DeMark webinar takeaways - one more selloff then "shocking" rally coming in SP 500 (within days). Crude/nat gas gain peaking...

Click HERE to access the FSInsight COVID-19 Chartbook.

Non-consensus takeaways from Tom DeMark Webinar and views from Mark Newton, Head of Technical Strategy

Today’s note is a recap from our webinar with Tom DeMark, founder of DeMark Analytics and Symbolik.com. Tom DeMark has gained a large following over his >50 years on Wall Street, having developed many key market timing tools used today. He is a longtime friend of Fundstrat and our clients might recall the very prescient webinar we did on March 24, 2020, where Tom D. identified the day and hour of the market bottom.

Today, markets are facing a similar decision point. Stocks have been under unrelenting pressure since the start of the year, reflecting mounting uncertainty about rising inflation, war risks, earnings visibility and Fed needing to mount a battle against inflation. (But as our clients know, we have highlighted that many leading measures of inflation are weakening.)

It is not that different than the uncertainty that surrounded March 2020 and at that time, Tom D. and his tools proved of enormous value in identify possible market turning point. Back in 2020, Tom D. called it to the day and hour.

Per Tom DeMark, Markets nearing turning points for S&P 500, Nasdaq, FANG, Bitcoin, interest rates, commodities

Tom D. sees key markets approaching a turning point for a reversal. Some of these still have several days longer to reach key fulfillments of price or analytics, but that a reversal is soon expected.

Here are the non-consensus takeaways:

  • S&P 500 likely to see one-more selloff, with two closes below 3,858
  • then a “shocking rally” towards 4,453 or ~4,400 to 4,500
  • crude oil likely to make a top within 4 trading days at $117.29 before turning lower
  • interest rates (10-yr) make one more high and that is the peak

Apologies in advance if our explanations do not mirror Tom D. view exactly, as we did not record this webinar and these are solely my notes:

  • S&P 500 –> one more selloff (needs two more closes below the low of 3,858) and then a rally starts. This should happen within the next few days. Tom D. sees a “shocking” rally >15% to S&P 500 4,400-4,500.
  • NASDAQ –> Nasdaq has fulfilled the downside objective, so there is not as much downside but a few days needed to establish a combo buy-set up “13” and then a similar +15% rally. NASDAQ probably rallies before S&P 500. A similar MB momentum indicator has also confirmed a low.
  • FANG –> Already signaled a combo “13” buy setup and a rally recovering 50% to 60% of the decline is expected.
  • Bitcoin –> Bitcoin count is “silent” at this moment. Bitcoin would ideally be down morning today 5/19 and then weaker for next week or so, recording 3 new “lows” and that would mark the end of this selloff. This didn’t happen. But this doesn’t have to happen. Bitcoin looks similar to NASDAQ in that way.
  • Interest rates –> One more high expected on the 10-year.
  • Crude Oil –> Crude oil within 4 days of completing a “reinforced 13” which is a sign of trend exhaustion. Possibly 4 more days of gains before a peak. DeMark sees oil reaching $117.23 and “becoming dead.” In other words, oil essentially reaching a top. Not clear if this is a long-term or near-term.
  • Natural gas –> Natural gas (Natgas) could be peaking within 4 days (~$9.08). Natgas set up looks like an ideal 9-13-9, and with the “13” in place, but the latter stage is “5” on its way to 9. He sees this peak as a key level and a subsequent breakdown exceeding >20%.
  • Inflation breakevens 1-year –> The surge in 1-year breakevens in March was a “13” and he believes this was a near-term high.

IMPLICATIONS: Rolling over of crude, natural gas and commodites and peaking of rates = positive developments

In our view, the most intriguing takeaways are Tom D. view that many inflationary drivers (energy and commodities) are peaking. Mechanically, this reduces the risks of further eruptions of inflationary pressures if these commodities are flattening and rolling over. I realize that war, crop cycles, demand and China impact these markets. But commodities often adhere to technicals.

