Quick Market Views
Stocks: The Mag 7 and Nasdaq 100 related names are bouncing today (not all but enough) after yesterday’s slam. Equal weight indexes are lackluster. Breadth is not really giving me the vibes of a durable bounce as NYSE is up 265 issues and Nasdaq is down125 issues. The Nasdaq 100 DeMark Propusion was qualified yesterday with a new potential downside target but it needs to confirm on the close – it needs to close down on the day. More on this below. The JOLTs numbers were weaker and not a great sign for overall jobs available and a bearish economic data point. The jobs report Friday will set the tone. I have a lot of extra stuff on this note to check out. Internals, a good read from GS on economics. This will likely be the last note today as I am researching future notes.
Bonds: Rates are lower after the JOLTs data with 2’s down 7bps, 10’s down 5bps, and 30’s down 4bps. The 2/10 yield curve spread briefly moved above 0 and is only down 1bp. A steepening 2/10 spread has seen recessions occur after being inverted. It will take some time for that recession but it’s another thing that we will be watching.
Commodities: Mixed with Bloomberg Commodity Index down 0.4%. Natural Gas is down 2.4%, Crude is down 1% after being up earlier. Grains continue higher and I still think they can be bought for a trade. Copper is down 0.25%, Gold up 0.15%, and Silver up 0.9%
Currencies: US Dollar index is down 0.45% with crosses higher. That include the Yen with USDJPY back to important support at 144. It wasn’t so long ago when the Yen carry trade unwind caused market havoc. That might happen again if the jobs data is received poorly. Bitcoin is bouncing 1%.
Trade Ideas Sheet: Little PNL change after a strong day yesterday.
Changes: I will possibly double up on SPY and QQQ shorts this week (the Propulsion, if it qualifies, will add to my conviction). I set stops yesterday at SPY cost at 559.1 and 470 on QQQ to lock in a gain. If these hit, I won’t be sending a separate note.
Thoughts: Nothing moving that much today except TSLA up 5% on no news. Call buying is heavy and probably the reason why it’s up so much. AAPL is fading and I expect the new iPhone announcement to be lackluster.
Rekor posted their 2024 shareholder letter this morning. I still believe in the company and acknowledge the frustration, especially as the company has been executing and growing revenues. The confirmed Florida deal is huge and should help coming quarters’ revenues and hopefully alleviate the cash concerns. I am a big fan of the new CEO and the technology. A lot of good can happen fast. States move at a slow, frustrating pace, approving long-term deals. Since day one, I have said this is a high-risk/high-reward idea. I am patiently looking forward to the high-reward part of the trade.
US Market Indexes and Sentiment
Daily Sentiment Index charts were shown on First Call earlier today, with decent-sized declines. All sentiment charts are always available on the Hedge Fund Telemetry website, which has access to long-term data. On Wednesdays, I focus on sentiment polls and indexes.
Investors Intelligence Newsletter Sentiment Survey: Little changes from last week.
The bulls slipped a bit to 52.3%, from 53.2% last issue. That latter count was up 8.6% from the early August reading of 44.6%, which was late May- 2024 bulls at 46.2%. Late July we noted seven straight weeks with the bulls above 60%, ending at 64.2%. That was the most bulls since late 2020 after the market recovered from its early 2020 COVID-inspired bear market plunge. Counts above 60% signal very elevated risk and limited funds on the sidelines to power markets still higher. After a significant bear market decline, such as in 2022 (after the 2021 top signals), we expect to see the bulls below 30%. That last occurred early October-2022 (bulls at just 25.0%) suggesting a major market trend shift and buying chance.
The bears dipped a modest amount to 21.6%, after reaching 22.6%. a week ago. Those are up almost 50% from the mid-July count of just 14.9%.
CNN’s Fear and Greed Index shows what traders are doing compared to what they say about the markets. It’s dropped in the last few days and doesn’t offer much edge, as the index’s components are mixed.
Here are the seven components that make up the index. It’s very mixed, and I suppose that’s why it’s hanging around the middle of the overall range.
Here is a primer on the DeMark Setup and Sequential indicators.
S&P futures 60-minute tactical time frame bounced despite the Sequential shown on First Call was left pending on hour bar 12 of 13. A corrective lower high wave 2 of 5 has qualified with an 8 bar closing high. That by itself is not a sell signal.
