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10/16/18
Thomas Thornton

Old School

A strong global equity bounce today due to various reasons is pretty standard.  I'm not very surprised with the bounce as sentiment has become very depressed as well after a sharp steep drop, traders are hungry for long trades.  I've been showing the shorter term 60 minute tactical charts of the top US markets and this bounce still has a downside five wave downside count in progress.  Every index is in wave four of five with lower wave five price objectives below the recent lows.  On the daily charts this was the first wave of five.  A lower high bounce is expected.  It's never easy staying cautious on days like this but I am confident this too shall pass.

Earnings are start to ramp up and below I run through a few Factset charts with risk to margins and guidance excuses that are being cited for weaker forward guidance.

Today I'm looking at an old school technical indicator that I have used for over 30 years.  Point and Figure charting is a reliable way to look at supply and demand on an individual stock as well combined with an index percentage.  Even if you have no idea how it works, I'm going to show a few simplistic examples of that will give you an idea of how one indicator looked at significant lows in the market. Spoiler alert:  These are not yet at historical lows or even February lows.   As you know, I always strive to keep things easy to understand and most importantly useful.  If you have questions, please email.  

  • US Markets -  Low sentiment brings out a strong bounce.  Expect this to be a lower high bounce
  • Hedge Fund Telemetry Trade Ideas - No Changes Today
  • Point and Figure Charting Basics and NYSE Bullish Percent Index
  • Profit Margins and Excuses for Guidance Cuts
  • Semiconductor Cycle - 2015 and Now
  • US Sector Focus - Transports expect a lower high bounce
  • PPO Monitor - Percentage Price Oscillator Force Ranked Sector Rotation - Spotlight on FEYE
  • Bloomberg Technical Pattern Recognition Screen
  • Currency Update - Still range bound
  • European Market Update - Strong oversold bounce
  • Global Market Update - Strong oversold bounce
  • Asian Market Update - Nikkei sentiment has moved from 96% down to 36%
  • Crude Update - Still should consolidate lower
  • Gold Update - Stalling today
  • Bond Update  -  Bonds not weak in a strong equity market says a lot
  • DeMark Screens - Daily, Weekly, Monthly upside/downside exhaustion signals within the S&P 500 and Euro Stoxx 600 SEEING MORE DOWNSIDE BUY SIGNALS ESPECIALLY IN EUROPE

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  


SPX daily


SPX 60 minute tactical time frame


Nasdaq bullish sentiment is at


NDX Index


NDX 60 minute tactical time frame


Dow Jones Industrial Average




IWM Russell 2000

 
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:   NO CHANGES TODAY
Stops on everything.  TSLA 285, GDX 17.35 , FEYE 16.00, NVDA 250,  QQQ 178, XLK 75, SPY 285, XLY 113, AXP 109,  XRT 50, IWM 163, XLV 94, BRK/B 110, DIA 260, XLI 77 IBB 116,  ABT 75, AMZN 1850 DXJ 56 , GLD 111, IEF 98  TLT 112 , AAPL 225, BA  370, IBM 150, NFLX 360

 
Point and Figure Basics and NYSE Bullish Percent Index

There are only two basic signals. X's represent advancing columns and O's represent declining columns. Point and Figure columns alternate as prices reverse and change direction. A basic Point and Figure Buy Signal occurs when a column of X's exceeds the prior column of X's. A basic P&F Sell Signal occurs when a column of O's exceeds the prior column of O's.

I use the traditional 3-box reversal Point and Figure charts for the Bullish Percent Indices. This is when you count up each stock within an index or sector with either in a bullish column of X's or bearish in a column of O's.  It's really easy to see when overbought and when oversold since the Bullish Percent Index (BPI) fluctuates between 0% and 100%. Each box represents 2%. This means it takes at least a 6% move in Bullish Percent Index for a reversal. Three boxes at 2% equals 6% (3 x 2% = 6%). A 6% move would be from 42% to 48% or from 64% to 58%. 6% does not refer to the actual percentage change but the percentage of individual stocks in total moving into a column of X's. A column of O's (decline) can only be reversed with a 6% advance, which would form a new column with three X's. A column of X's (advance) can only be reversed with a 6% decline, which would form a new column with three O's.



