Mid Morning Note

Mid Morning January 19, 2024

Jan 19, 2024

Thomas Thornton

A huge option expiration today! Enjoy the weekend!

Quick Market Views

Stocks: The S&P and Nasdaq are higher while the Russell 2000 is lower. Breadth for the 4th day in a row is negative overall with NYSE down 725 issues and Nasdaq down 850 issues. This just highlights the narrow attribution leading the indexes higher. The broadening out narrative is dead.

You need to check out a lot of extra stuff on this note. This will be the last note today so I added a lot of stuff I’m watching. I’m on Real Vision’s Daily Briefing at the close today (you can watch on YouTube). I suspect they put bears on Friday afternoon when nobody is watching!

Here’s some option expiration data and the covered call ETF second half of their trade starting soon.

Today, we should see around $1.5 trillion in SPX/SPY notional open interest expire, which is one of the largest monthly expirations we’ve seen since at least 2018, with single stock leaps $3.4 Trillion and $1.0 trillion notional of single stock options will expire today the largest since January 2022 and the third largest on record. Yesterday saw a spike around 1pm due to several covered call ETFs rolling out and buying back the calls (creating buying pressure), and today, these ETFs will be sellers of calls, which could put selling pressure on the indexes. Here are the details:

ETF overwrite flows today. There will be a twap from 11:30am to 1:30pm (strike determined at 11am)

QYLD (NDX 1m overwrite ETF) will sell ~4700 NDX Feb ATM calls (7.8bn notional, 4.1bn delta notional)
RYLD (RUT 1m Overwrite fund) will sell ~7200 RTY Feb ATM calls (1.4bn notional, 720mm delta notional)
XYLD (SPX 1m overwrite fund) will sell ~5600 SPX Feb ATM calls (2.7bn notional, 1.4bn delta notional)

Thanks to Mark N. in our Bloomberg Chatroom. Please let me know if you are on Bloomberg and would like to be in our chatroom. I have had requests to set up a Slack room and might at some point.

Bonds: Rates are higher as the morning progresses with the 10 year nearing 4.2% which has been a target of mine for the last few weeks. 2’s up 5bps, 10’s up 52bps, and 30’s up 1bps. The 2/10 yield curve spread is at -23bps.

Commodities: Energy is mixed with Crude up 0.3% with Natural Gas fading again down 5%. Grains and Softs are stronger while metals are off earlier highs. Gold up 0.35% and Silver now down 0.5%.

Currencies: US Dollar Index is down 0.15%. Yen weakness continues. Bitcoin down nearly 2%. 40k the big round number breaking would get a lot of attention.

Trade Ideas Sheet: Adding one new short and exiting a stale short


  • I will add a new 2% sized short with XHB home builders
  • I will cover half of the DXJ Japan short and will raise cash as I see better opportunities with some tech shorts I am stalking. (see below) BOJ is on Monday night.

Thoughts: I’m still comfortable with current longs as I see catalysts and cheap valuation with China and energy. Tech is extended and overvalued by 20%.

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 shows stronger NDX vs SPX sentiment due to mega- cap.

S&P and Nasdaq bullish sentiment could start a series of lower and lower highs.

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

S&P futures 60-minute tactical time frame with DeMark Combo sell Countdown 13 and Sequential on hour bar 12 of 13.

S&P 500 Index daily up near 4800 (the price target for the end of the year for most stratesgists – congrats guys)

S&P 500 YTD is up 0.36% while there are 165 issues up and 338 down. The top 10 upside attributes are doing a ton of the upside work while the top 10 downside attributes are weighing but not as much combined downside points as just NVDA upside points alone.

Nasdaq 100 futures 60-minute tactical time frame also with DeMark Sequential and Combo sell Countdown 13’s in play. Watch today’s lows with that large option trade

Nasdaq 100 Index daily could get the DeMark Combo sell Countdown 13 on Monday and the Sequential 13 sometime next week too. Now in upside wave 5.

The NDX shows 47 up and 56 down on the year with the index up 1.47%. The top five upside attributes have done a huge amount to lift this index. NVDA nearly half of the point gain. While Tesla down 14% is weighing on the downside taking off 88 points.

Russell 2000 IWM continues under pressure and quite different chart vs the S&P/NDX

The Russell is down nearly 5% YTD with 320 up and 1645 down. Terrible breadth. Super Micro is doing 3.5% of the upside attribution which is very rare to be so high in this very diversified fairly weighted index.

