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03/28/2024
Thomas Thornton

When Good Stocks Go Bad

Welcome back to another episode of "When Good Stocks Go Bad" where good stocks that seemingly have little risk owning because they are market dominant, have done exponentially well vs the market get clobbered.  For those who have been subscribing for a while, they know I've isolated the stocks that are mega weights with attribution studies as well build countless custom charts of the FANG stocks in all iterations, the top 5 or top 10 largest weights in an index etc.  During the February correction, I pointed the FANG stocks had better relative strength as it halted it's decline at the 50 day moving average whereas the majority of stocks moved much lower than the 50 day and halted the decline at the 200 day.  What is notably different now is that the FANG stocks are now 5% below the 50 day moving average.  They are under pressure from all sides now.  These stocks have dropped like wet socks on a chicken because they are the most crowded and for the most part don't have a lot of shorts.  Amazon and Google have 1% of their float short and thus the natural buyer is not there.  Even Tesla has been hit hard and the analysis of the short interest isn't so crowded considering the large amount of hedging by creditors.  Who would short Apple with the large buyback?  Nobody as there only is 1.47% of the float short.  By the way, Goldman and RBC joined other firms in cutting iPhone expectations and cut the price targets by $2 and that's about 1%. 

The risk in the market is two sided now as things are broken with every sector trading well off highs, in a downside Wave 3 of 5 sequence, while people are nervous with bullish sentiment dropping yet there are some downside DeMark exhaustion signals on a daily time frame that are triggering.  I've expressed how I am not a huge fan of buying exhaustion signals in a Wave 3 as the next wave up is 4 and that's generally a small lower high bounce followed by the final Wave  5 down move.  The other issue that I'm watching are new red Countdowns starting on the downside.  Where's the two sided?  These are the types of markets where squeezes can be vicious and shake out the most hardened bears.  We saw it the other day and another one could happen at any time.  I've been through it and my best advice is to stay nimble, sized right (small) and to respect stops on either side. You'll get through if you're disciplined in this way.  

Housekeeping, I am selling the remaining of the SPY, QQQ, IWM, and DIA April puts today (they are so far in the money now that I'm not getting the optionality with the high deltas) I am going to evaluate reloading by rolling down strikes and expiration dates.  The puts worked well and lately it's been good, bad, good with option trading activity.  There are also 14 stocks out of the 18 I shorted weeks back that I am going to evaluate covering half or all.  (4 stocks were stopped out).  More on those tomorrow.  

Lastly, the DeMark Primer will go out later today in a separate email and will be posted on the Hedge Fund Telemetry website.  It's the basics and should be helpful to increase your knowledge.

Notable:

  • US Markets - Sentiment has dropped by not back to the lows.  
  • European Markets - Nothing to do yet
  • Gold Update - On day 7 of 13 with a downside Countdown.  I am neutral still
  • Asian Markets - Nikkei has closed on the highs 3 days in a row.  That's a positive
  • Crude Update - The next few days will be the tell.  I am on the neutral side of bearish
  • When Good Stocks Go Bad - A look at the big weights
  • Bond Update - You can buy bonds for a trade.  
  • DeMark Screens - All the weekly data from last week is now updated

US Markets


SPX bullish sentiment is at 20% down from 28% the previous day but up from 10% 3 days ago
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 could have a new downside red Countdown start today or in a few days.  It never was able to close under the February lows which would have locked in Wave 3.   The next few days have to be watched close.

 


Nasdaq bullish sentiment is also at 20%

 


QQQ has a downside green Setup 9 and is at risk of starting a new red Countdown.  

 


IWM Russell 2000 ETF remains on day 11 of 13 with its downside Countdown  

 


IVV S&P passive ETF had some outflows.  I saw a retail minded technician recently say he could care less about inflows and outflows.   They actually matter in the passive investment world we live in today

 
European Markets


Euro Stoxx 50 has just hung out near 1 year lows and is in a downside Wave 5 period.  

