Daily Note

Good Luck We’re all counting on you

Jan 25, 2022

Thomas Thornton

Coming into the bulk of Q4 earnings this week, there is a lot of pressure riding on companies to report earnings that are better or at least enough vs consensus estimates. The market hasn’t been kind or forgiving to any squishy numbers or surprises. Investors will be eagerly looking at margins, expenses due to inflation, and 2022 guidance. With indexes and many stocks down already YTD and some significantly off their one-year highs, perhaps the bar has been lowered. So far we haven’t seen companies get a free pass blaming softness on inflation or Omicron. The pressure is on these companies as the reopening is past and life despite Omicron is getting back to normal. So to quote Leslie Nielson from Airplane:

Below I am going to focus on a lot of the major companies reporting this week with my DeMark charts, Implied moves, and the Erlanger Research short interest and put-call data. This has been helpful ahead of earnings to get a read on positioning and what to expect. Not all work out perfectly with what is predicted as there are always some surprises to the upside or downside.

TRADE IDEAS

I am going to add a little financials long exposure with KBE, XLF, C, GS, JPM 2% sized each. They are working on the factor models. I am holding the SPY, QQQ, and IWM 5% sized trading longs through today. I am going to add 2% sized long to IBB and XBI biotech ETFs, LULU, COPX. Cannabis is a 2022 long theme and despite buying them when they were down 55% they are down even more. I can hold these as I expect better news in February. REKR is a microcap idea stock and is volatile as I expressed it would be when I put it on. It’s only going up when there is risk on. I am working on two new special situation stocks.

Momentum monitor update

The Momentum / Retirement Monitor on the site now shows all major US Indexes in “3’s” as sells. The momentum monitor has 5 inputs with short term to more intermediate term. I suggest watching input #1 for a heads up for a potential change with the most useful inputs from #2-#4 for solid trend direction. Keep in mind momentum indicators lag so sharp moves can whip or turn slower than one sometimes wants. The US sectors are nearing all 3’s too. Check this out on the site and you can even click through to the Stockcharts.com (free) symbols with the indicators.

US MARKET SENTIMENT

Here is a primer on how we use Daily Sentiment Index charts. S&P bullish sentiment and Nasdaq bullish sentiment bounced a little with yesterday’s late-day surge. Overall sentiment remains depressed and can stay down here for a while.

The 2 year chart of the S&P sentiment shows how this can and might stay down for a month or more.

The Nasdaq bullish sentiment did get oversold at 15%. This is not a trigger to buy but a condition

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 and bounced in upside wave 1 and this pullback could be a higher low wave 2 with an upside wave 3 price objective of 4499 IF 1. New lows are not made which would revert back to downside wave 5, 2. The recent high of wave 1 is surpassed and it would qualify into wave 3.

S&P 500 daily still looks dangerous with a steep decline and Setup 9 is due tomorrow. If this breaks lower after tomorrow a new Sequential Countdown will start continuing the downside trend.

The Nasdaq 100 futures 60 minute has an exact setup as the S&P 60 minute chart

NDX index steep decline also will get the Setup 9 tomorrow.

QQQ ditto

Russell 2000 IWM daily has Combo buy Countdown 13’s (two versions). This has to hold here or else a new Sequential might start after this Setup 9.

Dow Jones also will get the Setup 9 tomorrow. The same thing goes with this as lower lows will start a new Sequential Countdown extending the downside trend.

Bullish percent index update

Here’s a primer on Point and Figure Bullish Percent Indexes.

S&P BP breaking lower

NDX BP is at the same levels as the March 2021 levels. Yes this is oversold

earnings previews

The following previews have our DeMark charts with brief comments, Implied moves and previous moves after earnings, and Erlanger Research on short interest and put-call data. Implied moves are calculated by adding up the nearest option strike put and call price and calculating the percentage move of the straddle break even. The Erlanger data will focus on short interest, short ratio (days to cover), and put and call activity. When there is heavy put buying there are green dots and heavy call buying there are red dots. We tend to fade the direction of the crowd where there is heavy put or call buying.

AAPL looks risky lower with it pointed lower with an unusually large implied move of 5.43%. It’s been down the last 5 quarters the day after earnings. Short interest has dropped with a short ratio of just 1.05 days to cover. There has been a pickup in put buying recently which could be the only hope for some fuel for an upside squeeze.

BA is back to the lows from November and December after failing to get through the 200 day again. There is a 5.15% implied move with the last 5/6 quarters being down the day after earnings. Short interest isn’t high with a short ratio of 0.71 days to cover. It might be a little high for BA and the Puts and Calls are more neutral. If 190 can hold this has the potential for a bounce.

CAT has seen a quick pullback and 200 looks to be first support. The implied move is 4.8%. This does not have a great record of going up after earnings. Short interest is considerably down with a short ratio of 1.46 days to cover. The was also a lot of recent call buying with the red dots. This has risk lower.

FCX has dropped quickly to the 200 day which is just coincidental. 36 is better support. The implied move is 6.6% with mixed up and down past quarter reactions. Shorts are involved with the short ratio at 1.51 days to cover however the only thing that gives me caution is the large call buying seen recently on the run-up. Those call buyers bought at the exact wrong time. This is a coin toss.