Trade Ideas Sheet

Pre changes

Adding a 2% new short position with XHB Home Builders

RRC and EQT two 1% sized starter positions added recently are lower with Natural Gas pullback. Both have some DeMark exhaustion to watch for a reversal up. When that occurs I will likely add to these long positions. I adjusted stops since I will be adding to these soon.

some mega cap charts

The Mag 7 achieved the upside wave 5 price objective today. There is a new Combo sell Countdown 13 with the Sequential on day 9 of 13. Similar to the QQQ

AAPL remains a short as I believe they had another tough quarter and with no significant needle moving products for 2024 this still is at risk. Corrective lower high wave 2 of 5 potential.

AMD has been unreal and I’m sorry I didn’t hold the long put on last earnings. Regardless there are new upside DeMark exhaustion signals at the upside wave 5 price objective.

META with new Sequential and Combo sell Countdown 13’s. These signals have produced shallow pullbacks

MSFT is extended with an overbought RSI at 80 and recent Combo 13 and new sell Setup 9.

NVDA with new DeMark sell Setup 9 today. Recent 9’s have been good at inflection points. RSI at 83 is very overbought.

Tesla continues lower with the DeMark Sequential on the downside in progress. A break and close under of the wave 3 low of 197.35 will qualify downside wave 5 with a potential price objective of 148. Remember this is Tesla and the stock can and will be in its own world.

Two concerning charts

My friend Jesse Felder posted this chart on Twitter. It shows long positioning in equities at very elevated levels.

As you’ll see below, fund managers overwhelmingly expect lower short-term and long-term yields to drop. The problem I see is that the amount of Treasury issuance for 2024 is set to increase by nearly $2 trillion in 2024. More issuance should keep rates higher, and don’t forget about the record deficit.

charts from Bofa fund manager’s survey

The Mag 7 remains the most crowded long trade.

Soft landing at a new record high with hard landing at a new low.

No recession in the next 12 months is the consensus.

Expectations for lower short-term and long-term bonds have never been higher.

The confidence that the Fed cutting rates will lead to equity and bond upside has never been higher.

Internals update – underlying weakness

The percentage of stocks above the 20 day and 50 day have started to roll over from overbought levels. Considering the index is near highs still shows the internals weakness with most of the index.

Advance Decline data has reversed too on S&P, Mid and Small cap

A few of the internals on the S&P and Nasdaq are rolling over from very overbought including the 20/50 cross and Bullish Percent (see below)

This one was confusing recently as the 5 day equity put call ratio spiked showing more put buying however it’s reversed down with heavier recent call buying.

The Nasdaq Summation Index has been reversing down for 3 weeks. Usually when it breaks zero the shit is hitting the fan.

The McClellan data is also reversing lower

bullish percent index update

The Bullish Percent Index is a breadth indicator based on the number of stocks on Point & Figure Buy Signals within an index. The Bullish Percent Index helps you understand the internal health of an index by looking at the number of components on a bullish or bearish track. More on this work can be read here.

When the column reversed down into “O’s” from upside “X’s” more stocks are reversing down on Point and Figure charts. The S&P, Nasdaq 100, and NYSE all moved to historically peak levels, and all have reversed lower into a column of O’s.

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. The top of this monitor has been what has worked and this continues today not only higher but above today’s VWAP. Rather interesting that the number of new 20 day lows in red is very high.

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. Tech continues to do the majority of the work and within the theme of buying ONLY what has worked best.

This is a similar monitor with major ETFs shows tech doing all the work.

Goldman Sachs Most Shorted baskets vs. S&P Indexes

This monitor has the S&P indexes and the Goldman Sachs most shorted baskets. Short baskets continue to work while the gains on the S&P are coming from the tech sector.

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: Several important names with Sequential sell Countdown 13’s on daily AND weekly time frames. Many sell Setup 9’s – with tech names and buy Setup 9’s with other than tech names.

Major ETFs among a 160+ ETF universe.  Housing ETFs with Sequential sell Countdown 13’s.. XLC with Combo sell Countdown 13. QQQ on day 12 of 13 with the Combo. XLK and other tech ETFs with weekly Sequential sell Countdown 13’s.

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