 


German DAX is also near 1 year lows but is only in Wave 3

 
Gold Update


Gold bullish sentiment is at 76% slightly off from the extreme zone at 83% a few days ago

 


Gold Futures hasn't excited me on either side and today is day 7 of 13 with its downside  red Countdown

 
Asian Markets


Nikkei is also in Wave 3 and had a recent downside exhaustion.  The last 3 days have closed on the highs and that's a positive sign

 


FXI Hong Kong China ETF is on day 10 of 13 with its downside red Countdown

 
Crude Update


Crude bullish sentiment is at 59% and is slightly down from the recent high of 70%.  This could be a negative divergence with sentiment making a lower high while the price of Crude recently made a new high.  

 


Crude Futures has a green Setup 9 today and the coming days will decide direction.  I am on the neutral side of bearish due to the huge COT speculators long positioning.  

 


SLB was a name I recommended (along with APA) as long ideas.  I'm going to stick with the long side here.  It's not ideal yet if it can hold I like buying the Wave 2/B patterns on the downside.  

 
When Good Stocks Go Bad


Here's the daily chart of a custom index of the Top 10 SPX weights and you can see how in February it held the 50 day but today it's broken AND has a downside red Countdown on day 2 of 13.  This is a concern going forward that keeps me leaning bearish.

 


The weekly of the Top 10 had upside exhaustion signals near the highs several weeks back.  

 


FANG + Index rode up with support at the 50 day but now it's broken.  Its on Wave 1 down (we've seen this before) and will likely make another lower high before going lower.  This takes time

 


FB hadn't done much this year and was a good hint at trouble.  It never showed up on my attribution studies too as a top gainer.  The downside Wave 3 price objective was reached and surpassed

 


AMZN in not even close to the February lows and has been the largest attribute in the S&P and NDX for a while now.  There is a downside green Setup 9 with a red Countdown starting so the next few days will be important to watch for support or failure

 


AAPL isn't back to the February lows either.  There is a green Setup 9 from the other day and I wouldn't doubt a bounce ahead.  Breaking 165 and it's lights out

 


NFLX is also not even close to the February lows and bounced off the 50 day earlier.  That's a sign of strength.  


GOOGL has been very choppy yet I see this going lower.  It's in Wave 3, has a green Setup 9 and has a red Countdown on day 2 of 13.  896 is the Wave 3 price objective.  


TSLA has run out of juice and has broken the huge support level at 300.  The Wave 3 price objective at 261 has been achieved but it's on day 3 of 13 with a downside red Countdown.  If you're short from when I put this on at $351 then you can hold or take a little profit.  If you are looking to do something here today, from either side the entry is difficult.  


NVDA had another upside exhaustion early yesterday morning and dropped as like to say "like wet socks on a chicken"


BA was the largest attribute in the Dow Jones and has now rolled over.  A Wave 2 lower high bounce is out there ahead

 
Bonds


Bond bullish sentiment increased to 49% and I knew there was a bond bounce out there.

 


The US 10 Year Futures contract took a while to get moving up and if looks buyable now for a trade.  

 
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:   BR, CROX, EL, LLL, NVDA, QNST
DAILY DOWNSIDE 13:  CLH, DRQ, EFII, EHTH, ENDP, FHN, FTI, GOV, HLX, MCK, MHO, MLHR

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    ALTR, LLL, QNST
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   ACC, CL, CPB, DTE, MO, PG, REG, TSN, VZ

Updated: 3/26/18
WEEKLY UPSIDE 13:   AVD, ECL, FAF, PGR
WEEKLY DOWNSIDE 13:   IVAC, MCY, NE, NWL

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:   BEZ LN, MHG NO
DAILY DOWNSIDE 13: FRE GR, GPOR LN

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    NONE
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   ABF LN, AZN LN, BATS LN, CO FP, IMB LN, PAH3 GR, REE SM, SVT LN, WTB LN, YAR NO

Updated: 3/26/18
WEEKLY UPSIDE 13:   NONE
WEEKLY DOWNSIDE 13:   BOKA NA, BT/A LN, FINGB SS, IMB LN, LAND LN, TL5 SM

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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