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03/28/2024
Thomas Thornton

The end of the first quarter of 2018

As the first quarter of 2018 comes to a close, let me express my thanks to all for supporting Hedge Fund Telemetry.  It is with your support that we were able to hire two new full time employees - programming and institutional sales.  It's been exciting building out this platform and we have more enhancements and new features coming soon.  

I'm happy for the three day weekend as I'm exhausted (red 13's hovering over me) and it will give me a little down time to catch up with the family and some quiet time to do more research.   I'm pleased with the calls made in the quarter, as for the most part, everything lined up with my call in Q4 2017 for a major top in the markets.  We've had to witness some ridiculous calls from others (Grantham's "melt up" call, Dalio's "you're going to look pretty foolish in cash," anyone who recommended crypto's long, Teslarians rationalizing it's financial model and horrendous Model 3 production issues, and retail technicians ignoring the top in stocks by claiming credit spreads were not blowing out so risk appetites were still good.)  I've had a few misses too and certainly you can go back into early 2017 and how I couldn't hold my nose and just buy the FANGS is one I regret.  What's kept things under control is staying disciplined on the tried and true indicators that did not waiver.  From peak levels in sentiment in January combined with the major upside DeMark exhaustion signals to the lows in February to navigating the chop in March, it gives me a lot of confidence for the rest of 2018.  And in 2018, it's going to be quite a year.  Trust me.

I hope everyone has a wonderful Easter, Passover, or just a long weekend! 

Notable:

  • US Markets - Sentiment remains low and a short lived bounce is possible
  • European Markets - Trying to base yet too early to buy
  • Smart Money Flow Index - Concerns in late 2017 as a peak has seen this fall hard
  • Asian Market - Nikkei continues to bounce while Hong Kong China still is in no man's land
  • Bitcoin Update - 7100 is very important level
  • US Dollar Update - Quietly moving higher
  • Soybean Update - Still would hold short
  • Natural Gas Update - Still like long
  • Copper - New long idea
  • Bond Update - Bounce underway
  • DeMark Screens - A ton of downside exhaustion signals and price flips ups - This is another very big reason I took profits on all the ETF puts yesterday


US Markets


SPX bullish sentiment is at 16% and likely will chop around down here vs a V bottom
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.   

 


S&P 500 Monthly - At the beginning of the the quarter I said this was my main chart I was basing my analysis that I started that Q4 2017 would be a major peak in the market.  I was off by several weeks however this completely still applies.  I do expect further downside in 2018 yet am fully experienced on how choppy and deceptive sharp spikes higher can be.  


SPX daily didn't make a new closing low below the February low which would have locked in Wave 3 on the downside.  With both red Countdown 13 and green Setup 9 recently triggering a bounce is not unexpected yet I don't feel it's going to be very long and still won't resolve anything with the Wave sequence

 


Nasdaq bullish sentiment is at 13%

 


QQQ Nasdaq 100 is more troubling since there is now a new red Countdown on the downside.  Could a bounce still happen?  Yes and that is why I took off the remainder of all my ETF puts.  A major top has started

 


Many people at the top of the market said they didn't see a lower high in breadth which "happens at tops"  This chart of the NYSE  has a lower high combined with some upside DeMark exhaustion signals too


Another negative divergence has been with the % of stocks above the 200 day moving average making lower highs while prices rose.  It's still far away from the excellent low in February 2016 low


Lastly the FANG + Index acheieved the upside Wave 5 target and reversed hard.  This like the QQQ has a new red Countdown on day 2 of 13.  If any bounce develops I'm betting on a lower high bounce.  

 
European Markets


Euro Stoxx 600 another solid day after the recent downside red 13 exhaustion.  Keep in mind it occurred in Wave 3 of 5 down waves and that's my least desired place to trust the DeMark exhaustion indicators.

