Mid Morning Note

Mid day December 20, 2023

Dec 20, 2023

Thomas Thornton

Quick Market Views

Stocks: Indexes are up moderately today with breadth moderating after yesterday’s big upside. NYSE up 1100 issues (was up 2500 yesterday) and Nasdaq up 700 issues. Sentiment is possibly setting up a negative divergence vs price at extremes that has occurred in the past. Short baskets are not screaming higher today as the GS most shorted basket is up nearly 17% in the last 5 days. This type of action tends to peak out and having fewer shorts in the market could put downside at risk since shorts are the natural buyers when things drop. The number of indexes and stocks with upside DeMark sell Countdown 13’s and sell Setup 9’s is extremely high and when this occurs with so many occurring at the same time the probability of pullbacks or significant tops increases. The last time this happened was in late 2021. The bubble that the Fed, and Treasury have created has left them “flummoxed,” as Austin Goolsbee said yesterday, and he’s a raging dove!

Bonds: Rates are lower on the 2’s and 10’s down 5bps while the 30 year is down 3bps. The 20 year auction wasn’t great with another tail.

Commodities: Crude was up earlier and gave back gains and is flat. Nothing else with gold and sliver standing out.

Currencies: US dollar index is up 0.1% with decent weakness with Pound Sterling. Bitcoin is up 4.5% on more hopes for the ETF approval sometime in January.

Trade Ideas Sheet:

Changes: As mentioned earlier I covered FDX short on the open with a 12% gain. A few recent earnings reports with Belweather companies, ORCL, ADBE, and FDX, have seen large drops after earnings, and it reinforces my belief that the bar is set very high for this earnings season after the run.

Thoughts: I’m lugging a lot of shorts and with the current setup as mentioned above should start to improve in the coming days/weeks. I belive this is the most dangerous market in a long time to be buying now. FXI and BABA both went ex Div so they are down more than if something was giving them a reason to be down. BABA is my stock for 2024.

I am on Real Vision’s Daily Briefing at 4pm ET and you watch live on YouTube.

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 bullish sentiment and Nasdaq bullish sentiment both are in the extreme zone

S&P and Nasdaq bullish sentiment is slightly negatively divergent (price higher, sentiment peak last week)

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

I wanted to start with Dow Jones Industrial Average as it is ridiculously overbought with upside exhaustion signals in play combined with the RSI at 92. It’s in upside wave 5, and one of the things that I have said in the past is understanding the wave personality is one of the most important aspects of the Elliott Wave. Here’s what typically occurs in the final upside wave 5. Wave five is the final leg in the direction of the dominant trend. The news is almost universally positive CHECK and everyone is bullish CHECK. Unfortunately, this is when many average investors finally buy in CHECK, right before the top. Volume is often lower in wave five than in wave three NO, and many momentum indicators start to show divergences (prices reach a new high but the indicators do not reach a new peak) NOT YET. At the end of a major bull market, bears may very well be ridiculed. CHECK For all the personalities in each wave click here. Again I believe the personalities of each wave will expand your knowledge when you review our charts.

S&P futures 60-minute tactical time frame with the Sequential on hour bar 12 of 13. Stall or fall? Been a lot of stalls vs falls but with the daily time frame getting closer a fall is getting more probable.

S&P 500 Index daily has been one of the few indexes that has not yet qualified the Sequential 13 that could come tomorrow or Friday. The RSI is just extraordinarily high at 86. That alone should give anyone pause hitting the buy button on anything.

Nasdaq 100 futures 60-minute tactical time frame with new Combo and Sequential on hour bar 11 of 13. 16,924 is the TDST support to watch.

Nasdaq 100 Index daily has DeMark Sequential, Combo sell Countdown 13’s and new sell Setup 9 in play.

IWM Russell 2000 with sell Setup on day 8 of 9. This too has an overbought RSI

Trade Ideas Sheet

AAPL has had a pending DeMark Sequential sell Countdown 13 that qualified today. This is also another in upside wave 5.

An update on Jet Fuel and DAL. Jet Fuel has increased now by 14% off the lows. It tends to be inversely correlated with airlines. I still like DAL as a short idea.

More broad indexes with sell Countdown 13’s

Russell 3000 in upside wave 5 with exhaustion signals

S&P ex Mag 7 493 with new Sequential sell Countdown 13 today.

RSP S&P Equal Weight

Vanguard total US market cap

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 and others are offered to Hedge Fund Telemetry subscribers on Bloomberg. Not everything is up as usual with ARKK, SMH, IYT, Gold miners, Biotech. FXI is down hard today and part of that is that it is trading ex dividend of 0.60 so if you’re long FXI and BABA (also ex div today) you just got a nice dividend yield. I like these both for 2024. I can’t recall when the RSI readings were above 70% and overbought with so many ETFs at the same time.

Index ETF and select factor performance

This monitor with various markets and factors ranks today’s performance with 5-day, 1-month, and 1-year rolling performance YTD. 2023 leaders and short baskets/IWM are working together today.

This is a similar monitor with major ETFs. Crypto was down for a few days and back on top today

Goldman Sachs Most Shorted baskets vs. S&P Indexes

This monitor has the S&P indexes and the Goldman Sachs most shorted baskets. It’s relatively quiet with the short baskets and indexes today. However, the recent 5-day run across the board has been extreme, and when this happens, risk can increase with the absence of shorts that serve as the natural buyer when things drop.

DeMark Observations

Within the S&P 500, the DeMark Sequential and Combo Countdown 13s and 12/13s on daily and weekly periods. Green = buy Setups/Countdowns, Red = sell Setups/Countdowns. Price flips are helpful to see reversals up (green) and down (red) for idea generation. The extra letters at the end of the symbols are just a Bloomberg thing. Worth noting: Seeing this many sell signals continuing to develop gives me more confidence in a near-term top.

Major ETFs among a 160+ ETF universe.  A lot of important sell signals

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