ED HARRISON: This is the Real Vision Daily Briefing. I am Ed Harrison, joined shortly by Tom Thornton, Hedge Fund Telemetry founder and CEO, but first with the news of the day, Haley Draznin.
HALEY DRAZNIN: Hey, Ed. Markets were mixed on Thursday after fresh data showed Unemployment Claims jumped sharply last week. 853,000 initial jobless claims were filed last week. That is the highest since September. It is a big jump from Thanksgiving week, and it likely overstates the underlying trend we saw following the holiday at a revised 716,000 initial jobless claims. To be honest, this was to be expected. The surge in initial claims is especially concerning when claims are still above levels near the peak of the Great Recession.
If you look at the not seasonally adjusted numbers, it is even scarier, with 947,000 jobless claims filed. Continuing claims also increased to more than 5.7 million, it is the first time that number has gone up since August. Investors expected there could be declines in continuing claims as workers started rolling on to other programs, like the Pandemic Emergency Unemployment Compensation Program after having exhausted their state benefit, but we are just not seeing that. That program is also expected to expire at the end of the month. This ugly round of data is weighing on expectations for this December jobs report without a doubt. Thousands of people are losing their jobs every week because demand simply has not returned.
When someone is let go today, that means the company does not see that job existing for a while, so we are losing momentum here. The rise in virus cases has put more pressure on the job market. It is suggestive of an increase in lockdowns and rollbacks for restaurants and other small businesses. Even some schools have closed again until after the holidays. Until the case counts go down, chances are these unemployment levels will remain high. This all raises concerns of course of a double dip recession as we have been discussing.
Policymakers though, are you paying attention? Fiscal stimulus is clearly looming larger here. Some believe the markets have not done worse because there are still hopes that stimulus will provide the backstop. Also, the markets are trading at record highs and no one seems to be concerned. Valuations are above 1929 levels and moving closer to 1999-2000 bubble peaks. If you look at the CAPE Shiller PE ratio, which looks at stock prices divided by adjusted earnings over 10 years, it is around 33. That is nearly double the historical average, but still below the peak of nearly 50 during the dot-com boom.
Stocks can trade at these levels for extended periods of time, especially since interest rates are so low and they will likely remain near zero for a few more years. DoorDash and Airbnb this week are the perfect example of IPO valuations that were higher than expected. The market is following the path of expected vaccine success while the economy is following the path of the virus and the shutdowns. To be continued. Back to you, Ed.
ED HARRISON: Thanks very much, Haley. Tom, welcome back to the Daily Briefing.
TOM THORNTON: Hey, Ed. How are you?
ED HARRISON: I am very good, and I am excited to talk to you about DeMark indicators. First, we've got to talk about some of the crazy things that are going on in the market with regard to these IPOs recently, I know that you probably have some views on that.
TOM THORNTON: Yes, it is crazy out there. It feels a lot like 1999 and what is really crazy is that you have buyers after the IPOs are opening up 100% or more. The speculation is a little worrisome, and this is what happens late in the cycle of a market cycle. Just a little crazy snippet on Airbnb, they have $100 billion valuation. Now, if you take Hyatt, Marriott, Hilton, Wyndham choice hotels, extended stay, and you combine all those together, you are at the Airbnb valuation the market cap. Now, DoorDash is $57 billion market cap. This is really crazy.
You take Chipotle, Domino's, Shake Shack and Papa John's and you combine those and then you have DoorDash and I have picked a couple of those restaurants that are expensive, but DoorDash is just ridiculous, but you cannot short them. It is too volatile. It is too dangerous. You get squeezed higher, and sometimes-- well, I like to say a lot, when it is obvious, it is obviously wrong. You got to wait for the air to come out of them a little bit and then they will come back down to earth. Right now, I do not want to invest in long or short in those companies, it is just wild.
ED HARRISON: It is great that you say long or short, because you do not really know which way to go, and you know that it is not cheating on fundamentals. It is clear that this is a greater fool thing. I am just going to make some quick profits. As a result, it is hard to get in front of that train.
TOM THORNTON: Yes, it is a train. I will probably short these at some time in the future. We have seen a lot of IPOs come and go and look at Twitter, Twitter went up a huge amount, and then came back down, I think by around 75%. Then it matured and came back. Look, I just think that right now, it is a speculative bubble happening in the market. There is areas to buy, and there is areas to sell.
ED HARRISON: Let us move on, actually, to your broader views because I noticed-- I am just looking here on my screen, that you put out a tweet yesterday that you are going to be on today, and you asked people what they should discuss. One of the first people to respond that had the biggest responses was Raoul Pal who said he wanted to hear about DeMark. He said DeMark setups everywhere, 9, 13 years ago, go weekly, three weeks out, too. Well, first of all, what is he talking about? Secondly, can you give us like the macro DeMark indicator elevator pitch view because a lot of people do not know what that is?