  • falling commodites
  • means inflation risks should be abating
  • this would strengthen the quality and conviction of the rally Tom D. suggested is possible.

On crude, he pointed out a “reinforced 13” might be underway, which is a sign that a trend exhaustion is happening might be near. And in the case of crude:

  • a possibility of 4 more days of highs
  • then a bearish reversal

Crude Oil July 2022 Contract — could become “reinforced 13” = bearish

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
Source: DeMark Analytics

On inflation breakevens 1-year forward, Tom D. said the surge to 6.3% on 3/25/2022 was a “13” and he sees this as the peak. It is not clear what the downside target was for breakevens, but if this figure drifts lower, it would be a positive signal for risk markets — that is, it would suggest that inflationary pressures are easing.

Inflation breakevens 1-yr and 5-year and Fed Funds forecast by YE2022

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
Bloomberg

EQUITIES: DeMark sees first a sell-off and then a shocking rally

One of the tenets of the DeMark analytics is the notion that turning points in markets take place when there is an exhaustion of sellers (bottom) or buyers (tops). And Tom D. highlights that S&P 500 should be reaching a point where “sellers are exhausted”

  • market has fallen 17% in 35 days
  • this mirrors the initial sell-off at the start of 2022 which was -15% on 35 days.
  • this along with the “11” on the combo count on the S&P 500 means a bottom is within days

  • he says this happening in next few days
  • via 2 days where S&P 500 closes below S&P 500 3,863.
  • Tom D. doesn’t see a larger breakdown ahead as he said 300-500 points downside is unlikely

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
Source: DeMark Analytics

…”shocking rally” to S&P 500 4,400 to 4,500

Post those two lower closes (to reach “13”), Tom D. sees a shocking rally ensuing. The rally should retrace 62% of the losses:

  • S&P 500 lost 961 points since January
  • 62% retrace is +595 points, or +16%
  • this would be S&P 500 4,453, or ~4,400 to 4,500
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

One of the more important stocks in the S&P 500 is AAPL. The stock is nearing a turning point, but before a view could develop, AAPL needs to respect this turning point. At this moment, there is no decisive call to be made here until AAPL responds to this “13”

AAPL “13” on Sequential setup. Key is the close and how it responds.

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
Source: DeMark Analytics

AAPL — Approaching key point on “combo” count until reaches 13

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

The outlook for NASDAQ ( QQQ -0.21% ) and FANG ( NYFANG) are actually slightly better. He mentioned that both have a “13” setup and fulfilled the downside projections, based upon the propulsion model.

  • he sees both rallying to recover 50% of losses
  • this is ~20% rally
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
Source: DeMark Analytics
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
Source: DeMark Analytics

COMPARING PERSPECTIVES: Tom DeMark compared to Mark Newton

We wanted to compare some of the insights from DeMark Analytics with that of Mark Newton, Head of Technical Strategy of Fundstrat. We asked Mark to weigh in on these same markets tactically. Mark has been eyeing June as the timeframe for when markets might finally find some footing.

Below is a table comparing the views for the various markets.

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

Source: Fundstrat


STRATEGY: We lean relatively “bullish” into 2H2022 (but also 2Q22), but warn of jagged next few months… Stick with BEEF
To recap on equity strategy, we are leaning bullish into 2Q2022.

Stocks have continued to be treacherous in 2022. Investors are on a hair trigger.

– this is in context to a challenging 1H2022
– so jagged next 3 months

Broadly, our existing sector strategy of BEEF remains valid. Even in war. Even with inflation. In fact, the last few weeks are strengthening the case for our “BEEF” strategy. That is, BEEF is

– Bitcoin + Bitcoin Equities  BITO 3.26%   GBTC 3.22%   BITW -2.74%
– Energy
– FAANG  FNGS -0.16%   QQQ -0.21%

Combined, it can be shortened to BEEF.

Why is this making stronger BEEF?

