Quick Market Views
Stocks: Markets are under pressure with news reports of Iran possibly striking Israel with missiles. It’s Wolf Blitzer time on CNN! This has been an underappreciated risk in my view for the markets. It’s still a developing “fluid” story as they say. Breadth is negative with NYSE down 670 issues and Nasdaq down 1700 issues. Energy and defensive strength helping NYSE breadth. There are DeMark price flips down on many indexes, ETFs, and stocks – a price flip definition is below under the S&P chart. Continuation after sharp downside moves has been elusive so again, let’s see how the next few days go. Some important historical data from my friends at Nautilus Research is worth sharing. I may have another note later. Let’s see if things develop.
Bonds: The news has a bond bid. 2’s – 30’s are down 5-7bps. The 2/10 spread is at +11.66bps – some flattening today.
Commodities: The Bloomberg Commodity Index is up 1.25% moving higher after last week’s short consolidation. Crude is up 4%, Grains up, and Metals are also strong. Gold and Copper up ~1%, Silver up 1.3%
Currencies: US Dollar Index is up 0.5% a strong move. Euro and Pound pronounced weakness while Yen is little changed.
Trade Ideas Sheet:
Changes: I added IBM short on the open today. I am going to take gains on some China tech. Reduce BABA +45% and KWEB +29% to 2% from 3% weight. See the GS stuff below.
Thoughts: The long side is working well today with energy moving higher. I have one stinker, and I remain patient for it to work. The short side has most short ideas lower today. Several are a distance from entry, and regardless, if these work lower, even by half of loss, it benefits the PNL. It’s not ideal, but overall, I expect PNL to continue to improve with longs that are not correlated with indexes.
US Market Indexes
Here is a primer on the DeMark Setup and Sequential indicators.
S&P futures 60-minute tactical time frame shows the drop today. It moved lower to the downside wave 3 price objective of 5743.
S&P 500 Index daily with price flip down today, it will be important, as always, if there is follow through in the upcoming days. A “price flip” is defined as a contra-trend move identified by a close that is higher/lower than the close four price bars earlier. In order to complete the Setup 9 there must be nine consecutive closes higher/lower than the close four price bars earlier. If this pattern is interrupted the Setup will cancel and disappear from the chart.
Nasdaq 100 futures 60-minute tactical time frame had been making lower highs from the recent peak.
Nasdaq 100 Index daily also price flipped down today after the recent Combo 13
commodity index and crude update
As shown on the Commodity weekly, this was an important week for Commodities as the recent DeMark Setup 9 stalled the advance, but there was a risk of continuation if a new Sequential Countdown started, which looks like it could continue.
Crude is lifting today with the middle east news. It needs to clear last week high to matter.
Trade Ideas Sheet
BBY Best Buy moved higher after earnings after the CEO said they were excited about the new Apple iPhone. However, there are stories about the demand not being great for the new iPhone hitting Apple today. Best Buy could also have some issues if the port strike lasts for weeks, disrupting product supply for the holiday season. The DeMark Sequential remains pending on day 12 of 13. I’ll stay short.
Tesla is due to report Q3 deliveries and sell side analysts have been raising estimates to ~470k. They have raised delivery estimates while not moving earnings estimates. The promotional discounting and 0% interest loans in China have undoubtedly moved cars but at the expense of earnings. US and European markets remain weak. Europe is weak with a lot of competition and the risk of new tariffs for Chinese-made EVs (Model 3 is imported from China to Europe). Elon Musk’s endorsement of Trump and continued X dialog has turned off potential buyers in the US. The stock has run up, anticipating the deliveries beat and next week’s Robo Taxi event. Most people expect the Robo-taxi event to fall short. The stock lost the pending Sell Setup 9 with a price flip down.
historical return studies
My friends at Nautilus Research do some excellent work, and today, they have a very cautionary note based on historical returns. Considering there are DeMark exhaustion signals developing as well, equity bullish sentiment is in the extreme zone; this lines up with my cautious view. In addition to geopolitical tensions in the Middle East, the US economy is slowing with unemployment rising, and the US election is a month away; there are plenty of catalysts.
