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03/28/2024
Thomas Thornton

Retests are supposed to be scary

My experience when markets retests lows, it's a lot more scary than the initial move lower.  The reason is that you might have round tripped the bounce and you second guess your decisions.  Retests also wash out both the buy the dip people and those that longer term holders.  Friday's action didn't really scare anyone from what I could tell despite some elevated put call readings and sentiment that was back down at extreme levels.  There were no CNBC "Markets in Turmoil" specials and the weekend commentary didn't seem too concerned about the overall market.  

Sentiment with the S&P did hit 10% on Friday which is very low yet can go lower and stay lower for longer.  It was in my thesis that the February low with sentiment at 9% would see a lower high bounce followed by lower lows within the backdrop of low sentiment.  For the most part it's been following my script and now there are some important developments we have to discuss.  First, there are many indexes, sector ETF's, and stocks (31 SPX names - as seen below in DeMark Screens) with downside DeMark exhaustion signals on a daily time frame.  This is a real positive factor however, the majority of these are occurring in the 3rd wave down and that's in the middle of the entire corrective/bear market wave sequence.  The issue is that the next wave is up and it's wave 4 which is the shorter lower high bounce and then it's followed by the 5th and final wave lower.  I prefer exhaustion signals in wave 5 for higher probability  of successful new long ideas.  Second, the downside on Friday saw 50% of the S&P and Nasdaq 100 make 20 day lows and that's typically a decent reading for capitulation.  Third, sentiment at the last two significant lows - Aug/Sept 2015 (wave 3) and Jan/Feb 2016 (wave 5) had sentiment go under 10% bulls and the S&P rapidly lost several hundred handles lower.  Just because sentiment is low (or high for that matter - remember a few months back) can stay that way and market tend to crash when oversold.  I'm not sure we are near crash mode but scaling back both longs and shorts and trade size in this period is advised.

Three Fed speakers today, short week, and end of quarter.  Re-balancing could favor fixed income as equities have outperformed by 150-200bps.  That's usually not a lot to matter but with the equity markets near recent support levels, it could break below those February levels.  

Notable:

  • US Markets - Sentiment is low, exhaustion signals are present but in wave 3.  Today's PPO monitor vs Friday has a big difference
  • European Markets - Still nothing to do here
  • Asian Markets - Nikkei is oversold yet Hang Seng still has some issues
  • US Dollar Update - Weekly downside exhaustion finally
  • Bitcoin Update - Downside red Countdown now on day 2 of 13.  
  • Some Important US Sectors with Downside Exhaustion Signals
  • Bond Update
  • DeMark Screens - Having an issue with data feed on some screens today but I did screen the US market (SPX 1500) and there are 31 SPX 500 names with downside exhaustion.   If short cover those and selectively buy them with tight stops as most 90% of them are in wave 3.

US Markets


SPX bullish sentiment is at 10% and quite the ride last week.  In February it hit 9%.  
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.   

 


Committment of Traders report for SPX speculators moved lower last week.  


SPY on Friday had a downside red Countdown 13 while it closed above slightly the February closing low (wave 1).  If it had closed under the wave 3 would be locked in.   Here's another issue that I'm watching.  The green Setup is on day 8/9 and tomorrow will have the 9 locked in and it's possible a new red Countdown could start again.  When that happens it's indicative of a very strong trend.  We saw this happen last year as you see.  I took the upside 13's more seriously then due to them being in wave 5 and those only saw slight stalling out periods.  

 


The Dow did close below the February lows locking in the wave 3.  Where wave 3 ultimately bottoms is unclear however if bottomed on Friday then that's it for wave 3 and wave 4 would lock in with a close higher than 8 previous closes.  

 


Nasdaq bullish sentiment is also at 10%.  Will it V bottom like the last two times?

 


QQQ Nasdaq 100 is on day 8 of 9 with a green Setup count.  A bounce could develop with this 9 like it did before but then again a new red Countdown could also start within days with some weakness.

 


IWM Russell 2000 is on day 11 of 13.  

 


My PPO Monitor from the close on Friday.  Deep red losses and most were well under the intraday VWAP too.  Notice a lot of them made 20 day lows too.  The average of all of the sectors were down 4.82% below the 50 day moving average and at the highs in January the average was 5.8% above the 50 day.  

 


Today's PPO monitor shows most sector ETF's in the green and positive for the day yet many are under the early VWAP made early on (covering gap up, followed by real supply entering the market)

 
Tesla Follow Up
 

As many of you all know, Tesla is my favorite short idea for a ton of fundamental reasons and it's nearly the 1 year anniversary of when I started to get deep into my analysis with Tesla.  It's been a great trading stock and that's not saying it's easy.  If you trade with wide stops and smallish size you can withstand the hype bounces.  Today there is a green Setup 9 and a red Countdown 1 and it's below 300 which has been pretty decent support.  I remain short 5% size from $351 and own some Sept 260 puts.  