S&P 500 SPY is off the highs and is holding the 20 and 50 day moving averages.
S&P RSP equal weight not performing well today after the recent DeMark sell Countdown 13’s.
Nasdaq 100 futures 60-minute tactical time frame as shown on First Call earlier there are both Sequential and Combo buy Countdown 13’s at the lows so a bounce is not a surprise. There is a lot of overhead resistance above which will be a challenge.
Nasdaq 100 QQQ was down EARLIER and under yesterday’s close of 461.81 which qualified the downside Propulsion but…
QQQ is CURRENTLY above yesterday’s close which disqualified the downside Propulsion signal. It will come down to the close and it’s not that far from yesterday’s close which again is needed to qualify the downside Propulsion target.
Nasdaq 100 QQQE equal weight down on the day.
IWM Russell 2000 bouncing at the 20 and 50 day moving averages. I still expect this to move lower
Trade Ideas Sheet
Utilities have been very strong with new DeMark sell Countdown 13’s in play. This group also has several members on the DeMark screens also with 13’s. I’m not shorting this today but if you have been hiding out here you might want to trim or sell.
Yen update – USDJPY
The markets are not caring much about today’s Yen strength, which is nearing important levels again. USDJPY is inverted, so when this is dropping, the Yen is stronger.
Internals Update
Advance Decline data started to drop from overbought for the S&P while Mid-Cap and Small-Cap declined too but did not reach overbought levels on the bounce.
The percentage of stocks above the 20 day declined more than those above the 50 day. Oversold levels <20% are the best buying opportunities.
Here’s the same data with exponential moving averages that shows the delines with the green horizontal lines as the target for good oversold conditions. The recent low did not get close and that might be due to the short lived nature of the last decline.
The decline yesterday didn’t do much damage on the silver and gold crosses or the bullish percent index data.
The Nasdaq Composite Index has weaker internals due to the large number of stocks in the index.
The recent bounce lured in a lot of new call buyers but that has moderated somewhat and a move over the green horizontal line would set up a good buying opportunity.
Goldman Sachs’ economic view
Goldman Sachs published a great note with several of their economists and strategists that discussed the current US labor market and other stresses to watch for if and when the US economic picture weakens. Several good interviews with GS economist and former regional Fed Presidents Bill Dudley and Rob Kaplan, Sahm rule creator Claudia Sahm go over their thoughts on the risks and outlook. All expect the Fed to move in September with several believing the Fed is behind the curve but not all are forecasting a recession. Bill Dudley is the most concerned with his own odds of a recession at 50% (vs GS still at 20%). Claudia Sahm is slightly concerned as her Sahm rule has triggered with a perfect record but holds off on declaring a recession is imminent. She is worried that if the jobs number on Friday comes in strong, it could see the Fed back off from aggressively cutting rates.
The labor market is still fine but has declining data, although jobless claims remain low and the layoff rate is at record lows. Part of that is due to the COVID-19 experience, as companies found it very difficult to hire then. According to them, this could increase quickly. The data is also hard to read due to the COVID-19 data.
Here’s the Sahm rule with recessions. I have stressed that when unemployment starts to rise, it is not a one-quarter phenomenon but rather a multi-quarter or even longer-yearly move.
Here’s why they argue the US recession odds remain low according to GS.
This is an excellent checklist to follow for market stress. I’ve shown credit spreads often, as they are one of my favorite market stress indicators. Even better than the VIX, which spiked on the July employment report, which came in low and caused many macro market concerns.
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. Mixed action with those the most over today’s VWAP is tech/Mag 7 related.
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. What has been down the most in the last 5-day rolling period is bouncing the most today. Shorts are getting squeezed today.
This is a similar monitor with major ETFs. What has been down the most in the last 5-day rolling period is bouncing the most today.
Goldman Sachs Most Shorted baskets vs. S&P Indexes
This monitor has the S&P indexes and the Goldman Sachs most shorted baskets. Index action is muted but short baskets are squeezing a reversal of yesterday’s action.
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: Still many sell Countdown 13’s on daily and weekly time frames. Utilities are showing up on daily screen.
Major ETFs among a 160+ ETF universe. USO Crude ETF with a new Sequential buy Countdown 13. I’d wait for WTI to get the 13 (I posted the chart on First Call today)
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