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2/28/19
Thomas Thornton

How I learned to stopped worrying about slowing growth and love the Fed


I was asked today by one of my clients if I felt Powell's statement regarding the Fed soon to announce a plan to stop shrinking the $4 billion balance sheet and if I thought the market had it priced in or if there was more upside.  Then I read a piece from Ray Dalio from Bridgewater, the largest hedge fund in the world.  Ray's point was he was less concerned about a US recession ahead of the next Presidential election.   

"Because the markets weakened and Fed officials now see that the economy and inflation are weak there has been a shift to an easier stance by the Fed. Similarly, because of weaker markets, economies, and inflation rates in other countries, other central banks have also become more inclined to ease, though they have less room to ease than the Fed. For these reasons, while I still expect that there will be a significant slowing of growth in the US and most other countries, I have lowered my odds of a US recession coming prior to the US presidential election to about 35%. More specifically, the Fed now has both a) the power to lower interest rates by 2+% and to pick up QE and b) the willingness to do that if needed to prevent a recession."  

He lowered the odds of a recession to 35% from 50%.  Seriously.  Whew what a relief.  Then this

"In summary while the Fed probably doesn’t have enough firepower to offset a deep recession, the big sag that we expect is probably manageable. More specifically, the Fed now has 250bps of easing (which will be more impactful than typical because of the longer durations of assets this cycle), plus the ability to turn QE back on, which we estimate is roughly equivalent to the 4% to 5% of easing typically required to get out of recessions. The story is different in different parts of the world and our economies are connected. So, when looking at the whole picture, it is more concerning."

Now I want to crawl into a cave or find an island that doesn't have WIFI and I'm bearish!  I don't believe a 2.5% Fed Funds Rate is a good place to start cutting if the Fed is needed and having a $4 billion Fed balance sheet will limit a "shock and awe" QE program. 

Stay defensive.   A lot of recent upside DeMark Sequential, Aggressive Sequential (they trigger ahead of normal Sequential and work well in volatile times as they have less stringent perimeters) Combo's, and Setup 9's but now there are price flips seen which are prices below 4 previous closes.  Follow through is essential now.  S&P bullish sentiment is at 79% and that's quite high so there is a lot of downside runway.   


US Markets


SPX bullish sentiment is at  79%.


SPX daily price flip


SPX 60 minute tactical time frame stalling


S&P Equal Weight ETF RSP price flip


Nasdaq bullish sentiment is at 70%


NDX Index stalling


NDX 60 minute tactical time frame below the trend line


Dow Jones Industrial Average price flip


IWM Russell 2000 price flip

 
Hedge Fund Telemetry Trade Ideas

Trade Ideas Sheet
Trade Ideas Changes:  TOOK OFF MACY'S WITH A 2.95% LOSS.  ADDED SHORT 2.5% SIZED:  BA, AMZN, XRT

 
The Dow Attribution and Boeing


Dow Jones Industrial Average Index attribution from the December lows shows BA attributing 26% of the gain.  That's the same amount of the next 6 top attributes combined.  BA is the largest weight in the Dow since it's 440 and the Dow is price weighted.  


Custom index of top 5 Dow stocks looks toppy


BA on day 10 of 13 with upside Sequential but I'm putting on a 2.5% sized short. I know I'm early and will accept some upside risk.  


BA weekly with several upside Countdowns and a new Setup 9

 
Stocks I am watching right now


AMZN is on day 12 of 13 with a Countdown but I'm putting on a 2.5% sized short today


AMZN weekly still looks vulnerable to the downside  


Macy's didn't get moving off the lows and I'm taking off the long with a 2.95% loss


XRT Retail with a Combo 13.  Adding a 2.5% short position

 
Tesla


Here's the Tesla China factory that is supposed to be online by Q4 THIS YEAR according to Elon Musk.  There is an announcement today at 5pm EST, 2pm California time.  Could it be the new Model Y, a pick up truck, funding?  Elon resigning?  Who knows since he tweeted out the "news" in the middle of the friggen night yesterday!!  Who does that?  I am not covering my stock unless they get $10 billion in cash.  


Tesla stock is a mess and I suggest wide stops and small size so you can manage these swings.  If you're trading this with options it makes it very tough.  Trade with spreads to lessen costs

 
US Sector Focus - Semiconductors


SMH - Semiconductor ETF still has potential up with Countdown but with this price flip it could see an interruption in upside trend


INTC is 16% of the SMH weight and is 10% above the 50 day moving average and that's overbought


NVDA starting to fade.  A break under 150 and 146 50 day is needed to confirm

 
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:  More ETF's are breaking the 10 and 20 day moving averages as a sign of weakness starting.  

 
European Markets


Euro Stoxx 50 bullish sentiment is at 72%


Euro Stoxx 50 still up but I expect a drop soon.  I was bullish here but took profits too early


Euro Bank Index with a Countdown 13 today.   I track the better performing banks in the past year vs the weaker banks and the gains have been coming from the weaker (crappier ones)

 
Global Markets - EEM Emerging Markets


EEM Emerging Markets ETF price flip down

 
Asian Markets


Nikkei bullish sentiment is at 71%


Nikkei price flip down


China / Hong Kong FXI ETF price flip down


Korean Kospi Index after recent upside exhaustion Countdown 13's a big price flip down

 
German 10 year yield


German 10 year yield up again

 
Bond Update


Bond bullish sentiment is at 70% and remains off recent highs over 90%


US 10 Year Yield price flip up.  I've been neutral on bonds but it the yield can continue up tomorrow I will get more negative on bonds


US 30 Year Yield


LQD Investment Grade ETF toppy

 

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