 


The DAX Index bouncing strongly today and I calculated the 4th Wave will lock in at 12,389

 
Smart Money Flow Index - Update

The Smart Money Flow Index is calculated by taking the action of the Dow in two time periods: the first 30 minutes and the close. The first 30 minutes represent emotional buying, driven by greed and fear of the crowd based on good and bad news. There is also a lot of buying on market orders and short covering at the opening. Smart money waits until the end and they very often test the market before by shorting heavily just to see how the market reacts. Then they move in the big way. These heavy hitters also have the best possible information available to them and they do have the edge on all the other market participants. To replicate this index, just start at any given day, subtract the price of the Dow at 10 AM from the previous day's close and add today's closing price.  

This was something late into the last quarter of 2017 I started to believe risk was ahead.  The move lower has been nothing short of sensational. 

 
Asian Markets


Nikkei bullish sentiment is at 26% after making a low at 6% last Friday.  

 


Nikkei continues to bounce after the recent downside red Countdown 13 and a few days closing on the highs.  Another lower high bounce is likely here

 


FXI Hong Kong / China ETF still in no man's land

 
Bitcoin Update


Bitcoin XBTUSD continues to break lower with a downside red Countdown on day 4 of 13.  If this makes a new closing low under 7100 then the upside wave 3 price objective is cancelled and the 5th wave would be locked in.  It's been quite the quarter in Bitcoin!!  

 
US Dollar Update


US Dollar bullish sentiment is at 50% and has been hanging out in the mid point for the last month.  I'm betting on it going higher


DXY Index US Dollar Index has some resistance at 90.58 and has an upside Wave 3 price objective of 91.86.  That may not seem like much yet it could upset the balance on a lot of other prices in other asset classes

 
Soybeans Update


Soybean bullish sentiment is at 47% a new low in the cycle and down from a peak of 86% where went short combined with the DeMark upside exhaustion

 


Soybean Futures has now broken the 50 day moving average and I'm going to continue to stay short

 
Natural Gas Update


Natural Gas bullish sentiment is much different (positively divergent) from the price with bulls up at 66%


Natural Gas Futures has been in a range with all of the green Setup 9's and I continue to stay long


UNG Natural Gas ETF is not the cleanest match with the price of Natural Gas Futures but it's worth staying long and I'm hoping to see this move above the flattish 50 day

 
Copper - New Long Idea


Copper bullish sentiment is at 25%.  When it hit 86% in late December in the extreme zone, it was a sell combined with the upside DeMark exhaustion


I've been targeting support at the TDST green dotted line for support at 297.90 and with the green Setup 9 and today's price flip up (new green 1 - trading higher than 4 previous closes) I like for a trade Copper.  Use a 295 stop.  

 
Bonds


Bond bullish sentiment is at 51% first time over 50% since early January when it stalled out at 61%

 


TLT Bond ETF continues to move higher and I still like bonds for a bounce

 
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:   MCS, RNR
DAILY DOWNSIDE 13:  EQT, HOS, KALU, KBR, KMPR, KMT, MNK, NFX, OKE, OLN, PBCT, PDCE, PRGS, SMCI, SNPS, SWK, UNT

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    TDW
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   ABC, ACT, AVID, AZZ, BBY, CBB, CERN, CMCSA, CVS, ETH, GE, GOV, GPC, HCSG, HPT, IVZ, JWN, KMB, KMPR, KO, LAMR, LUK, LXP, MDP, MDT, MYL, OFC, PDCO, PEP, PFS, PSB, PZZA, SNH, SPTN, SWX, SXT, T, TGT, WMT

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:   PSPN SW
DAILY DOWNSIDE 13: AF FP, ANDR AV, CBK GR

DAILY UPSIDE WITH PRICE FLIP REVERSAL DOWN:    NONE
DAILY DOWNSIDE WITH PRICE FLIP REVERSAL UP:   BDEV LN, BN FP, BWY LN, DG FP, DGE LN, EMSN SW, FER SM, FHZN SW, FNTN GR, FRE GR, GLB ID, HTO GA, INDUA SS, ISAT LN, KPN NA, MCRO LN, MRK GR, NN NA, O2D GR, PNN, LN, REC IM, RXL FP, SNH GR, VIE FP, VOD LN, WHA NA

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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