If you are having difficulty seeing this email, you can view in your browser or click here to print.

Back in January when the market was making endless new all time highs, sentiment was also making all time highs, while upside DeMark exhaustion signals were triggering on daily, weekly, and monthly time frames across indexes and sectors.  It was typical wave 5 upside action when you're mocked for being foolish recommending cash or tempering expectations of future gains.  A correction happened quickly, volatility spiked like we haven't seen in quite a while.  The lower high bounce (majority of indexes, sectors, and stocks) lasted three weeks and a move back to the 200 day moving average was called a "retest" as if this is a bullish all clear sign.  People are complacent and I have heard many people say retail won't be bothered with the decision to sell down risk as they are likely flat to slightly down for the year but were up 20% last year.  

Nothing changes investors’ minds and mobilizes capital faster than losses. I've said sellers are lower and buyers higher and have no reason to change that opinion.  What has become very clear to me is with the lower levels where people will start to sell people are not prepared.  When I worked on the hedge fund desk, the first calls were with sell side derivative traders.  They knew better more than anyone where the risk was in the market.  Lately, I've been reading more very concerning notes from sell side derivative desks.  My long time Goldman derivative trader (who is a perma bull) is quite concerned for a market dislocation lower with our recent conversations.   UBS has been saying the excess flow has been on the sell side in the last 4 days despite the market direction.  This compares with the low in February when buy flow had breath (across all products), depth (strong volume) and length (consistent buying) – a condition needed to support a strong multi-day rally.  Furthermore leverage has come down with de-risking within hedge funds to a more reasonable level yet still remains high.  Funds are under-hedged due to high implied volatility, VIX call open interest remains at multi-year low.  Both SPY put and EEM put open interests have dropped to 9%-tile vs 1Y history adjusting for expiration cycle. They estimate hedge positioning is at a 1 year low.  Lastly mutual fund and ETF flows in domestic equities continue to see outflows per ICI data.  

It's extraordinary that the President can tweet out threats against Russia with missile strikes in Syria or imply there is a witch hunt against him and the markets take it in stride.  There is false complacency that all will be fine.  As a reminder risk comes at your fast.  Markets like certainty and they are in for a rude awakening if and when anything starts to escalate.  Combined with the UBS data and the fact that the market is still on the lower end of the last quarter's range and sentiment never recovered this is still a good time to be very nimble and to sit tight with a decent cash allocation.  Markets crash when oversold and the unexpected happens.  

Notable:

• US Markets - Sentiment increased on daily sentiment index and Investors Intelligence continues lower
  
• Hedge Fund Telemetry Trade Ideas - No changes today
  
• European Markets - Some consolidation at the 50 day
  
• Currencies - GBP could see a little more upside and the USD remains in tight range
  
• Asian Markets - Consolidation happening
  
• Gold and Silver Update - Silver does have a better setup and I'm still neutral on gold
  
• Crude Update - Sentiment increased a lot while some upside exhaustion is nearing on USO and Brent
  
• Two Key Financials - JPM and GS
  
• Tech Update - FANG, XLK, NFLX, GOOGL
  
• Bond Update - Sentiment remains strangely bid.  2/10 spread nearly exhausted again
  
• DeMark Screens - Daily, Weekly, Monthly upside/downside exhaustion signals within the S&P 1500 and Euro Stoxx 600
  

SPX bullish sentiment is at 31%
Here's a link to the Hedge Fund Telemetry market sentiment page with 40 charts of sentiment including equities, bonds, commodities, and commodities updated each day.   

SPY lost the upside green Setup count that was in progress.  There remains a red Countdown on day 2 of 13.

As a reference, this is the SPX during the first Gulf War.  Uncertainty caused a 20% drop

Nasdaq bullish sentiment is at 34%

QQQ also lost the upside green Setup count as its trading below 4 previous closes and it needed to continue to trade above 4 previous closes.  A new Wave 3 price objective at 144 is now present

The Dow lost its upside green Setup count too.  A break of 24,000 will likely get some sellers active

The Investors Intelligence bullish/bearish poll continues to drop.  Some people have said it's back to the November 2016 levels but they are terribly uninformed as the direction is much steeper on the downside.  It's more like the move lower in 2015 the bottomed 6 months later when there were more bears vs bears.  Note this poll tends to lag a week due to many newsletters still being sent by mail.  A bounce in this ratio wouldn't surprise me next week.

No changes to the Trade Ideas today.  I continue to run with very low overall gross exposure.  

UK FTSE 100 has a very good record with the DeMark indicators and the bounce off the recent low might be complete with a new green Setup 9 and there is now a Wave 5 downside price objective at 6637

DAX Index lost the upside green Setup count too and failed at the down sloping 50 day moving average

British Pound Sterling bounced off the 50 day support and is on day 9 of 13 with an upside Countdown while running into resistance

US Dollar Index continues sideways despite the upside red Countdown on day 8 of 13.  

Nikkei Index as I said yesterday should consolidate some gains and if this starts lower there is a Wave 5 downside price objective of 19,522

Sensex Index is back to the 50 day and it is make or break now

Gold bullish sentiment remains bid at 75% now.  Previous highs were between 83% and 91%

Gold Futures continue in a tight range and there is a downside red Countdown on day 9 of 13.  I will remain neutral for now until the downside Countdown exhaustion 13 is triggered.  

Silver bullish sentiment is at 45% and should break above 50% soon.  This setup long is much more appealing than Gold.

Silver Futures did have a downside red Countdown 13 last week and has started to react to the upside.  17 seems to be a resistance level to watch

Crude bullish sentiment spiked to 70% from 58%. Crude often gets up to the 90% level at tops

USO ETF is on day 12 of 13 with an upside Countdown.  Brent is also on day 12 too

JPM has made a series of lower highs and now has a downside Wave 3 price objective of 99.74

GS failed yesterday at the 50 day moving average and also has a downside Wave 3 price objective lower

FANG + Index could be putting in a lower high with a new downside Wave 3 price objective at 2106

XLK Tech ETF stalled here under the 50 day moving average and has a lower downside Wave 3 price objective

NFLX kicks off tech earnings on Monday and sell side firms have been aggressively upping estimates and price targets.  There is an upside red Countdown on day 5 of 13 and I have to believe this has a better shot of increasing than breaking down.  Call it 60/40 up/down.

GOOGL is coiling on the lower end of the range and is on day 3 of 13 with it's downside Countdown.  

Bond bullish sentiment is at 47% and remains in a tight range near the mid point.  For sentiment to stay up at these levels, there is a sense of risk off flight to bonds.

2/10 spread continues to flatten yet it's on day 11 of 13

Unsubscribe me from Hedge Fund Telemetry

Hedge Fund Telemetry LLC, P.O. Box 4675, Greenwich, CT 06861, United States