In its most basic form, the Bullish Percent Index favors the bulls when above 50% and the bears when below 50%. The bulls have the edge when over 50% of stocks are on a P&F Buy Signal. A Bullish Percent Index is also considered overbought when above 70% and oversold when below 30%.  This is what is looks like when plotted with X's and O's when overbought and oversold.  


I've simplified everything by plotting it with a more familiar chart using RSI to spot divergence and to see in a broad way where this has topped and bottomed in the past 20 years.  It's currently only at 43% and the average decline in the past 20 years has seen this bottom at 28%.  

 
Profit Margins and Excuses For Guidance Cuts


The earnings growth rate for Q3 is at 19% and the blended revenue growth rate is at 7%.  I believe the benefits from the tax cuts will start to fade in the coming quarter and margins will drop by 100 bps in the next two quarters to 10% which still is pretty good.  


From a sector basis every sector except healthcare is expected to report higher margins.  


I've had a theme this quarter of "Forward Guidance Cuts" ahead and here is a list of the excuses companies are using to lower guidance.  Thanks to FactSet

 
Semiconductor Cycle - 2015 and Now


Morgan Stanley has been excellent at highlighting the risks with semiconductors in the past few months and today they showed this chart comparing 2015 and 2018.  These risks are seen at every semi cycle peak


Since 2015 SMH Semi ETF is up 126%.  This looks like a top.  

 
US Sector Focus - Transports


Transports bouncing off TDST green dotted line.  Expect a lower high bounce.

 
US Quit Rate Peaking


I expect people will stop voluntarily quitting their jobs in the coming year

 
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: Very bullish breadth today with this bounce.  


The following chart shows the Percentage Price Oscillator (50 day moving average) in action.  FireEye is currently 10% above the 50 day moving average and other peaks saw it 16% above.   I still like this company as a long.  Look for a Real Vision trade idea video later out later in the week

 
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.  If you would like a PDF from Bloomberg with full details of how this is formulated, please email.  We will be doing a webinar in the coming weeks specifically on this system.

 
Currencies


US Dollar bullish sentiment is at 53%


US Dollar Index still in range


Euro bullish sentiment is at 30%


Euro Spot


British Pound having trouble breaking out

 
European Markets


Euro Stoxx 50 large reflexive bounce today


German DAX Same

 
Global Markets


EEM Emerging Markets ETF bouncing too

 
Asian Markets


Nikkei bullish sentiment is at 36% down from a recent peak bell ringer high of 96%


Nikkei bouncing at TDST support


China / Hong Kong FXI ETF bouncing a little after green Setup 9

 
Crude Update


Crude bullish sentiment is at 70%


WTI Crude Futures could have green Setup 9 tomorrow

 
Gold Update


Gold bullish sentiment is at 38%


Gold stalling here


Gold Miners GDX ETF stalling too

 
Bond Update


Bond bullish sentiment is at 44%


US 10 Year Yield stalling.  You'd think yields would be responding more with equity bounce


US 30 Year Yield same

 
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:  NONE
DAILY DOWNSIDE 13:  COF, FBHS, SLG, TAP

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    NONE
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   SO

Updated: 10/15/18
WEEKLY UPSIDE 13:  NONE
WEEKLY DOWNSIDE 13:   IVZ, SYMC, WHR

Updated: 10/1/18
MONTHLY UPSIDE 13:    ADSK, ALL, CCI, CME, DE, DLR, DTE, ETN,  GLW, HPQ, INTU, PH, TPR, TXT, UPS, XLNX
MONTHLY DOWNSIDE 13:    NONE

Euro Stoxx 600 Universe:
DAILY UPSIDE 13:    MCRO LN
DAILY DOWNSIDE 13:  ACKB BB, COB LN, ITX SM, JUP LN, PHNX LN, SMDS LN, SPSN SW, STAN LN

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    SEV FP
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   BPE IM, EUROB GA, HTO GA, SPD LN

Updated: 10/15/18

WEEKLY UPSIDE 13:   MUV2 GR
WEEKLY DOWNSIDE 13:   BAS GR, FHZN SW, FRA GR, IMB LN, JMT PL, ONTEX BB, OSR GR

Updated: 10/1/18
MONTHLY UPSIDE 13:     BNZL LN, EXPN LN, FPE3 GR, SBMO NA, SECUB SS, SWEDA SS
MONTHLY DOWNSIDE 13:  BAYN GR, HMB SS, TEF SM




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