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10/31/18
Thomas Thornton

Sausage Making

I often say trading a long short portfolio is a lot like sausage.  You like the risk adjusted returns of the portfolio and sausage tastes great but no, no, no you don't want to see how it's made.  Both are a little sloppy at times and they both were created to solve problems and risks.  Long short was developed to deliver returns in all markets and sausage was developed 1500 years ago to preserve meats by stuffing all sorts of things in animal casings.  After a tumultuous few months, I'm pleased with the process that foresaw the risks that became clear  to everyone.  We avoided the downside with an overweight large percentage of downside exposure and if you can't short ample fair warning to raise cash.   

I'm also pleased the 60 minute tactical charts I've been showing did an excellent job too.  In the last few days I've been showing some oversold conditions with sentiment at 10% for the S&P and the tactical 60 minute charts of the S&P and others reaching the downside wave 5 price objectives. (take a look at how they hit those targets nearly to point).  The daily charts in the US clearly show this is the 1st of 5 waves down therefore, a lower high is expected as wave 2 which will be followed by a lower low wave 3.  Today's upside action in Asia and Europe on not very positive news combined with the action on the Facebook not so positive earnings had me covering some shorts which I lowered stops yesterday.  It's never easy and I would have loved to have covered things a few percentage points lower but remaining flexible to changing conditions is vital.  I added some long ideas today and will look for more long trade ideas in the coming days.  Then again, a lot is riding on Apple tomorrow night followed by the jobs data on Friday morning so if I flip bearish again, just remember how good sausage tastes.  Happy Halloween!


  • US Markets -  Sentiment should turn up here after deep lows.  Wave 2 lower high bounce on daily charts soon
  • Hedge Fund Telemetry Trade Ideas - Made lots of changes today
  • Facebook Thoughts
  • Fire Eye - Update
  • Demand for downside protection against volatility plunge  back to December lows
  • Global Market Cap has lost $8 trillion from January peak
  • Sector Focus - Energy bouncing
  • PPO Monitor - Percentage Price Oscillator Force Ranked Sector Rotation - look at what is above the 10 day as it could be start of a bounce
  • Bloomberg Technical Pattern Recognition Screen
  • Currency Update - USD continued higher
  • European Market Update -  Nice bounce and maybe could see Euro Stoxx lift a little more
  • Global Market Update - Bouncing too
  • Asian Market Update - Should also see a bounce but so much work needs to be done to rebuild base
  • Crude Update - No changes to view
  • Gold Update -  Weak again
  • Bond Update  -  POTENTIAL CHANGE TO BIAS
  • 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.  No sentiment charts today as we hired a new programmer who started yesterday and found a bug.  Charts are up to date on the site however
SPX bullish sentiment is at 16% up from 10%.  SPX lost the downside green Setup count as it did not complete 9 consecutive closes below 4 previous closes.  Wave 2 will be enabled when it makes an 8 day high


SPX 60 minute tactical time frame could be starting a 5 wave up move


Nasdaq bullish sentiment is at 17% up from 10% and the NDX needs a little more for the lower high 2nd wave


NDX 60 minute tactical time frame also hit the 5th downside wave with Combo 13 on lows.  This could be start of a 5 wave move higher


Dow Jones Industrial Average same story as others.  The .8919 downside Trend Factor target was a similar move lower seen in February


Dow 60 minute time frame also could be starting a 5 wave move higher.  Nice Combo 13 on 5th wave price objective


IWM Russell 2000 still looks risky but is trying to consolidate and will have wave 2 of 5 down soon too

 
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:  Made a bunch of changes.  TOOK PROFITS ON NVDA, QQQ, XLK, SPY, AMZN, DXJ, BA.  ADDED LONG 2.5% SIZE MS, MU, DWDP, LOW, CELG
Stops on everything.  TSLA 360, GDX 17.35 , FEYE 16.00, XLY 113,  XRT 50, IWM 163, DIA 260, XLI 77 IBB 111 , GLD 111, IEF 98  TLT 112 , (RECENTLY ADJUSTED STOPS),  ITB 28,  MS, MU, DWDP, LOW, CELG use 7-10% stops for now.  Still holding puts on SPY 267 and QQQ 168 for Nov.  Removed lower strike on SPY 255 puts that were sold in the put spread

 
Facebook - Thoughts


Is Facebook usage topping?  Looks like it with this chart.  The quality problem for FB is that there is no other outlet as far as the massive reach for advertisers so until they figure out something new to attract people, they still will make tons of money


The daily did get some downside exhaustion signals recently in wave 5.  


