Surprise!

Thomas Thornton, Hedge Fund Telemetry info@hedgefundtelemetry.com

1/3/2019

Apple stock is down 9% after preannouncing weaker than expected earnings.  This is being reported as a huge surprise but really is it?  I’ve been concerned about Apple all year with iPhone sales flat despite putting out the best product on the market.  I’ve been highlighting a lot of research specifically from Morgan Stanley who I think puts out the best work in the US and Asia.  The new phones that were released were more or less a mid cycle “S” version – a little faster, better battery, same form factor.  Apple has seen several “S” cycle stock pullbacks and believe it or not – survived!  They blamed China which is slowing on all fronts aided by negatives with the tariff war.  This is not a surprise.  Next quarter iPhone estimates will be lowered by the street in the coming weeks too.  But here’s where I think things could go right.  This could put more pressure on President Trump to make some sort of deal with China which would be a market positive.  First it was Fedex and now Apple.   Trump will start to pay attention as more companies guide down due to China.   

I always write down surprises for the coming year and this year I jotted them down over the past couple weeks.   Stocks – Up year +10% in the US after several choppy up and down 5-10% moves.  European Stocks rise 15%. China and Hong Kong are up 20%.   M&A becomes more popular than company share buybacks.  Facebook leadership changes.  Apple starting hinting at 5G iPhones and the stock recovers.  Tesla “surprisingly” runs out of capital.  The energy and financial sectors are the best performing US sectors.   Bonds – US 10 Year Yield makes a move to 3.5% and maybe moves even higher.  Curve steepening across the board.  Commodities – Gold has a barrier at 1300 but if it can get above for 1 month a surge to 1500 will happen.  Crude will rise 25% and stay in a range between $50 – $65.  Currencies – The DXY US Dollar Index will drop early in the year but will rise to over 100.  The Euro will move to under 1.07.  Sterling will rise to 1.35 by June.  Politics – Brexit continues to be a mess and a hard Brexit will happen and it turns out not to be the end of the world.  President Trump will face the Mueller report that contains enough for impeachment which Trump will fight.   He loses GOP support and Pence becomes President.  Democrat candidates of all shapes, sizes, and colors will go hard left but one will be a moderate who separates himself from the pack.  Several challengers to Pence will emerge.  The Los Angeles Dodgers finally win the World Series.  

This is an equity focused note.  

US EQUITY MARKETS

S&P bullish sentiment is at 33%

 

S&P 500 Index daily lost the upside green Setup count.  A little disapointing but I’m focused on specific areas in the market more than the indexes for mean reversion.  

S&P 500 Index 60 minute tactical time frame still has a bullish setup but the Nasdaq 100 has a different set up that is more bearish.  I’m not negative but more cautious on the indexes.  

Nasdaq 100 Index bullish sentiment is at 30%

Nasdaq 100 Index daily lost the upside green Setup count

Nasdaq 100 Index 60 minute tactical time frame locked in the 5th wave and now this move lower is the start of wave 1 of 5 down.  This is one of the main reasons why I took off the index longs today.  If this can move higher than the recent high on this chart the downside wave pattern will cancel

Dow Jones Industrial Average Index daily well off lows 

Russell 2000 IWM ETF daily 

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%.  Since the Trade Ideas email PNL has gained 150bps.   

FOCUS OF THE DAY – Apple

Apple was the worst the biggest going into the warning.  

Apple on the 60 minute time frame yesterday was bouncing in a wave 4 of 5 which was a little bit of an issue that now was worked out (painfully) to the downside with the 5th wave being locked in with a downside Countdown 13 too.  

CRUDE THOUGHTS

Crude bullish sentiment is at 33% and rising

WTI Crude still turning up

Oil Service ETF has the secondary Countdown but I expect it to be cancelled.  This is my favorite sector for the first half of the year.  

EUROPEAN MARKETS

Euro Stoxx 50 bullish sentiment is at 17%

Euro Stoxx 50 Index daily weak day today but still bullish thesis 

German DAX Index daily with downside green Setup 9 which has been decent inflection points

UK FTSE 100 Index bullish sentiment is at 40% and increasing

UK FTSE 100 Index 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

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