Time for a pause

Thomas Thornton, Hedge Fund Telemetry info@hedgefundtelemetry.com

1/11/2019

The equity markets have regained 10% off the lows in December and although I still believe there can be further upside there are signs that a pause is due.  One of the indicators that I primarily use is sentiment and the S&P bullish sentiment has moved off a low of 4% bulls on December 24th to 44% yesterday.  The middle point at 50% tends to be the make or break level to solidify a trend.  Last February – March, sentiment also hit low levels and bounced several times to the 50% level or for a brief time a little higher before coming back down.  Another good signal is the DeMark Setup 9 Counts.  These are the green 9’s and they can be very good at inflection points in trends. Also at those periods last year the Setup 9’s worked well on the downside and upside for reversals.  I’m a big believer in the power in numbers and when I ran the DeMark screens in December I was amazed how many downside red Sequential Countdown 13’s there were within the S&P index signaling a very washed out exhausted market.  In the last three days, within the S&P there have been 36, 35, and 30 green Setup 9’s triggered after none in weeks.  This adds to my belief that a pause is near.  Several other notable green Setup 9’s are highlighted below.  

On the Trade Ideas Sheet, I’ve been taking some long exposure down and tactically adding some short exposure ahead of earnings which start next week.  The easy money off the lows is behind us.  Now it gets tougher and I’ll sit tight with an elevated cash position.  I’m adding some put spreads (buy higher strike and sell equal amount of lower strike) as hedges for February expiration:   SPY 256/246 for $2.35.  QQQ 157/148 for $2.00.  IWM 140/130 for $1.75.  These are hedges and limited exposure of no more than 1% of your total AUM should be used for each of these.  Losing 3% max is manageable.  The goal is to live to play another day and to protect your capital.   Earnings start next week and it should be lively.  Have a great weekend.  

US EQUITY MARKETS

S&P bullish sentiment is at 44%

 

S&P 500 Index daily watching some downside Trend Factor targets now.  These are why I put on the put spreads

S&P 500 Index 60 minute tactical time frame with some upside Countdown 13’s 

Nasdaq 100 Index bullish sentiment is at 35%

Nasdaq 100 Index daily watching downside Trend Factor targets 

Nasdaq 100 Index 60 minute tactical time frame extended above wave targets

Dow Jones Industrial Average Index daily watching downside Trend Factor targets

Russell 2000 IWM ETF daily watching downside Trend Factor targets now

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%.  Only changes are the put spreads which are not in the TMSG page.   I took off a lot of stuff earlier including BAC, AAPL, some more energy exposure not because I do not like them but only to reduce exposure as I believe a pullback is due and I want to see how stocks trade with earnings this week.  The YTD gain is 5.86% and ringing the register feels pretty good.  (note the TMSG ended the year -3.3% so that’s how we get the YTD number)  

FOCUS OF THE DAY – Energy

Crude bullish sentiment is at 63% up from a crazy low of 4% 

WTI Crude with green Setup 9.  A pause is due here

S&P 500 Energy Index on a 60 minute tactical time frame is extended with some upside Countdown 13 action.  

OIH with green Setup 9 should stall out ahead of very strong seasonality.  I want to buy dips

Real Vision Trade Idea – Emerging Markets 

Yesterday I was in NYC filming a Real Vision Trade Idea video.  I pitched EEM Emerging Markets long and went through a lot of details including daily, weekly, and monthly favorable DeMark indicators as well seasonality and the fact that both the emerging markets financials and technology sectors bottomed in October despite the the turbulence in the US.  I see 10% – 15% upside for the next 4-6 months.  The video will be out on Monday.  If you are not a subscriber please it’s time.  It’s a great value and I am also participating in the first Real Vision event on February 4th in NYC.  Limited space so if you want to come, please email me.  

EEM seasonality really kicks into gear in February to May

EUROPEAN MARKETS

Euro Stoxx 50 Index daily with green Setup 9 in wave 1.  A high low pullback would be ideal

Euro Stoxx 600 with exact same pattern

UK FTSE 100 Index daily with green Setup 9

CURRENCIES

US Dollar bullish sentiment is at 49% 

US Dollar Index daily holding the TDST level

Euro bullish sentiment is at 46%

Euro Spot daily could pull back a little here

British Pound Sterling bullish sentiment is at 34%

British Pound Sterling daily wide bar today with some news on Brexit but at the end no real move

Chinese Yuan daily at an interesting level

US BOND MARKET

Bond bullish sentiment is at 65%

US 10 Year Yield could be making a change in direction but I feel it is a little too early to tell  

US 30 Year Yield same story

US Investment Grade Corporate Bond ETF could cool off with green Setup but still has upside red Sequential in play

TLT US 20 year + ETF also with this pattern that could change in the future

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

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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