INTC has been sloppy around earnings and the chart has been difficult. They are going through a multi-year restructuring and it’s still early. I like the new CEO. The implied move is 7.74% and the recent reaction after earnings has been terrible. Shorts are still there with the short ratio at 2.35 days to cover. There has been some call buying with the red dots on the last more up. I’m going to give the benefit of the doubt for an upside move. They are due to surprise… positively.

LRCX like many semi-cap names has been very strong in the last several years. This has pulled back substantially in the last month after the upside DeMark Countdown 13’s. The implied move is 8.75% however the recent action after earnings have seen the stock drop. The short ratio is down at 1.32 days to cover while you can see the call buyers with the red dots bought heavy and the highs and now there are some put buyers active. I have a nice gain being short going into this number and can afford some risk if this rises so I’m holding it. I know, I probably am getting greedy.

LUV Southwest Airlines has a chart that needs to make a higher low rather than moving back to the lows. The implied move is 5.95% and the last 3 quarters have seen the stock drop after earnings. Shorts are involved with a relatively high short ratio of 2.62 days to cover. There was also put buying on the way down and has moderated. I think this has potential to move higher.

MCD has a chart at support and a DeMark Countdown in progress. The implied move is 4.28% and has a mixed to more down reaction after earnings in the last 8 quarters. Shorts are involved and a squeeze could happen with the short ratio at 2.33 days to cover. Add in the heavy 100% options rank with the green dots illustrating heavy put buying. I’m 60/40 believing this can bounce.

MSFT has been dropping breaking some support levels. The implied mover is high at 6.83% and the last 6 quarters have seen a few 4% drops and the last quarter moved up 4%. Shorts are not that involved with the short ratio at 1.53 days to cover. There has been a lot of recent put buying with the green dots. This chart looks risky and the put buying is heavy. It’s a coin toss.

T AT&T bounced after being tragically sold into the end of the year as a big tax loss candidate. The implied move is 4.86% and this has more down days after earnings than up in recent years. More concerning is shorts have covered with the short ratio at a 1 year low of 1.96 days to cover AND there was a lot of call buying with the red dots bought at the highs. This has more risk lower.

TSLA has a dangerous looking chart with support at 900 and then 200 points lower. I am not making that call as this thing is the MOST INSANE stock EVER. The implied move is high at 11.61% so if long or short be careful. I covered half my position lower yesterday due to earnings risk. Recent reactions have been mixed with some big and small moves either way. Again this is INSANE. Shorts are not that involved with the short interest the lowest ever with a short ratio of .79 days to cover. With the drop, it lured in put buyers with the green dots. I am going to hold on to my short as I believe with this at support any bad news will knock this down hard. I might add a put spread tomorrow if I can find one that makes sense.

TXN chart looks risky with a 9 month sideways top. A move under 170 breaks all support. The implied move is at 5.54% and the last 6 reports have seen large drops after. On the other hand shorts are involved now with the short ratio high at 4.48 days to cover and there has been heavy put buying with green dots. This is a mixed message as the chart is risky while shorts have the potential to be squeezed. Coin flip

V Visa has support at 190 and has been making a series of lower highs and lower lows. It needs to hold here to break that pattern. The implied move is 5.61% with the last 3/4 reports saw weakness. Shorts are not that active with a short ratio at 2.7 days to cover. There has been moderate put buying with some green dots. 60/40 this moves higher.

VRTX has has a big run and I’m happy I participated in some of the gain despite the continuation after I sold it. It’s overbought now and reversing. The implied move is only 3.9% with the last 3 quarters seeing upside reactions. Shorts have covered substantially with the short ratio is only at 1.55 days to cover. There has been a lot of call buying too with the red dots. This has more risk of downside with positioning very long and perhaps overconfident.

WHR has been under pressure at nearly the October low. The implied move is 8.02% with a feast or famine type of reactions after earnings. Short interest is very high with a short ratio of 10.92 days to cover and heavy put buying with the green dots. This is ripe for a short squeeze on any good news. My bet would be up. Don’t go crazy with size but worth a shot higher

X US Steel has been crushed breaking support in the last week after going sideways for several quarters. The implied move is 16.18% and the moves in the past tell you why the implied move is so high. Short interest is down to only 2.08 days to cover and there was put buying over a month ago which has moderated. If I was trading this I would probably buy some 18 puts with a small sized lotto pick since I don’t see the fuel there with short covering. With a 16% implied move I have no stomach guessing direction with size.

Goldman sachs

This is the entire Goldman Sachs factor basket list. Quite the declines on the top part YTD. The pair trades are worth checking out with the 5 day and 1 month rolling performance

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. Financials and cyclical working best and they are they are doing OK in the last month. Buy what has been working and sell what hasn’t

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. Buying what’s been working recently and selling what hasn’t been working in the last month.

This is the monitor that has the S&P indexes and the Goldman Sachs most shorted baskets.

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. Mostly a down day but improving with most now over today’s VWAP.

DEMARK OBSERVATIONS – seeing buy signals

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: Seeing buy signals. Could be more but it’s a start.

ETFs among a 160+ ETF universe. Seeing a few buy signals starting to develop.