TOM THORNTON: I took some notes, just so I--
ED HARRISON: Let me just interrupt you for a second, by the way, because I was just noticing that you do-- this is a shameless plug, by the way, for you, Tommy, that you have a special for Real Vision, $250 off for your yearly retail price with 2020 as the coupon. I am sorry to interrupt you.
TOM THORNTON: That is fine.
ED HARRISON: I put shameless plug there as a result. Carry on now. Talk about what you actually do.
TOM THORNTON: A lot of people they look at DeMark indicators, and if you have not used them, and you do not use them, they look like Greek and you really do not have any clue how to use them. I try to keep things really simple. Tom DeMark created this indicator in the1970s on paper pre computer in his garage. Once computers came around, he created another 100 more indicators. Basically, the DeMark sequential, it has two components, the TD setup, and those are the green numbers, one through nine, and that begins the sequential process.
Now, that relies on the momentum of a move. It is a new turn up or down with the green setup. It finishes at nine. That is the completion number. You have to have, with the setup, nine consecutive days, or bars, where the close each day is either lower or higher than the close four days or bars earlier. Now, that is higher or lower depending on which way the momentum is going. Now, if that sequence is interrupted, that green count goes away. It just disappears.
ED HARRISON: You start again from zero.
TOM THORNTON: The second part is the countdown in the sequential and that is the red numbers. The setup nine has to complete for that countdown to start. That is a more of a trend based indicator that looks really for low risk opportunities to fade and establish directional trend. When you see these 13s, the rule of thumb is that you have 12 bars or 12 days ahead, you should see a price reaction the opposite direction. Now, if it does not occur, then that trend will continue and that tells you something in itself.
Now, the sequential is a little different than the setup and that is the red numbers again. It measures the depletion of buyers and sellers in the market after the setup phase, after that nine, and then it determines the direction of the trend. You have this trend going higher. It can go sideways, it can chop, the 13 numbers do not have to have happen in sequence, they can skip but it has to qualify this way. It is calculated, each number, each red number is calculated by comparing the close of the current bar to the higher low of the two bars earlier.
The setup, let me just remind everybody about that, that is the green numbers. You have to have nine consecutive days where the close each day is lower or higher than the close four days earlier. Now, the countdown again, it compares the close of the current bar to the high low of the two bars earlier. Once you get the 13, again, you should see a price response. What Raoul is saying is that we are seeing a lot of these 13s and nines on a lot of different instruments out there from stocks to crypto, a lot of sectors, factors that I monitor, and when you see them on daily and weekly, it tells you more that there is an intermediate trend that could turn. Again, we have seen this type of speculative action before, we saw this in 2017. Was it 2017 when we had the Bitcoin run-up? You would know that.
ED HARRISON: Yes, I believe that that is right.
TOM THORNTON: I am not a Bitcoin bull or bear, I am indifferent. Back in December of 2017, I put out to my people, I said look, I do not trade Bitcoin, but I have a DeMark sequential sell countdown 13 and that was the day after the true high peak. Then at 3000, a little over 3000 on the low, we did have a buy countdown 13. Then it started moving higher, and it has chopped higher, and we are now seeing daily and weekly signals.
Now, the daily has not worked well. When that does not work again, when those signals do not work, that is telling you the trend is very, very strong. Now, we have the weekly and I am going to defer to the weekly as something to really watch. Now, I personally think Bitcoin can go higher, but I would like to see a pullback, let us say, as low as 11,000 perhaps the 50-day, 14,000 to 15,000. That might do it. Then we will see another--
ED HARRISON: That is a huge pullback there.
TOM THORNTON: What is that?
ED HARRISON: That is a huge pullback.
TOM THORNTON: Yes, but it is only pulling back X amount from how many weeks back or months back. That is what Bitcoin does. It does what it does. It is not like it is going to move like the dollar, which I know you want to talk to me about.
ED HARRISON: The first thing that comes to mind is when you said intermediate trend, I thought to myself, that sounds potentially-- since the market has been going up, like there is the potential for a correction. When you talk about an intermediate trend reversal, what are you thinking about?
TOM THORNTON: The last time we saw these weekly signals concurrent with the daily was that 2017. We extended even further into January, and you had the speculative juices in the stock market. People were just throwing money and buying calls at that time as well. Not as much as they are now, but that, to me, says that we could cool off in the beginning of the year, maybe even sooner. December is a hard month to ever short anything, and I am not recommending people go out and short the market here, but when this market starts to crack, there is a lot of air pockets below. That would be actually very healthy for the market. People do not really want this market to go higher without having some correction, and that is important.
