Mid Morning Note

Mid Morning October 4, 2023

Oct 4, 2023

Thomas Thornton

Quick Market Views

Stocks: As a replay of Monday, the 2023 Leaders Magnificent seven basket is up 1.5%, while the rest of the market is underperforming. The S&P ex Mag 7 493 basket is now up 0.3%. This is the type of day where I could see a reversal down after the short-term call buyers run out of bullets. Breaking the SPY VWAP of 422.35 and QQQ 357.10 would be logical breakdown levels to watch.

Today’s ISM Services data wasn’t market-friendly as it was another example of a strong economy and inflation. Friday’s payroll number I expect could surprise with a stronger report as last month’s claims data has been very low.

Bonds: Rates are backing off recent highs, with 2’s down 9bps, 10’s down 6bps, and 30’s down 5bps.

Commodities: Natural Gas is higher by 1.6% and is trying to poke above 3.00. WTI Crude is down 4.3% which is as I expected. Not much is working with Copper down 1%, Gold down 0.25% and Silver down 1.25%.

Currencies: US Dollar Index is down 0.25% with Euro and Pound standout gainers. Yen is stronger but not by much. Bitcoin is up 0.5%.

Trade Ideas Sheet:

Changes: I will add a new 2% long position: WBD and a new 2% short position UNH.


On today’s late note, I will focus on the major ETFs. Below I have updates on market internals and point and figure bullish percent charts.

US Market Indexes and Sentiment

Here is a primer on how we use Daily Sentiment Index charts. Bond, currency, and commodity sentiment are posted on the website.

S&P and Nasdaq bullish sentiment moved lower to make new recent lows, with the 20-day moving average of bullish sentiment declining.

S&P and Nasdaq bullish sentiment moved lower to a new recent low; however, this is not at oversold levels.

Investors Intelligence newsletter writer sentiment. This data can lag a little from other sentiment polls. The bulls fell further to 42.3% from 43.7% a week ago. That is below the final August count of 43.1%, followed by a quick spurt to 50.7% just two weeks later. There was no change for the bears at 23.9%. That is up from late August, when market strength trimmed them to 18.6%. The best buying opportunities have occurred with a cross of bulls and bears.

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

S&P futures 60-minute time frame as mentioned on First Call did get a DeMark Sequential buy Countdown 13 and this has bounced. There is potential for a secondary Sequential since there were two recent Setup 9’s. I want to see more than the narrow action before turning positive.

S&P 500 Index daily did get the Combo and Sequential buy Countdown 13’s today. As discussed earlier there is potential for an upside bounce from here however since there was a recent Setup there is a secondary Sequential on day 3 of 13 that is hidden for now.

Nasdaq 100 futures 60-minute time frame bounced stronger, obviously with the Mag 7 doing the heavy lifting. A sell Setup 9 is likely in the next hour. After that, it will be either a pullback or continuation and we’ll have more on this on the late note.

Nasdaq 100 Index daily has a downside DeMark Sequential on day 3 of 13.

Russell 2000 IWM daily is a good example of the risk of the recent Setup 9 and Sequential/Combo 13’s. After a Setup 9 if there is continuation in the direction of the trend there is risk of a Sequential starting. Russell underperformance vs the more narrow indexes is not a sign l like to see.

Dow Jones Industrial Average daily also has a secondary Sequential on day 4 of 13. Considering UNH the largest weight has a new Sequential sell Countdown 13 I believe the risk remains lower.

Trade Ideas Sheet

Pre changes

PARA has new DeMark Sequential and Combo buy Countdown 13s and remains the most undervalued media asset. At some point, the Redstone family must make dramatic decisions to spin assets or sell the company. The sum of the parts would value this 3x the current price.

Disney with the Sequential on day 12 of 13. I am going to buy this eventually, but not today.

Warner Brothers Discover WBD has been crushed with all the media stocks. I am adding a 2% sized long position today.

United Healthcare UNH with a new DeMark Sequential sell Countdown 13. This is the largest weight in the Dow Jones Industrial Average at 11% double the next weight. I am adding a 2% sized short position today.

LMT is very oversold and will hold this long with the new Combo and secondary Sequential on day 12 of 13.

Internals update

Advance Decline data on the S&P 500, MidCap, and Small Cap is nearing oversold levels, and I’m surprised it is not lower.

The percentage of S&P stocks above the 20 and 50-day moving average is now oversold.

The 5-day moving average of the equity put-call ratio has been steady, which is surprising considering the sharp move lower. One more spike higher would give me the confidence of fear in the market washout.

The Nasdaq Summation Index weekly has been dropping hard, and several momentum indicators are oversold. No reversal yet.

The S&P now has the 50 day moving average rolling over and dropping. The McClellan data has been also declining and is not fully oversold.

This long-term weekly chart of SPY vs VIX index had momentum at the highest level ever, and it continues to reverse lower. This might be one of the more concerning charts that is not oversold.

bullish percent index update

I’ve been monitoring the point and figure bullish index data on this down move, and I wanted to update and show where things are on the field. The main indexes remain in a column of 0’s (bearish), and these still show the risk of making lower levels. A reversal into a column of X’s (bullish) will take a 3-box upside reversal. Here is a great primer on how point and figure charting and bullish percent indexes.

S&P bullish percent index is at 30%, which is oversold; however, any dislocation could see a puke down levels as seen in 2022.

The NDX bullish percent index is at the same level as the August lows.

The NYSE Composite bullish percent index still is above the March lows

Hedge Fund Telemetry ETF Percentage Price Oscillator Monitor

The PPO monitor (percentage price oscillator) force ranks ETFs 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. Mixed action.

Index ETF and select factor performance

This ranks today’s performance with 5-day, 1-month, and 1-year rolling performance YTD. 2023 Leaders Magnificent 7 basket is up 1.5% while the remaining S&P 493 basket is up 0.3%. This happened on Monday only to reverse down the next day. This is proof if you questioned where the most crowded area is in the market. 2023 Leaders, QQQ, GS top hedge fund holdings.

XLY is the top ETF mostly with AMZN and TSLA both higher and they each are 20% of the Consumer Discretionary sector ETF. Fairly standard action from what we have seen this year with what has worked the best this year is where people are buying today.

Goldman Sachs Most Shorted baskets vs. S&P Indexes

This monitor has the S&P indexes and the Goldman Sachs most shorted baskets. Mixed action with tech and consumer discretionary ETFs strong while energy the standout on the downside.

DeMark Observations

Within the S&P the DeMark Sequential and Combo Countdown 13s and 12/13s on daily and weekly periods. Please refer to this primer for information on how to use the DeMark Observations.  The extra letters at the end of the symbols are just a Bloomberg thing. Worth noting: Still seeing more buy Countdown 13’s develop however, there hasn’t been price flip ups (green in the Seq – 13 Flip column.

Major ETFs among a 160+ ETF universe. 

Euro Stoxx 600

If you have any questions or comments, please email us. Data sources: Bloomberg, DeMark Analytics, Goldman Sachs, Street Account, Vital Knowledge, Daily Sentiment Index, and Erlanger Research