Sell Tickets

Jan 4, 2022 | Daily Note, Unlocked Notes

On the First Call note today I wondered if the equity markets would notice the rise in rates. The good news is yes because it’s helped move the value factors including financials (we are long) and energy up nicely and tech and mega-cap (we are short) are selling down positions. Can you believe there was a time when one had to fill out a ticket that was routed to order takers and eventually to the NYSE floor or electronically with Nasdaq?

I’ve been very clear with my directional calls with bonds. It took a while after consolidating after peaking in Q1 last year which I also expected with all of the DeMark Countdown 13 signals on the 10 year and 30 year. The economic data came in today with the ISM a little light of estimates but still solid. The inflation gauges such as prices paid dropped hard which is a good thing overall and new orders were inline (solid) while the employment component was a little better than expected. I expect a strong ADP jobs report tomorrow and a blowout employment report on Friday (keep in mind this missed big time last month). This should keep pressure on bonds and yields on the long end should continue higher.

Last year inflows into equities exceeded $1 trillion. More than two decades of inflows combined. I’ve talked about this a lot and have named the 2021 buyers of equities as “future sellers.” Sellers get motivated only when they see the risk of losing money. They are generally very complacent on the way up and only notice when there are drawdowns that get picked up in the media. The progression of how things unwind starts with the marginal companies that typically have big runs higher luring in people with hopes of some sort of big payoff. Many of the companies like this have already fallen off the highs. That’s why you see a lot of weakness continuing with a lack of support. The other stage is money moving into passive funds and the large indexes ETF’s. In reality, the money moves into the largest weights and most stable companies. It works for a while until the damn breaks and those leaders start to fall. I’ve heard people call the mega-cap stocks “a bond alternative” and that might be true until they fall. Over my career, I’ve seen some deep moves with the mega-cap “bond alternatives.” It can happen. Lastly, I can recall a thousand times I would be on the phone with a sell-side trader with me trying to buy a sizable amount of a stock and the trader had a seller also with size. “He wants to hang higher” I was told. They always sell lower. We just need to be patient.

trade ideas

I bought some as I called “knife catchers” recently that if I wasn’t clear about the risk I’m not sure how I could have been more clear. Not all worked. They were all small 2% sized. I’m cutting SNAP -9% and PTON -11%. I’m going to hold SQ, PYPL for now. Paypal is flat and Square or Block as it’s now called is down 9%. SQ has a lot of shorts in this who have been correct however they might overstay their positive trade. I might add to it or cut it. I’m holding for now. I’m holding the four banks and added more earlier today as mentioned on yesterday’s note. They should do well with a now steepening yield curve. I added REKR today and it’s down 4%. It’s a $6 stock and very volatile. It’s not a quick trade, nor a conservative investment yet I like the company. I have some thoughts on it below. I said I would buy Bitcoin earlier today with the DeMark buy Countdown 13’s. This signal did not tick every box that I would want and my stop is at 43,000. Don’t go crazy with your sizing because if the Nasdaq gets hit so will just about everything else like Bitcoin. And Bitcoin could be down pretty quick as you know. Lastly, I’m buying more TWTR. This is a broken idea that isn’t as bad since it was the long side of two very strong short positions that worked out very well. SNAP and FB which I covered at good profits. Regardless I like TWTR and nobody likes TWTR. There’s a new DeMark Sequential buy Countdown 13. Moving up to full 5% max size from 4%. I’m going to be patient with this one.

US MARKET SENTIMENT

Here is a primer on how we use Daily Sentiment Index charts. S&P bullish sentiment and Nasdaq bullish sentiment dropped again. Nothing matters under 50% breaks. We’ve seen bounces at 50%

Bond bullish sentiment has dropped hard and the distance between the sentiment raw number vs the 20 day of sentiment is pretty wide – same with equities.

Currency bullish sentiment

Commodity bullish sentiment

US MARKETS

Here is a primer on the basics of the DeMark Setup and Sequential indicators.

S&P futures 60 minute achieved the downside wave 5 price objective with a buy Setup 9.

S&P 500 daily gapped down again and typically that’s very bad which leads to continuation.

The Nasdaq 100 futures 60 minute also had a buy Setup 9 with a decent reversal starting

NDX index broke the 50 day hard and nearly achieved the downside wave 3 price objective

Russell 2000 IWM daily has the Sequential on day 12 of 13 and needs a little lower level to qualify the 13

Dow Jones holding the 50 day and not down so bad vs other indexes    

internals – update – mixed messages still

The 7 day moving average of the equity put-call ratio is lifting and made a higher low. When this is rising put buying is increasing. It’s has been in a lowered range for the past 20 months. A significant move above the range would have the markets crashing.

The Nasdaq Summation Index weekly has been crashing while the index hit new highs. I’ve never seen this happen. In the last 3 weeks it’s bounced with the momentum measures oversold. This happened in Q4 in 2019 (bounced after it dropped hard) as the mega-cap gave way to the downside

This is one of the main charts I show often to highlight oversold conditions. When the percentage of S&P stocks above the 50 day is below or near 20% or the 20 day is below 18% or lower the market is oversold. It’s pretty odd seeing where they are now despite the pullback in the last week. One thought is that the recent three-day surge triggered a “breadth thrust.” A usually reliable indicator. Again a mixed message.

uranium update

Everyone keeps asking me about Uranium. This needs to work a little lower to qualify the Sequential buy Countdown 13.

FACTORS, GOLDMAN SACHS SHORT BASKETS AND PPO MONITOR UPDATE

Factor monitor now has a reset YTD performance column. Factor monitor now has a reset YTD performance column. Nearly everything is down YTD. Most shorted factors at the bottom continue to have short-sellers rewarded.

This is similar to the above monitor with various ETFs other indexes as I wanted to show the same 5 day, 1 month rolling as well the YTD and 1 year. Most are down YTD. Seeing this ranking show how what is working relatively the best today also has been the better performers in the last 5 and 30 days.

This is the monitor that has the S&P indexes and the Goldman Sachs most shorted baskets. Today the shorts are down more than the S&P sectors. Again shorts are being rewarded.

The PPO monitor (percentage price oscillator) force ranks ETF’s by percentage above/below the 50 day moving average. For information on this monitor please refer to this primer. This monitor is offered to Hedge Fund Telemetry subscribers who are on Bloomberg. Most are down today however there are some above today’s VWAP a sign of some demand and another reason why I’m buying SPY, QQQ, and IWM today for trades.

demark observations

Within the S&P the DeMark Sequential and Combo Countdown 13’s and 12/13’s on daily and weekly time periods. For information on how to use the DeMark Observations please refer to this primer. Worth noting: Still quite a lot of weekly Sequential and Combo 13’s and on deck 12’s. That’s a more intermediate-term risk.

REKR a micro cap stock I am long has a new Combo buy Countdown 13 follows the Sequential buy Countdown 13. Until the pressure on the market stops this will loiter down here.

ETFs among a 160+ ETF universe. Seeing a few buy signals starting to develop. Wait for price flips up for more confirmation. A “price flip” is defined as a contra-trend move identified by a close that is higher/lower than the close four price bars earlier.  In order to complete the Setup 9 there must be nine consecutive closes higher/lower than the close four price bars earlier.  If this pattern is interrupted the Setup will cancel and disappear from the chart