ED HARRISON: I was looking at something on your website, in the Hedge Fund Telemetry site, where you were talking about specific positions that you are taking, it looks like if we go back to say, October-ish timeframe, we are looking at financials and energy in particular, you were taking some financial names off the table. You were still riding with some of the energy names. Can you talk to me about what you are seeing in those two sectors?
TOM THORNTON: Yes. Those are sectors that I really, really like with the reopening that will eventually happen. Let us start first with financials. Financials have overreserved in many people's opinions. I think the mandate was that they had to have reserves for 13% unemployment. Now here we are at what? 7% unemployment, just under 7%. It is probably higher. As they say that nobody can really calculate it that great with what is happening. Once this reopening happens, all those reserves are going to come right back, and that will be a tailwind for these stocks. They are cheap.
I will say last time I was on, I did take some profits. I was in JP Morgan, Goldman, a couple others, XLF. Today, I sold all my remaining financials. I sold Citi. I sold PNC, KBE, which is my favorite ETF for financials, for banks. I am long energy still. Last time I was on which I think was like a month ago, I said I am recommending people buy Occidental, and I am up 50% in this thing. Now, I am up like 125%. It is getting a little frothy there. I am not saying let us go out and buy Occidental today, but there is a lot of names that I think still have--
Well, they have DeMark counts of on the sequential from six to eight on 13th. We are going to go higher to get to those 13s. Energy is a little ahead of itself, because the seasonality for energy when it is best is towards the end of January to May. That really has a very strong seasonal pattern. We are a little ahead of that. If we get a pullback, I am going to be buying more energy stocks. They are cheap. I think that Biden as much as he says, and we are going to get rid of the fossil fuels, we were going to limit drilling, new areas for drilling, that is exactly what we want to hear. Because under Trump, you could drill anywhere.
You could drill basically in the Hudson River if you had a permit, if Trump would have given you one, no problem. You had such a glut in energy, and I think you will have less of this glut. OPEC is trying to do what they do and formulate a plan not to drill more, they cheat, but so be it. There is going to be less supply, and then demand will kick back in. It does not have to kick back in that much, but people are not flying. People are not really driving anywhere. They are not traveling.
When that kicks back in, this is going to be great for the energy complex. It is going to be terrible for the economy, because somebody once told me, like every dollar up in crude, it is like a tax on the consumer. If crude goes back to 60, it is more like 55 on WTI. That is going to be a headwind that people are going to have to realize for the economy and for consumers.
ED HARRISON: Interesting. Two thoughts on that. One is maybe up to a certain degree, it is not and that the windfall for the drillers and for the oil companies is positive enough to overcome given the economic reopening, but you get to a certain point, say $80 a barrel where it is a headwind, and I am looking at the numbers now, and it just seems like they are ripping. Today was a really good day. WTI earlier in the day traded with the 47 handles, at 46.84. 85, as I am looking now, and Brent at 50, above 50, 50. 30, both about 3% of the day. How much of that is priced in what you are talking about in terms of the reopening? Those levels I was just talking about, how much higher they can go by say, the middle of that timeframe that you gave? January to May.
TOM THORNTON: We are going to have one pullback perhaps in mid-January, and then it will be a little tricky and nobody will believe it, but it will probably go up towards February as the vaccines get out there and reopening starts to happen on the West Coast, and people start traveling again, hopefully. I think you could be in the 60s. I do not see 80, that is a little too aggressive. Because the shale people will go crazy with whatever they can and pump as much as they possibly can, and it will balance itself out.
ED HARRISON: I have been doing some thinking about human reaction with this reopening that you are talking about. There are a lot of people in service who say that they will not take the vaccine. I think about this, if someone were to ask me, are you going to take the vaccine? Well, the answer is probably more like, probably, I will take the vaccine. Let me take a look and see what actually happens. My view is that once the efficacy of the vaccine in real life, in real time is apparent to people, everyone is going to jump on board and start getting the vaccine. In no time, by the time that you and I were talking like this, nine months from now, we will be doing it in the studio.
TOM THORNTON: Yes, that is what we want. I am not an anti-vaxxer. I will take every single vaccine. I will roll up my sleeve right now. I want to go out, I want to have fun, I want to go and travel, I want to go to restaurants. I am sick and tired of wearing a mask, and I want my family to be healthy as well. We will see what happens with some of these vaccines. I am not getting it first. That is going to the right people, first responders. We will see how it plays out. It has been rushed, obviously, but I definitely be very excited to take a vaccine. I heard the Pfizer one is really painful, and it is freezing. Getting a shot that is cold is horrible, but no pain, no gain.
ED HARRISON: I am with you there. I am a hundred percent on where you are. By the time they get around to me, we will know what the efficacy is. I am sure that I will be lining up and ready to go out and do things I have not been able to do in a year's time. Tom, what about other places from a reopening perspective? I want to look at commodities, then maybe we can look at some sectors as