A few thoughts on 2018

Thomas Thornton, Hedge Fund Telemetry info@hedgefundtelemetry.com

12/31/2018

2018 was a brutal year for many that started off with such promise with global markets ripping higher into January only to find very little liquidity when the red button was pushed.  For many equity markets around the world January was the peak while the US market performed relatively well thanks to the mega cap FANG names that I highlighted throughout the move higher as attribution that would be unsustainable.  The US markets joined the weakness in Q4 with the late summer foreshadowing problems with numerous divergences.   The December market was unique in so many ways as it was a slow motion controlled capitulation with many indicators including sentiment hitting levels not seen for over 10 years.  I covered a lot on the week of the low taking great profits on the short side but it was the beginning of a very bad week and I was getting long too.  I’m indicator focused and I would take a swing at the same fat pitch 100% of the time.  I’m very happy with the performance with all recommendation this past year including all asset classes.  

It was a year of fads with Bitcoin and Cannabis.  Both could have big futures but the initial speculative surge is well past us now.  Tesla still is alive and longs and shorts are both dug in the for fight.  Although I am a short in this fight, I’m a trader and we had several more good short trades this past year along with a couple losses.  

Currency trading was a bright spot with Hedge Fund Telemetry since combining both sentiment and the DeMark indicators worked very well with the major crosses.  

Commodities were hit from various attacks.  Tariffs to energy supplies, I’m pleased to see how sentiment reached extreme levels on both the upside and downside to exploit a few trends.  Gold worked well early in 2018 and then didn’t.  Crude saw seasonality work while sentiment went wire to wire in one of the shorted periods ever.  

Bonds in the US continued to weaken as longer term yield DeMark wave price objectives above 3% were achieved.  I expected lower yields on US bonds later in the year as a result of a risk off with equities and that is generally what happened.  Not that dramatic with bonds relative to the equity smash.

I never get angry email but when I was critical of Jeremy Grantham for his early January “Buy as much Emerging Markets as your career can afford and the Nasdaq 100 is going to 3500… but this is my opinion and not my firm’s opinion.”  I received a lot of people critical of me.  What I found remarkable was that the recent market surge changed the value oriented thinking of a long term investor like him and that it seemed like style drift 101 which happens at tops!

Below I am posting attribution on some major indexes including some foreign markets.  If there is a market you’d like, please email me.  

I’ll be writing tomorrow with the markets closed.  I will put out a 10 surprises list as well some more good stuff for 2019.  The next year could be a series of battles in longer term war.  What that means is that there could be some excellent upside trades within markets, sectors and stocks but the war is still a downside trending longer term market.  This doesn’t have to be set in stone as I could see several major market post gains for next year.  The days of buy and hold are over and that goes for passive investing too.  Happy New Year and here’s to 2019.   Thank you for all your support in 2018.  In 2019 Hedge Fund Telemetry will continue to expand with more features.   

US EQUITY MARKETS

S&P bullish sentiment is at 28%

 

S&P 500 Index daily still could have some upside potential

S&P 500 Index 60 minute tactical time frame could be carving out an upside 5 wave pattern now

SPX Index YTD Attribution.  MSFT and AMZN did the most work.  If you recall what this looked like in the Summer, it’s much different.  

Nasdaq 100 Index bullish sentiment is at 24%

Nasdaq 100 Index daily with 5 waves down

Nasdaq 100 Index 60 minute tactical time frame could be carving up 5 waves now

NDX YTD Attribution – AMZN and MSFT are the last two mega caps standing.  Apple, FB and Google gone from leaders

Dow Jones Industrial Average Index daily 

Another one carving out a 5 wave upside pattern.  We need to see a higher low put in with a higher high into wave 3

Dow Jones YTD Attribution incredible nearly 50/50 breadth

Russell 2000 IWM ETF daily did not move 5 waves lower but only 3 out of 5.  Lower high bounce then lower

Russell 2000 YTD Attribution – terrible breadth

TRADE IDEAS

Hedge Fund Telemetry Trade Ideas Sheet.  Equity ideas both long and short with one week to six weeks average holding period.  Sizing at inception is either 2.5% or 5% of AUM with stops set between 5%-10%.  No changes today.  I’m holding all of the energy in anticipation of strong seasonal move ahead

FOCUS OF THE DAY – A bad bad year globally

A bad year for equities.  Incredibly traveling around and asking people in different countries how things are… they didn’t seem to be reacting to poor equity performance.  I’d love to hear if you agree or disagree with stories?

Asia hit especially hard in a year when there is a hit movie “Crazy Rich Asians”

ENERGY THOUGHTS

Crude bullish sentiment is at 23% and remains subdued

OIH Oil Service ETF seasonality turns very sharply higher from January – May

WTI Crude Futures looking for a bottom here

SECTOR FOCUS – EEM Emerging Markets ETF

Daily needs to hold above the trend line.  I like EEM for 2019 long.  Breaking the monthly TDST third chart down at 37.26 would change my position bias and if I needed a lower stop 35.00 would be it

Weekly downside Countdown 13

Monthly with green Setup 9.  Worked well the last 2 times.  37.26 is the TDST line in the sand.  Breaking this would change my opinion

EUROPEAN MARKETS

Euro Stoxx 50 bullish sentiment is at 16%

Euro Stoxx 50 Index daily price flip up.  Get long 

Euro Stoxx 50 YTD Attribution

German DAX Index YTD Attribution

UK FTSE 100 Index bullish sentiment is at 16%

UK FTSE 100 Index daily trying to bottom

UK FTSE 100 YTD attribution.  

CURRENCIES

US Dollar bullish sentiment is at 65% and continues lower

US Dollar Index daily taking a time out

Euro bullish sentiment is at 32%

Euro Spot daily still sideways

British Pound Sterling bullish sentiment is at 21% and starting to perk up

British Pound Sterling daily price flip up

Bitcoin with some text book DeMark action

US BOND MARKET

Bond bullish sentiment is at 83% and remains extreme

US 10 Year Yield triggered ahead of a few other bond proxies but still believe a turn up into wave 2 of 5 down is ahead

US 30 Year Yield still has some more downside with Countdown 

TLT US 20 year + ETF still has a little more upside

GOLD 

Gold bullish sentiment is at 40% and at the high end of the last 8 month range

GLD Gold ETF daily 

Bloomberg Automated Technical Pattern Recognition Screens

ATPR identifies when major chart patterns are just starting to form, alerting investors to nascent shifts in sentiment.  For more information on this strategy please email us and we will send a detailed explanation.

US Stocks

European Stocks

DEMARK SCREENS – Daily Upside/Downside Exhaustion Signals for November

Daily/Weekly DeMark upside (sell signals) /downside (buy signals) exhaustion Countdown Sequential and Combo “13’s updated daily.  Currently we are only screening the S&P 500 universe and daily in this beta stage.

 

The DeMark Indicators are designed to assist the user with buying into weakness and selling into strength to anticipate trend exhaustion. Selling into a rally and buying into a decline often afford the opportunity to exit a trade without too serious a loss if wrong.  If you would like more detailed information on the DeMark Indicators, please email us.  

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