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T3’s Market Wrap: Not So Great Expectations Lead to Big Moves

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Market nearly hit record highs today when the bad news traders were expecting didn’t materialize.

On Friday, the CBOE equity put-call ratio hit 0.73, a substantial spike from Thursday’s 0.55. This indicated high demand for put options, which gain in value when the market falls.

Leading to Friday, the equity put-call was under the long-term average for 7 out of 8 days.

This indicates that on Friday, options traders very suddenly got bearish and scrambled to scoop up put options ahead of Hurricane Irma and more troubling activity from North Korea.

That marked very bearish short-term sentiment, providing upside fuel when bad news didn’t hit.

Irma turned out to be less destructive than expected, and was downgraded to a Tropical Storm.

It could still do plenty of damage as it heads North, but it appears that the worst-case scenario is off the table.

Meanwhile, North Korea did not fire any missiles as some observers expected.

The SPX rose 1.1% to 2488.11. It hit an intraday high of 2488.95, less than 2 points away from the 2490.98 all-time high.

The Nasdaq and Russell 2000 also each rose 11.1%.

Meanwhile, the VIX fell over 11% as traders are pricing in less volatility.

The big drop in the VIX could mean that sentiment is becoming frothy. The 3-month VIX spread, which tells us about near-term volatility expectations, is around +4. If it pushes much higher than this, sentiment could get too bullish.

(click here for a primer on VIX spreads and curves)

Apple (AAPL) rose 1.8% ahead of tomorrow’s highly-anticipated iPhone release event. Apple is expected to release a new iPhone X model priced at $1,000, and the market’s reaction will certainly be interesting.

Gold, which has been ripping as of late, fell -1.5% as the beaten-down dollar and US Treasury Yields staged relief rallies.

However, T3 Live’s Jeff Cooper believes traders should not underestimate gold’s power.

According to Jeff, “trade above recent highs should see a sharp move to 1390 to 1408. The presumption is this will play out in the 4th quarter.”

If that’s the case, equities could be in for quite a bumpy ride.

(click here to download Jeff’s FREE trading case study)

The pop in yields also gave banks a nice push, with the volatile regionals (KRE) up big.

On the downside, biotechnology (IBB) finished barely green after a solid open.

SPX is within striking distance of all-time highs.

So I guess we’ll find out if biotech plays catch-up to the SPX or vice versa.

If the bios perk up, perhaps we see a new record SPX high above 2490.

This morning, Scott Redler said to see if QQQ can hold Friday’s high of $145.35.

With the strength in key tech names like Nvidia (NVDA), Tesla (TSLA), and the aforementioned Apple, QQQ stayed above Friday’s highs, giving traders confidence that the bounce can last.

Credit reporting service Equifax (EFX) fell over -8% on fears about the impact of its recent security breach.

Troubled pharmaceutical name Teva (TEVA) rose over 19% after naming industry veteran Kare Schultz as new CEO.

Crude oil prices rose on the weakening of Hurricane Irma, since energy demand is likely to bounce back sooner. That had energy stocks in positive territory.

 

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