T3’s Take 3: Political Volatility Is Up. Stock Market Volatility Is Dead.
1) Another Day, Another Tiny Record High
According to the mainstream media, traders were disturbed by news that President Trump disclosed classified information to Russian officials.
That sent the US dollar lower, but equity markets didn't seem to care much.
For the fourth time since last Monday, the SPX managed to squeak up to make a new all-time record high… by mere inches.
The SPX made a new high at 2405.77, exceeding yesterday's record by less than 2 points.
The index then turned lower to close down fractionally.
The Nasdaq actually finished up 0.3% and made a new record high.
Bank stocks also did pretty well.
And the Russell 2000, which is a pretty solid gauge of traders' risk tolerance, squeezed into the green just ahead of the close.
So the biggest trend of 2017 continues: political volatility is up and stock market volatility is dead.
However, there's a chance that there's more action ahead.
2) Is Froth Setting In?
Sentiment has been slowly growing more bullish over the past few weeks.
In my May 5 Weekly Sentiment Update, traders were very fearful.
But the aforementioned streak of all-time SPX highs has traders perking up.
For example, the CBOE equity put-call ratio has collapsed over the past 2 days, which means that traders are buying disproportionate numbers of call options. (call options rise in value when stock prices rise)
While the bears have insisted over and over again that buyers are too complacent, sentiment has been on the decline for most of the year.
Check out the following chart, which plots bullish readings from the American Association of Individual Investors Sentiment Survey.
It begins on November 3, 2016 — the week before the Presidential election — and runs through last Thursday.
As you can see, the general trend is down since the election.
It may be about to change.
If equity prices stay strong, sentiment could go full-on bullish, which could contribute to a possible blow-off top… and a subsequent big drop.
RememberWhat goes up must come down… eventually.
3) Snapped!
Snap Inc. (SNAP), maker of the popular Snapchat app, surged 8.4% yesterday on news that big-name investors like Georges Soros and Steve Cohen took positions in the stock.
However, Snap bulls had a brief scare today after Facebook's (FB) Instagram unveiled an all-new feature — Snapchat-like face filters.
This extends the Facebook/Instagram assault on Snapchat that really took off when Instagram Stories was released in August 2016.
Snap shares fell -2.8% to $20.15 at the open today, but made up the lost ground quickly and actually finished up on the day.
Sometimes, when you see a rapid turnaround in the face of bad news, it's a sign of strong underlying demand for the stock.
However, keep in mind that Snap reported a pretty lousy first-quarter earnings report on May 10, so the jury's still out on the fundamentals.
And I can't see how Instagram aping even more of Snapchat's features helps anything.