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10/24/18
Thomas Thornton

Texas Instruments management comments should be not be discounted

I've been showing a lot of data illustrating semiconductor sector risk in the last few months and even showed the March top with the DeMark Combo 13 upside exhaustion.  The sector was one of the best sectors in the past 3 years in the US.  Just think about how many semiconductors go into every product from phones, computers, telecom, autos, industrials, housing etc.  When the sector is strong the global economy is strong which is simple to see.  Yesterday, I expected Texas Instruments (2nd largest US chip company) to report inline and guide down like most people who follow the sector.  It was worse, I blew out of the stock today as I expected a short term relief bounce.  It was what they said on the conference call that should be of concern for a longer slowdown with global growth.  Here's some nuggets:

  • Management sounded like they were bracing for a longer slowdown'We're heading into a softer market and we plan to execute as we have in the past. First, we will be disciplined with our operating plan. We will reduce wafer starts.'
  • Comparing this slowdown to the prior two down-cycles, management said that historical downturns were shallow because the up-cycle was never that strong in the first place during periods of slow economic growth. In the last two years, however, the business experienced a much stronger up-cycle amid strong economic growth, which implied that the down-cycle could be steeper.
  • Reason for the slowdown?  They would not blame tariffs + trade war, but instead said they believe it's 'mostly driven by a slowdown in the Semiconductor market after several years of strong growth, which doesn't preclude other factors and macro things going on'.
Semiconductors are cyclical and I am a big fan of managements that when times are bad, they lay it out and don't try to deflect the reality.  It builds credibility for when they see things start to bottom and turn up.  I've been through many semiconductor cycles and they all have correlated with a slowdown in global growth.  

My current view on the equity markets remains very cautious but with Microsoft, Alphabet, and Amazon reporting today and tomorrow the potential for a a lower high bounce is decent.  They represent a significant percentage of the major indexes and they have models that allows them to pull a lot of levers to deliver what the markets will want to hear.  I am considering reloading on SPY/QQQ put spreads but will see how things look on Friday after these earnings reports.  I lowered some short exposure yesterday at the lows and remain net short but with more cash on the sideline.  October's Trade Ideas Sheet has seen gains of 8% from lows vs S&P losses of 7%.  I will admit this Summer's difficult period of "short, cover, rinse, repeat" was frustrating but staying disciplined by following sentiment, the upside DeMark signals and other data has worked again.  

  • US Markets -  Sentiment remains very low, Bounce potential is there but a break of recent lows could see lower Trend Factor targets come into play - similar to what happened in February
  • Hedge Fund Telemetry Trade Ideas - Removed TXN and SMH shorts - nominal loss
  • US Total Market and World Ex US ETF's Update - Still looks lower
  • Signs of Risk
  • US SectorFocus - Consumer Staples
  • PPO Monitor - Percentage Price Oscillator Force Ranked Sector Rotation
  • Bloomberg Technical Pattern Recognition Screen
  • Currency Update - USD looks higher
  • European Market Update - Still very poor action lower
  • Tesla Ahead of Earnings
  • Asian Market Update - DXJ Japan looks lower on weekly chart
  • Crude Update - Support on WTI at 65 is key
  • Gold Update -  Stalling
  • Bond Update  -  Reversals lower in yield is a "risk off" move
  • DeMark Screens - Daily, Weekly, Monthly upside/downside exhaustion signals within the S&P 500 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.  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 13%


SPX daily has not been able to make that lower high bounce to get the wave 2 of 5 so perhaps the next Trend Factor target will be hit?


SPX 60 minute tactical time frame.  The last time in June with a downside wave 5 the target wasn't achieved either.  


Nasdaq bullish sentiment is at 13%


NDX Index has held support but MSFT, GOOGL, AMZN and INTC will decide the next move


NDX 60 minute tactical time frame didn't get into wave 5 so there's still a chance lower


Dow Jones Industrial Average could be making a new closing 3 month low soon


IWM Russell 2000 still looks the worst

 
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:  REMOVED SHORTS:  TXN -3.7%, SMH -0.8%
Stops on everything.  TSLA 320, GDX 17.35 , FEYE 16.00, NVDA 235,  QQQ 179, XLK 75, SPY 285, XLY 113,  XRT 50, IWM 163, NSC 173, DIA 260, XLI 77 IBB 116,   AMZN 1860 DXJ 56 , GLD 111, IEF 98  TLT 112 , BA  370, IBM 140, NFLX 345 (RECENTLY ADJUSTED STOPS)   GOOGL 1000,  ITB 28

 
US Total Market ETF vs World ETF Ex US ETF - Update


US Total Market still looks risky


World Markets EX US hit a new low today

 
Signs of Risk


Homebuilders, Automobiles, Financials have been notably weak


Goldman Sachs Financial Conditions continue to tighten


Credit Spreads weekly still knocking on the highs.  When this goes, most likely the Energy sector will be under significant pressure as it had been in 2008, 2011, and 2015


P/E's are down but if conditions get worse, the "E" will start to show weakness.  


Another concern with corporate yield to worst increasing

 
US Sector Focus - Staples


Staples needs to close over 55.35 (and it's right there now)

 
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:  A lot more new 20 day lows despite the indexes not hitting new lows.  

 
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


US Dollar Index starting to make that move higher


Euro bullish sentiment is at


Euro Spot looks lower


HUGE RISK with Yuan nearing 7.  With a downside red Sequential Countdown in progress this will start to get alarm bells ringing

 
European Markets


Euro Stoxx 50 no bottom yet


UK FTSE is at downside wave 5 price objective with nearly a downside red Sequential Countdown

 
Tesla - Ahead of earnings tonight


Tesla is one of the craziest stocks in our careers.  They moved up earnings to tonight which bulls suspect it's positive news.  Perhaps.  The risk to the upside is there since they sold a lot of Model 3's which pulled demand forward.  The 420,000 orders is fiction but there won't be clarity on a lot of questions.  There even have been stories of Ford doing some sort of JV.  I'm going into this short with a 320 stop.  I will not trade out of this after hours and will trade it first thing tomorrow if wrong.  I may even add tomorrow back what I took off yesterday


Implied move is 11.8%


Tesla short ratio from Erlanger is at 4.21 and the short intensity rank are relatively low

 
Asian Markets


Nikkei bullish sentiment is at 32%


Japan DXJ ETF weekly


China / Hong Kong FXI ETF still at risk lower

 
Crude Update


Crude bullish sentiment is at 63% down from recent 96% extreme level


WTI Crude Futures

 
Gold Update


Gold bullish sentiment is at 28%


Gold still stalling

 
Bond Update


Bond bullish sentiment is at 46% and starting to increase.


US 10 Year Yield reversing down - Risk off in my opinion


US 30 Year Yield same story


IEF ETF still looks good long

 
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:  AIZ, BAC, LEN, MAS, MHK, SIVB, SWKS

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    CA, SBUX
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   WY

Updated: 10/22/18
WEEKLY UPSIDE 13:  NONE
WEEKLY DOWNSIDE 13:   COTY, IRM, VNO

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:   NONE
DAILY DOWNSIDE 13:  CRH ID, DANSKE DC, HEXAB SS, PNL NA, PSM GR, REL LN

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    HNR1 GR
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   REL LN


Updated: 10/22/18

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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