FB weekly still has some downside issues but a lower high wave 2 bounce to lets say the 50 week moving average wouldn't surprise

 
Fire Eye - Update


FEYE is one of my favorite long ideas and themes. Good quarter, beat raise and better bookings.  Still need this to clear some resistance


If you didn't see this on Real Vision last week, I lay out why I like cyber security sector and specifically FEYE. 

 
Demand for downside protection against volatility plunge back to December lows


Interesting....

 
Global Market Cap Index


This is down 16% from the highs in January.  The DeMark signals worked pretty well ahead of January top  

 
US Sector Focus - Energy


Energy has been one of the most beat up sectors and XOP is bouncing after completing a green Setup 9.   Worked the last time for a bounce

 
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: They are selling the top sectors which have been defensive and buying the offensive sectors.   A lot of these have moved over the 10 day moving average but on average still 5% below the 50 day.  

 
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.  Expect more green ideas soon.  

 
Currencies


US Dollar Index bullish sentiment is at 95% and this very extreme.  I have believed sentiment would stay high until the upside DeMark signal triggers


Euro bullish sentiment is at 33% and the Euro is making a new low today


Chinese Yuan still looks like it will break below 7 soon

 
European Markets


Euro Stoxx 50 bullish sentiment is at 16% and off last weeks low of 7%.  Could this be trying to turn?   


Euro Stoxx 60 minute tactical time frame shows this in wave 3 of 5 on the upside.  

 
Global Markets


Bloomberg World Index bouncing after recent Combo 13.  It's in wave 3 of 5 on the downside so another lower high expected

 
Asian Markets


Hong Kong hard to see a turn yet


Nikkei  DXY ETF could bounce into wave 4 of 5 on the downside


China / Hong Kong FXI ETF hard to see a turn here

 
Crude Update


Crude bullish sentiment is at 58% down from the peak of 96%  

 
Gold Update


Gold bullish sentiment is at 28% and just can't break above 40%.  Maybe this will start to work when the best period to buy gold happens.  Mid December to end of January


Gold Miners GDX ETF still holding the 50 day.  This one is never easy

 
Bond Update


Bond bullish sentiment is at 54%. The US 10 year could hold this level and move higher to the wave 5 price objective at 3.51%.  The recent top and upside Countdown 13's was in wave 3 and this pullback has qualified the wave 4 of 5 so there is potential for a higher move.   I will be monitoring the long bond ETF's on this development.   


US 30 Year Yield however has a different wave setup but still could make a move higher.  3.40-3.30 range now.  

 
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:   REG
DAILY DOWNSIDE 13:  NONE

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    NONE
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   ABBV, ADI, AIZ, AKAM, AMAT, AOS, BAC, DGX, ETFC, FB, HIG, JCI, LYB,  MCHP,  MS, MU, NKTR, NTRS, NWL, PSX, SNPS, SRCL, SWK, TXN, WU

Updated: 10/29/18
WEEKLY UPSIDE 13:  CME
WEEKLY DOWNSIDE 13:   ALXN, AMG, BHF

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:   CO FP, RTN LN
DAILY DOWNSIDE 13:  DIA SM

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    NONE
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   1COV GR, ASML NA, EDP PL, FNTN GR, ISAT LN, PNL NL, SDF GR, SPR GR, STM, TEMN SW


Updated: 10/29/18

WEEKLY UPSIDE 13:   AZN LN, DRX LN, TOP DC
WEEKLY DOWNSIDE 13:   BME SM, DANSKE DC, FPE3 GR, HSBA LN, KN, FP, PNL NA, SAN SM, VOE AV

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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