Naked and Afraid

Thomas Thornton, Hedge Fund Telemetry info@hedgefundtelemetry.com

11/19/2018

 

I’m a huge James Bond fan and a sucker for cool car chases and brunettes.  In the 1983 Bond film “Never Say Never Again” Sean Connery reprised his iconic role as a SPECTRE agent has stolen two American nuclear warheads, and James Bond must find their targets before they are detonated.  A plot similar to every other Bond film but somehow it works each time.  The narrative currently in the market is that the equity markets have never been down 6 months or a year post the US midterm elections and it will do even better with a split Congress going forward since 1950.  Will the bullish plot in the equity markets be the same this time?

I feel this is a time to where the outcome going forward might be different.  Market strategists will go on about how the US economy and markets have been doing exceptionally well and this will continue with “positive seasonality after midterms” and “buyback activity coming back after earnings” and no mention that earnings growth is starting to slow and the markets could be at peak margins.  Meanwhile the global markets have been down across the board in Europe and Asia all year and growth has been clearly slowing.  The obvious reason for the US strength is solely due to the tax and deregulation policies that were enacted last year giving a late boost to an aging business cycle.  This sugar high can’t and won’t last forever.

The recent Q3 earnings cycle is nearly complete and while earnings growth was up historically elevated, stocks didn’t respond as strategists expected and my theme I proposed ahead of earnings “Guidance Cut October” was spot on.  There were excuses such as US Dollar strength, tariff concerns, inflationary input costs, and then several semiconductor companies quite honest saying “it’s been a long up cycle and business is slowing.”  Several other excuses strategists were pinning on the equity market pullback were Fed tightening too aggressively and higher interest rates.  The Fed will not be raising rates today but probabilities are at 80% for a December hike.  Interest rates are not high by historical standards but the rate of change is what will cause slowing in consumer borrowing and ultimately spending.  By the way, rates are nearly at the same levels as the October highs which was blamed often for the selloff by the media.  Yesterday’s move higher in the market, ignored everything that caused the selloff in October.  Earnings guidance cuts, slowing growth, higher rates, tariff concerns just because equities never have gone down after midterm elections and are always up a year later.  Never say never again.

Thanks again for your patience as we roll out our new site and platform. It’s taking me a little more time to get used to publishing on the new platform. We are really proud, if you haven’t checked them out yet, of our new daily sentiment charts with both market price and sentiment positioned together and one can adjust time periods going back to 2000.  There are new European markets (Euro Stoxx, DAX, CAC, FTSE) added with our new site too.  You might need to do a hard refresh (Shift + F5) on the page to update yesterday’s data.  Finally, clients will be getting an email soon with a password reset but until then the site is open to view.

US EQUITY MARKETS

SPX bullish sentiment is at 50% and right at the mid point.

 

S&P 500 Index is now on day 8 of 9 with green DeMark Setup which is similar pattern of many other indexes.  Setup 9’s have seen inflection points in the past year so we’ll be watching closely the next few days

 

S&P 500 shorter term 60 minute tactical chart shows the upside wave 3 price objective met and now a short lived pullback is expected followed by one more move up but I expect it not to make a new high

 

Bespoke Research put this out today showing S&P returns post midterm elections

LPL Research put this out showing the returns under a Democrat and Republican President with make up of Congress.

 

The Nasdaq 100 bullish sentiment also has spiked from the lows to 47%

The Nasdaq 100 Index also in wave 2 yet only on day 6 of 9 with green Setup

 

Nasdaq 100 shorter term 60 minute tactical time frame has several upside exhaustion signals thus a pullback into wave 4 is likely

Dow Jones Industrial Average is also on day 8 of 9 with green Setup.

 

The Dow shorter term 60 minute tactical has reached the upside wave 3 target and has some upside exhaustion signals.

IWM Russell 2000 daily is on day 8 of 9 with green Setup.

TRADE IDEAS SHEET

No changes to current positions.  Watch the 360 level on TSLA as a stop.  This entire section will be changing in the coming days.

CURRENCIES

US Dollar bullish sentiment is at 73% and has been working lower off recent 95% levels

US Dollar Index still in tight range and perhaps trying to work higher again.

Euro bullish sentiment is at 24%

 

Euro also in tight range a little more upside could get the wave 4 of 5 on the downside locked in

 

Chinese Yuan is starting to weaken after the gains last week and is on day 7 of 13 with an upside Countdown

US BONDS

Bond bullish sentiment is at 39% and has made a series of lower highs but not a new lower low

US 10 year yield like many equity indexes is on day 8 of 9 with green Setup.  Tomorrow will be very important

US 30 year bond yield does not have a similar count

CRUDE – Update

Crude bullish sentiment has dropped from 96% bell ringer highs to 24%.  It should be even lower with tonight’s reading

WTI Crude has now a downside DeMark red Sequential Countdown 13 and a Combo is a few days away.  A low is near but this is the first of 5 waves down and seasonality is not favorable until late January.

 

Brent Crude still has more downside with its Countdown

EURO STOXX 50

Euro Stoxx 50 bullish sentiment is at 35% and has also lifted off sub 10% levels

 

Euro Stoxx 50 is very similar to other European markets with the green Setup 9 today cancelling the pending downside Countdowns.  The next few days could start an upside Countdown (red) or fade like other Setups have done all year

Bloomberg Automated Technical Pattern Recognition Screens

S&P 500 Members/Absolute Price Performance and Relative Price Performance vs S&P 500 and Sector ETF’s.  ETF’s vs Index Sectors.  Pair Trades. Long side  is first symbol, short side is second symbol.  If you would like a PDF from Bloomberg with full details of how this is formulated, please email.  This will be posted live on the site early in the morning soon.

DEMARK SCREENS – Daily, Weekly, Monthly Upside/Downside Exhaustion Signals

Here is a preview of how the new DeMark Screens will look going forward.  These will be on the site posted in the morning for clients to view.

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