FIVE TAKEAWAYS AFTER G20

Thomas Thornton, Hedge Fund Telemetry info@hedgefundtelemetry.com

12/3/2018

The G20 meeting is now complete and here are five takeaways:

First, Trump and Xi delivered for both countries in world class “can kicking.”  A pause in new tariffs is a win for China and the US got China to agree to buy more American products.  Short on details was consensus view.  There’s a lot of analysis out there on Trump/Xi meeting so I don’t need to reiterate.  But the best part giving hope for the markets is that they will continue to talk.  

Second, Putin and MbS agreed to crude production cuts.  This was expected and later this week OPEC meets in Vienna and will likely announce specifics.  This is good for crude and energy sectors to start to stabilize.  The worst may not be over as there has been considerable damage with job cuts highly probable in the coming months.

Third, the market reaction was exceptionally positive despite this tariff dispute far from resolved.  Early last week when I turned cautiously positive on equities moving the exposure on the Trade Ideas Sheet 33%net long, I expected the minimum dovish comment with Fed Chairman Powell’s speech and a cease fire in the tariff war.  It was clear to me people had a pent up need to buy stocks despite fundamentals weakening.  December is a tough month to be negative on the stock market historically too.  After today’s gap up I took profits on some recent longs and added some short exposure to get back to neutral exposure.  I didn’t like how many sectors and the EMini futures broke below their VWAP levels (2795) suggesting this move trapped longs higher.  Breadth also faded after both the NYSE and Nasdaq opened at +2000 with the NYSE at +990 and Nasdaq at +462 currently.  

Forth, the US bond market should have sold off on this sharp equity bounce and even more on the much better than expected ISM manufacturing report.  It didn’t and the 2/10 yield curve is the flattest in years today.  

Lastly, in France there has been major social unrest unlike anything seen since the 60’s.  Social unrest is something Ray Dalio has spoken about as a risk in the coming years.  Out of all of the comments I read coming from the G20, the social unrest in France was not mentioned.  We are going to have to add social unrest to the potential negative catalyst list.

If this rally has legs we will need to see follow through over today’s highs and not undercut the 2760 closing levels from Friday.  At a minimum some stability in the coming days to make a higher low could keep the hope for a strong December alive.  Again, I’m more neutral in positioning until some of this euphoria cools.

Tomorrow we are doing a webinar at 10:15am.  I’ll go over a few of the new features on the site and a review of markets.  To register click here.  A replay will be available shortly after.  If you have something you would like addressed please email us at info@hedgefundtelemetry.com 

GLOBAL MARKET SENTIMENT

Here is the list of all markets we track with charts on the site.  We’ll have this live on the site very soon

S&P bullish sentiment is at  43% and it is possible a move above 50% mid point

 

S&P 500 Index daily now has a wave 5 price objective lower.  If the wave 2 (yellow) closing high is surpassed then the wave structure would change to this bounce being wave 2 of 5.  

S&P 500 Index 60 minute tactical time frame is running into resistance

Nasdaq 100 Index bullish sentiment is at 45%

Nasdaq 100 Index daily resistance at 7200

Nasdaq 100 Index 60 minute tactical time frame with clearer view of resistance

Dow Jones Industrial Average Index daily 

Dow Jones 60 minute tactical time frame resistance at 26,000.  

Russell 2000 IWM ETF daily weakest of the major indexes

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%.  

Details of all changes on previous email.  TSLA stop is 10% from cost.  

FOCUS OF THE DAY – ERLANGER SHORT INTEREST DATA

Erlanger short interest data is showing some concerning details on the recent bounce.  There are 4 types of stocks that Phil Erlanger tracks.  To keep it brief, type 1 stocks are heavily shorted and likely short squeeze candidates and type 4’s are stocks with very little short interest and are likely long squeeze candidates.  What that means is when type 4’s are moving up it’s not being lead by shorts which is a healthy condition.  When stocks that do not have high short interest, the risk for sharp declines (long squeeze) is higher.  Currently on this monitor I’ve shown in the past Sector type 4 with purple and pink are sectors with very high type 4’s leading the market up.  

When type 4’s have been elevated with 10% of the total market, corrections have occurred shortly after

STOCKS I AM WATCHING TODAY

Apple has bounced but fundamentals have not improved.  Adding as a short 2.5% size.  

Apple short interest is very low.  Short ratio is 1.31 with an Erlanger short intensity rank at 23%.  And it shows up at a type 4 on right side

Amazon has bounced sharply and should make a lower high with a wave 5 price objective of 1175

Amazon also has very low short interest and is a type 4

Boeing added back as a short with the recent move up being too much too fast

Boeing also very little short interest and is a type 4.  Seasonality is good for the first part of December which might be complete

EUROPEAN MARKETS

Euro Stoxx 50 bullish sentiment is at 22%

Euro Stoxx 50 Index daily acting OK with 3348 resistance

German DAX Index daily off highs today

UK FTSE 100 Index bullish sentiment is at 38%

UK FTSE 100 Index daily bouncing today yet still has downside Countdown

CURRENCIES

US Dollar bullish sentiment is at 86% still elevated

US Dollar Index daily 96.64 is important level then 96.17

Euro bullish sentiment is at 16%

Euro Spot daily sideways

British Pound Sterling bullish sentiment is at 16%

British Pound Sterling daily still needs a little lower for downside Countdown 13

Chinese Yuan daily stronger today

US BOND MARKET

Bond bullish sentiment is at 80% and in the extreme zone

US 10 Year Yield off highs today

US 30 Year Yield in tight range from recent past week

US 2/10 Yield Spread continues to flatten

GOLD 

Gold bullish sentiment is at 23% and remains in lower range

GLD Gold ETF daily still needs momentum up

GDX Gold Miners ETF daily sideways

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 30th

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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