– Energy supply is now a sovereign priority
– this helps Energy stocks

– Ukraine and Russia both want access to alternative currencies
– this strengthens case for Bitcoin and bitcoin equities

– if Global economy slows, growth stocks lead
– hence, FANG starts to lead  FB  AAPL -1.12%   AMZN 0.19%   NFLX -1.10%   GOOG 0.21%

All in all, one wants to be Overweight BEEF

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

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31 Granny Shot Ideas: We performed our quarterly rebalance on 4/5. Full stock list here –> Click here

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We publish on a 3-day a week schedule:

Monday
SKIP TUESDAY
Wednesday
SKIP THURSDAY
Friday

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POINT 1: Total COVID-19 cases 670,424 over past 7D (avg 95,775 per day), up +123,728 (+17,675 per day) vs same period 7D ago…

 _____________________________
Current Trends — COVID-19 cases (past 7D vs. 7D prior):
 – Total new cases  670,424 vs 546,696 7D prior, up +123,728
 – Avg daily cases    95,775 vs 78,099 7D prior, up +17,675
 – 7D positivity rate 10.3% vs 8.7% 7D prior
 – Hospitalized patients  20,861, up +20% vs 7D ago
 – 7D Avg daily deaths 295, up +0.4% vs 7D ago
 _____________________________

Over the past week, a total of 670,424 new cases (avg 95,775 per day) were reported in the US, up +123,728 (avg up +17,675 per day) compared to the same period 7 days prior. Amid volatile markets, the recent rise of COVID cases seems somehow muted. The average daily cases have risen from the low of ~25,000 in early April to nearly 100,000.

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

As a result, we start to see responses from policymakers. For example, as approaching a “high” level of COVID-19 alert, NYC on Monday issued an advisory that urged all New Yorkers to wear a mask at all times when indoors or in a public setting. But, Mayor Adams said the city would not re-introduce mask mandates at this moment.

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

The COVID trend is worth watching. And the incoming weeks could provide us with more insights. More specifically, we hope two questions can be answered:

1\ is the number of new cases going to surge parabolically? Currently, about 100,000 new cases are reported each day. This is also the level we had seen right before the Omicron surge occurred in early December 2021. Given the similarity between the current dominant variant and the Omicron, is the case figure going to surge this time?

2\ is the current dominant variant more virulent? We have noted this many times – The rising case itself will not significantly create a “crisis,” but an overwhelmed healthcare system will. If the COVID case count does surge in the following weeks, will the hospitalization and mortality also surge? Currently, we have seen the decline in daily mortality slow, and the death trend is about to rise.

Ultimately, as we are approaching the summery holiday season, another COVID wave may (or may not) influence people’s willingness to travel. Our team will continuously provide you with timely COVID updates.

7D delta in daily cases has elevated from about +10,000 in late April to +18,000. The recent trend in 7D delta remains stable.

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

At the state level, almost all states reported a higher case figure than last week. Among them, CA, NY, FL, and IL remain the states with the most COVID cases. However, it seems that the new cases in New York State has slowed.

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

​​
33 states have shown clear trends of cases rising.
 *** We’ve split the “Parabolic Case Tracker” into 2 tables: one where cases are falling (or about to fall), and the other where cases are rising.
In these tables, we’ve included the vaccine penetration, case peak information, and the current case trend for 50 US states + DC. The table for states where cases are declining is sorted by case % off of their recent peak, while the table for states where cases are rising is sorted by the current daily cases to pre-surge daily cases multiple.

– The states with higher ranks are the states that have seen a more significant decline / rise in daily cases
– We also calculated the number of days during the recent case surge
– The US as a whole, UK, and Israel are also shown at the top as a reference

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

Net Hospitalization and positivity rate are rising, while Daily mortality has been flat-ish…

Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID.

– Current hospitalization is still within the range of the all-time low since the pandemic. But it has been ticking up recently. But in terms of absolute numbers of hospitalization, the current level is just a fraction of the peak level at ~160,000 in Mid-January.

– The decline in daily mortality has slowed and it seems like the mortality trend will soon turn upwards. This is not unexpected – as we learned from the previous wave, the mortality trend tends to have a 3-4 week lag compared to the case trend. Hence, if the COVID case trend remains upward, the death trend will follow eventually (unless COVID becomes absolutely unlethal).

