The Black Knight Market

Thomas Thornton, Hedge Fund Telemetry info@hedgefundtelemetry.com

2/5/2019

One of the traits of the US equity market in the past few years and especially in the last month has been the resilience of ignoring negative news and carrying on like any thing negative is “tis but a scratch.”   

This market reminds me of the Black Knight character in Monty Python’s Holy Grail film.  When King Arthur approaches The Black Knight who was guarding a “bridge” (a plank of wood) a fight ensues as King Arthur cuts off the arm of the Black Knight who moves his sword to his other arm proclaiming “tis but a scratch.”  As the fight progresses the other arm is cut off as  the Black Knight still refuses to give up declaring himself invincible kicking King Arthur.  When his legs are cut off and he’s a stump of a man he says “All right we’ll call it a draw.”   John Cleese from Monty Python said later the moral was “if you never give up, you can’t possibly lose.”   This is the perfect term to sum up the recent earnings reports.  Semiconductor companies which are leading economic indicators have all thrown up terrible guidance and have said the long up cycle is over and investors have kept a bid under them.  Apple’s guidance was actually worse than expected but rationalized as not as bad as feared.  “Tis but a scratch” is not what I would call seeing iPhone guidance lowered to 40 million units for this quarter (rough calculation based on revenue guidance) from the estimates of 60 million going into the quarter.  Microsoft, Amazon, and Google reported numbers and guidance that was lower than the street expected and for the most part it’s been ignored.  

Market cycles are important as they are the natural progression of how markets work.  The longer the denial of negative news will only create more dislocated and volatile markets.  I was pretty close to picking the bottom in December but I didn’t think the market would move over 2700 without a higher low pullback at the 2600 level.  The bid to the market off the lows in December should come to an end this week as February seasonality kicks in combined with some new and pending upside DeMark Countdown exhaustion signals triggering and upside Trend Factor price targets are achieved.   Let’s not forget a couple catalysts, with the government shutdown deadline 10 days away and the China tariff increase deadline is at the end of the month.   Risk reward from here is poor.   Take some profits, raise stops, short a few things, buy puts, or just keep it simple and have a little more cash on the sideline for February.  

US EQUITY MARKETS

S&P bullish sentiment is at 73% and is elevated

 

S&P 500 Index daily Combo 13 and nearing upside Sequential Exhaustion

S&P 100 Index daily nearing upside Trend Factor target

Nasdaq 100 Index bullish sentiment is at 67%

Nasdaq 100 Futures still could move higher but wave 3 is already locked in

Nasdaq Composite Index nearing upside Sequential Countdown 13

Dow Jones Industrial Average Index daily Combo 13 and nearing upside Sequential Countdown 13

Russell 2000 IWM ETF daily Combo 13 with upside Sequential on day 10 of 13

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%.  

TOOK PROFIT ON STZ LONG +9.67%, CUT BY HALF EEM LONG +8%, ADDED NEW 2.5% SIZED KRE SHORT.  ADDED TO TSLA SHORT TO BRING BACK TO 5%

FOCUS OF THE DAY – VIX Index nearing bottom

VIX Index nearing bottom with Combo 13 today.  Green Setup on day 8 of 9 and Sequential on day 9 of 13

STOCKS I AM WATCHING TODAY – FANG 

FANG + Index is also nearing an exhaustion signal

Apple on day 8 of 9 with green Setup which has been good at inflection points

NFLX on day 11 of 13 with upside Sequential 

SECTOR FOCUS – A lot of 20 day highs but could this be the top for now?

PPO Monitor shows a lot of sectors hitting 20 day highs but under today’s VWAP and some turning negative

KRE Regional Banks with new upside Sequential 13

EEM has moved nicely off the recent lows.  I’m taking half off +8%

Brazil looks toppy here

EUROPEAN MARKETS

Euro Stoxx 50 bullish sentiment is at 37%

Euro Stoxx 50 Index daily still moving higher.  I’ve liked this index but this also didn’t get the pullback

UK FTSE 100 Index bullish sentiment is at 50%

UK FTSE 100 Index daily nearly at the wave 3 price objective.  This still looks good

CURRENCIES

US Dollar bullish sentiment is at 60%

US Dollar Index daily still in range with competing waves

Euro bullish sentiment is at 25%

Euro Spot daily sideways

US BOND MARKET

Bond bullish sentiment is at 69%

US 10 Year Yield sideways and I have no opinion at this point

US Investment Grade Corporate Bond ETF should top out here

TLT US 20 year + ETF like the 10 year is a tough call here

GOLD 

Gold bullish sentiment is at 70%

GLD Gold ETF daily still could move higher to get the upside 13 but risk reward from here doesn’t look good

GDX Gold Miners ETF daily stalling after the Combo 13

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 February

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.  HOPEFULLY WE WILL HAVE THIS SCREEN LIVE ON THE SITE FOR REFERENCE TONIGHT.  

 

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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