Please review the historical returns detailed below, and note that the one-month forward returns for the S&P 500, on average, reflect losses exceeding -4% (4 up versus 10 down). Similar market strength was seen in 1929 and 1987, both of which experienced devastating Octobers. October 1929 saw losses of over -30%, while October 1987 saw a decline of more than -20%. The Nautilus Research Team finds it unsettling to see two catastrophic crashes following such strong performances and views this as highly cautionary.
Historically, when seven of the last eight quarters show positive returns for the S&P 500 (allowing for one negative quarter), nine-month forward returns average losses, with 11 up versus 9 down. Double-digit losses were recorded in 1912, 1922, 1937, 1945, 1959, 1987, and 1989. In simple terms, when seven of the last eight quarters have shown positive returns, investors should anticipate corrective action over the next three quarters.
China inflows from goldman sachs
Recall that one of the most crowded trades on the Bank of America data for the past year has been “short China.” China’s recent big stimulus announcement has dramatically shifted flows into Chinese assets. Although we own our China longs at much lower prices, buying ahead of the stimulus announcement, we can withstand some volatility. The amount of money jammed into China so quickly is a bit concerning from this Goldman Sachs data.
Considering the US markets have been a “call buying” frenzy with tech, it shouldn’t be a surprise that people choose to buy call options on FXI ETF.
Local China exchanges with “A shares” saw a huge spike in buying using margin. Yes, this is a bit concerning as this is heavy speculation.
Nike earnings preview
NKE (Nike) FQ1 earnings preview – sentiment is bullish on the new CEO, but the stock has rebounded meaningfully from its lows (it’s not that far from where it stood before the disastrous earnings report back on 6/27) while there are still near-term challenges to work through. The big focus will be on F25 guidance, and whether it is reset further (the current outlook calls for reported revenue down ~5% with reported GMs up 10-30bp) – if the prior outlook is reiterated, that would be a big relief to shareholders, while a cut would likely spur another round of selling. For FQ1, the Street is looking for reported revenue down ~10% (including direct -15% and wholesale -5%) w/GMs of 44.4% and EPS of 52c. On an FXN basis, the consensus is anticipating NA sales -10.6% with EMEA -8.5%, China -5.9%, and Asia/Latin America -1.75%.
Nike’s problem has been slowing sales across all geographies. Some of this is due to new competition, and some is due to a stale lineup of offerings. It’s also a consumer athletic leisure slowdown story seen at other companies like LULU. Foot Locker has seen strong sales, but that is reflected in the competition and some difficulty with dealing with Nike. The new CEO vowed to turn things around, and it won’t be reflected in this report, but his comments could support the stock. The chart shows the bounce after the CEO change. A recent sell Setup 9 stalled the advance and if this moves higher continuation with a new Sequential could take hold. I will hold off going either long or short as I don’t see the numbers as good but the stock could lift with the new CEO on the conference call. Recent new CEOs have been given some latitude and the benefit of the doubt.
The implied move is 6.67%. Recent price reactions after earnings have been weak.
Short interest recently moved higher, which was calculated at the recent lows. The spike likely saw short interest decline after the new CEO was announced and the stock gap higher. On the Options Rank, the spike higher saw red dots, which illustrate heavy call buying.
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. Energy on the bottom up above the 10 and 20 day moving averages. China still working.
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. Most shorted baskets on the lows along with Mag 7.
This is a similar monitor with major ETFs. ARKK on the lows along with tech
Goldman Sachs Most Shorted baskets vs. S&P Indexes
This monitor has the S&P indexes and the Goldman Sachs most shorted baskets.
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: Continued high number of sell Countdown 13’s however watch the price flip down column. These are short candidates.
Major ETFs among a 160+ ETF universe. Watch the price flips here, too
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