– The positivity rate has elevated above 10%. But as we noted previously, given HHS’s new guidance that facilities are not required to report negative tests, the current level tends to be inflated and the absolute level of positivity rate might not be comparable anymore vs. prior waves. That said, we still could learn something from the trend – the positivity rate continues to rise and there has been no sign of rollover yet.

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

POINT 2: VACCINE: vaccination pace has been up recently…

___________________________
Current Trends — Vaccinations: 
– avg 0.4 million this past week vs 0.4 million last week
– overall, 31.3% received booster doses, 66.2% fully vaccinated, 77.4% 1-dose+ received
_____________________________

On Tuesday, the FDA authorized third doses (boosters) of the Pfizer-BioNTech vaccine for children between the ages 5 and 11. Today, CDC advisers came out with an official recommendation for the booster for children of that age group. At this time, the Pfizer-BioNTech vaccine is the only COVID vaccine approved for children ages 5-17.

Vaccination frontier update –> all states now above 100% combined penetration (vaccines + infections)
*** We’ve updated the total detected infections multiplier from 4.0x to 2.5x. The CDC changed the estimate multiplier because testing has become much better and more prevalent. 

Below we sorted the states by the combined penetration (vaccinations + infections). The assumption is that a state with higher combined penetration is likely to be closer to herd immunity, and therefore, less likely to see a parabolic surge in daily cases and deaths. Please note that this “combined penetration” metric can be over 100%, as infected people could also be vaccinated (actually recommended by CDC). 

– Currently, all states are above 100% combined penetration 
– Again, this metric can be over 100%, as infected people could also be vaccinated, but 100% combined penetration does not mean that the entire population within each state is either infected or vaccinated

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

There were a total of 409,031 doses administered, as reported on Wednesday. The vaccination pace has started to level off after a brief pickup in mid-March.

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

This is the state by state data below, showing information for individuals with one dose, two doses, and booster dose.

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

In total, 580 million vaccine doses have been administered across the country. Specifically, 257 million Americans (76% of US population) have received at least 1 dose of the vaccine. 220 million Americans (66% of US population) are fully vaccinated. And 103 million Americans (31% of US population) received their booster shot.

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

POINT 3: Tracking the seasonality of COVID-19

***We’ve updated the seasonality tracker to show figures from the last 9 months, from this calendar day, in each of the last two years***

As evident by trends in 2020 and 2021, seasonality appears to play an important role in the daily cases, hospitalization, and deaths trends. Therefore, we think there might be a strong argument that COVID-19 is poised to become a seasonal virus. The possible explanations for the seasonality we observed are:- Outdoor Temperature: increasing indoor activities in the South vs increasing outdoor activities in the northeast during the Summer- “Air Conditioning” Season: similar to “outdoor temperature”, more “AC” usage might facilitate the spread of the virus indoors- Opposite effects hold true in the winter

During the Summer, outdoor activities are generally increased in the northern states as the weather becomes nicer. In southern states, on the other hand, it becomes too hot and indoor activities are increased. As such, northern state cases didn’t spike much during Summer 2020 while southern state cases did. Currently, southern states are not showing as much of a spike as other states. This could be attributed to spring weather in the south encouraging more outdoor activities.

CASES
Current hospitalizations appear to be similar or less than Summer 2020 rates in most states. This is likely due to increased vaccination rates and the vaccine’s ability to reduce the severity of the virus. Current death rates appear to be scattered compared to 2020 rates. This is likely due to varying vaccination rates in each state. States with higher vaccination rates seem to have lower death rates given the vaccine’s ability to reduce the severity of the virus; states with lower vaccination rates seem to have higher death rates.​​​

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

HOSPITALIZATION

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

DEATHS

​​

DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...
DeMark webinar takeaways - one more selloff then shocking rally coming in SP 500 (within days). Crude/nat gas gain peaking...

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