 
European Markets


SXXP Euro Stoxx 600 did have a downside red Countdown exhaustion 13 on Friday but very little follow through.  

 

UK FTSE 100 also had several downside exhaustion signals on the downside and a green Setup 9 too which started a new downside red Countdown - this is my concern with several of the US market indexes and sectors.  This occurred in wave 3 so there's risk trying to get long here.  

 


Here's the close up with the new red Countdown started after the green Setup 9

 


The German DAX is also in wave 3 and broke the TDST 12,075 level.  There was an upside red Countdown on day 4 but it was cancelled due to it breaking below the TDST and qualifying.  This is when a true high occurs below the TDST low.  Since today's high was above Friday's close the true high is today's high and that's below the 12,075 TDST low from Feb 26th sell Setup (green 9 on the recent high)

 
Asian Markets


Japan Nikkei also had a downside red Countdown 13 on Friday and today's response was a good start but remember its in wave 3

 


DXJ had a downside exhaustion on Friday too but the response in the US today isn't that good

 


Hong Kong Hang Seng bounced but is on day 7 of 13 with its downside Countdown

 
US Dollar


US dollar bullish sentiment is at 44% slipping from 50%

 


Commitment of traders showing dollar speculators pretty neutral.  

 


The daily of the DXY Index has a mixed picture in a recent range between 89-90.60.  There is an upside wave 3 price objective of 91.86

 


The weekly of DXY Index finally got the downside red Countdown 13. It's in wave 3 on weekly which makes it tricky with both the daily and weekly exhaustion signals

 
Bitcoin Update


Bitcoin might have made another low high  and now has a downside red Countdown on day 2 of 13.  Watch the 7732 support level.  The wave 5 downside price objective is down at 1135.  That will be something if it's reached!  

 
Some Important US Sectors with Downside Exhaustion Signals


Transports did not break below the February close to lock in wave 3 yet.  

 


Financials did close below the February low close and locked in wave 3.  it's on day 12 of 13 with the red Countdown and there's a green Setup 9 today.  

 


Energy has been in a tight range between 66-69 and is on day 12 of 13 with it's downside Countdown.  It did get the wave 3 locked in too

 


Healthcare has both a red Countdown 13 and Setup on day 8 of 9.  It's in wave 3 and the risk is that a new red Countdown starts after the green Setup likely tomorrow.  

 


Consumer Discretionary did get the red Countdown 13 but also has the concern with the green Setup 9 likely tomorrow.  

 
Bonds


Bond bullish sentiment  is at 46% a new recent high

 


Commitment of traders has been showing speculators short bonds.  They increased their short position last week.  This is interesting since the reading here was taken on last Tuesday when bullish sentiment was 27% and it ended the week at 46%.  There is a short covering bounce ahead

 


TLT Bond ETF is a mixed picture with a downside red Countdown stuck at 11 of 13 but price action isn't so bad

 
DEMARK SCREENS - Daily, Weekly, Monthly Upside/Downside Exhaustion Signals

Daily/Weekly DeMark upside/downside exhaustion signals (Sequential) Weekly updated on Monday's.  Price flips occur when a stock closes higher/lower than four previous closes.    

S&P 1500 Universe: 

DAILY UPSIDE 13:   LNCE
DAILY DOWNSIDE 13:  ABC, ACT, ADTN, AIG, ALK, AMG, BGG, BPFH, CAT, CERN, CGNX, CL, CMP, COF, COHR, CVBF, DTE, ETH, FCX, GEO, GLW, GPC, HAIN, HTLD, IVZ, KMB, KMI, LKQ, LOW, MAS, MDRX, MDT, NVR, PDCO, PFS, PNK, RPM, SPTN, SSP, STL, SWM, SXT, TGT, UNM, VMI, VSAT, VZ, XRAY

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    HSII, MSCI
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   EXP, FINL

Updated: 3/26/18
WEEKLY UPSIDE 13:   NO DATA TODAY
WEEKLY DOWNSIDE 13:   NONE

Updated: 3/1/1
MONTHLY UPSIDE 13:     BDX, BMY, CAT, COL, CW, EBIX, GNCMA, IRBT, MMSI, NFLX
MONTHLY DOWNSIDE 13:    CHK, SVU, WIN

Euro Stoxx 600 Universe:

DAILY UPSIDE 13:   NONE
DAILY DOWNSIDE 13: BBA LN, BWY LN, ESNT LN

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

Updated: 3/26/18
WEEKLY UPSIDE 13:   NO DATA
WEEKLY DOWNSIDE 13:  

Updated: 3/1/18
MONTHLY UPSIDE 13:    ASML NA, ENX FP, FI/N SW, INVP LN, SAB SM, SCR FP, US IM
MONTHLY DOWNSIDE 13:   NONE



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