and whenever this has happened the risk increases for a sharp out of the blue sell off. 


Sectors in purple under type 4 dominate the leadership in the market which isn't' what you want to see.  Also Erlanger's tech ranking does not have any sector over 50% - another concern.  More on that indicator another time. The only sector with a high type 1 reading is Food, Staples, Retailing

 
A few stocks I'm looking at today


On the DeMark screen today is ROST Ross Stores.  You can see the screens each day at the bottom of each Daily Note.  FYI I added this short 2.5% size today


Another one on the screen is ADP


FEYE has been my favorite tech long lately and the stock is doing well and the CEO is on Mad Money with Jim Cramer tonight.  

 
JNK vs TLT Ratio


Another upside in the Junk vs Gov ETF's with the Combo and close with the Sequential

 
PPO Monitor - Percentage Price Oscillator

The PPO Monitor is a proprietary monitor developed to force rank Indexes, Sectors, and Stocks.  It ranks top down by strongest to weakest by percentage above/below the 50 day moving average.  Shorter term signals can be seen when the 10 and 20 day moving averages turn up (green) or down (red) which often are followed by the 50 day moving average.  This is useful to watch for historically overbought/oversold percentage above/below the 50 day moving average.  It is non correlated with the DeMark Indicators however we have found upside/downside exhaustion signals often occur when something rises to the top or drifts to the bottom of the monitor - increasing the timing aspect. We share this monitor with clients with Bloomberg Terminals.  An added feature is that each market/ETF can be expanded with each component force ranked in the same way.  A couple other features include price deviation from intraday VWAP (useful for intraday reversals) and new 20 day highs/lows on right side.  Please inquire if you would like to be permissioned to use the PPO Monitor.  

Today's highlights:  Energy ETF's continues to climb to the top.  


The following chart shows the Percentage Price Oscillator (50 day moving average) in action.  This is the DXJ Japan ETF and it currently is 5% above the 50 day and about where it has topped in the past year.  (middle indicator)

 
Bloomberg Automated Technical Pattern Recognition Screens


S&P 500 Members/Absolute Price Performance and Relative Price Performance vs S&P 500 and Sector ETF's.  ETF's vs Index Sectors.  Pair Trades.  Long side  is first symbol, short side is second symbol.  

 
Currencies


US Dollar bullish sentiment is at 17% and up from 11%.  This might need to spend a little time chopping away on the lower levels vs a V bottom


US Dollar Index no changes to bias


Euro bullish sentiment is at 69%


Euro Spot a little sluggish after the big day last week

 
European Markets


Euro Stoxx 50 has a make or break with the Setup 9


German DAX same story

 
Global Markets


EEM Emerging Markets ETF wouldn't surprise me to see a shallow higher low pullback then higher


India Nifty 50 Index bouncing after green Setup 9

 
Asian Markets


Nikkei bullish sentiment is at 81%


Nikkei ha a Combo 13, green Setup 9 (which has been very good at inflection) but only on day 9 of 13 with Sequential


China / Hong Kong FXI ETF same analysis as EEM

 
Crude and Natural Gas Update


Crude bullish sentiment is at 86% and extreme but it might stay here for a little longer


WTI Crude Futures still has the upside Countdown but it could be choppy ahead


Brent Crude is later in the Countdown vs WTI on day 9 of 13


Natural Gas Futures near upside exhaustion


UNG ETF both Sequential and Combo 13's in play now

 
Gold Update


Gold bullish sentiment is at 28%


Gold sideways still

 
Bond Update


Bond bullish sentiment is at 55% and seems remarkable considering the back up in yields


US 10 Year Yield getting late in the move on day 10 of 13


US 30 Year Yield still has a bit more to go


US 2/10 Year Yield Curve


TLT ETF on day 9 of 13


IEF 7-10 year ETF on day 10 of 13

 
DEMARK SCREENS - Daily, Weekly, Monthly Upside/Downside Exhaustion Signals

Daily/Weekly DeMark upside/downside exhaustion signals (Sequential)  updated daily, Weekly signals 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 500 Universe:
DAILY UPSIDE 13:   ADP, ESS, ROST, UDR
DAILY DOWNSIDE 13:   NONE

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:   ADS, AIV, BLL, BRK/B, CB, CINF, COL, ESS, GD, GT, HAS, HSIC, KSU, LLY, NSC, RCL, SNA, UDR, UNP, WMT
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   NONE

Updated: 9/24/18
WEEKLY UPSIDE 13:  BA, CHRW, DFS, EMR, GPN, NAVI, OKE
WEEKLY DOWNSIDE 13:   NONE

Updated: 9/4/18
MONTHLY UPSIDE 13:    AFG, AJG, AMD, CBT, CECO, EIG, IR, MAA, MRCY, MSA, MSFT, NSC, ORI, ROK, TDY, TTWO, UNT, UNP, WCG, WTR
MONTHLY DOWNSIDE 13:    FTR, RRD, SMCI, SSI

Euro Stoxx 600 Universe:
DAILY UPSIDE 13:    NONE
DAILY DOWNSIDE 13:  BOSS GR,  ZAL GR

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    ANDR AV, CA FP,  PRY IM
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   EDP PL


Updated: 9/24/18

WEEKLY UPSIDE 13:  BNR GR, VOLVB SS
WEEKLY DOWNSIDE 13:   TCH FP

Updated: 9/4/18
MONTHLY UPSIDE 13:     ACKB BB, GALP PL, IPN FP, KOMB CP, MTX GR, UCB BB
MONTHLY DOWNSIDE 13:  ALPHA GA, BARC LN, TL5 SM




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