All posts by Michael Comeau
Did Tim Cook and Elon Musk Pull a Trump on Trump?
The Business of America Is Business -Calvin Coolidge Donald Trump has made a fortune by selling his name. According to the Washington Post, Trump companies have made at least $59 million in revenue. Here’s one of the Washington Post’s examples: In Indonesia, Trump has licensed his name to two projects — a luxury resort and a golf course — for which he earned between $1 million and $5 million each project, each year. Now Apple (AAPL) CEO Tim Cook and Tesla (TSLA) CEO Elon Musk may be running the same game on Trump — selling their names in the name of business. The Washington Post reported that Trump is about to announce “The White House Office of American Innovation,” which is aimed at bringing fresh business-like thinking to Washington. Supposedly the office is already working with Cook, Musk, and Salesforce (CRM) CEO Mark Benioff. After the failure of the healthcare bill on Friday, Trump needs more credibility. Association with tech leaders like Cook and Musk gives him that. Dropping those names when introducing new legislation would be a huge selling point. And odds are, there will be some payback, especially since Trump seems to love everyone that sits down with him. Remember his January 31 meeting with pharma CEO’s? The talk about price controls seemed to dissipate pretty quickly. So what could Cook and Musk get out of Trump? Well, there’s a lot of chatter that having a big personal connection in the White House could help Apple make even more headway in the education market. But I think the real story is the potential repatriation of overseas cash. Apple’s sitting on $246 billion in cash, but $230 billion of it is sitting overseas doing nothing. Cook has said that he’s optimistic about some kind of tax reform including repatration this year, and buddying up with Trump can only help that process. As for Musk, I imagine that Trump could keep government subsidies flowing for electric cars. There’s also potential for some of Tesla’s non-car initiatives, like its energy story solutions, to make their way into Trump’s infrastructure package. And then there’s Solar City (SCTY), Musk’s solar panel company. I can’t imagine that company would hurt by ties to Trump. So Cook and Musk may have struck great deals. They’re selling their names to help Trump build credibility for business-related legislation. And their companies will probably collect big-time cash on the back end.
Continue Reading -->Weekly Sentiment Update: The Bears Are Done Hibernating… and They’re Hungry
Permbulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, sentiment went neutral for the second straight week. The big news this week is today’s healthcare vote (well, let’s hope we get it over with it), so let’s see if traders 1) VIX Spread – Bullish The 3-month VIX spread is at +2.6 which indicates that traders are moderately bullish. However, this number has been sliding steadily as traders slowly price in more volatility. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 30, down from 53 last week. F&G operates on a 1-100 scale, and a reading of 30 means traders are bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 35.3% of individual investors are bullish, which is just below the long-term average of 38.5%. It’s close enough to the middle to cal 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.67 yesterday with a 3-day moving average is 0.73. This is indicates that traders are bearish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 101 (101 calls bought for every 100). So there are a ton of post-Fed call buyers. , which is a bullish reading. The 10 day moving average is just 89.7, up from 83 last week.This indicates strong demand for put options, but the ISE has been extraordinarly low forever, and 89.7 is pretty high compared to recent readings. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 3 bearish 1 neutral So in the past 4 weeks we’ve gone from 2 weeks of bullishness to 2 weeks of neutrality. Markets have been in a slow motion grind lower since the spike high on Trump’s speech, and the sluggishness is impacting traders’ moods.
Continue Reading -->T3’s Take 3: Mr. Market Is Still Telling the Most Boring Story on Earth
1) What a Boring Market Stocks are still in sleep mode, with the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite showing next-to-none movement. The Russell 2000 fell -0.5% to 1384.09, and in today’s low volatility environment, that actually counts as major movement. Traders are still debating just how hawkish the Fed is following its statement last week. That’s driving continued profit-taking in the US dollar, which helped gold catch a bid. Regional banks, which have been key in the post-election rally, are still dropping, while US Treasuries perked up again. 2) Wait and See? We’ve been falling asleep for the past month as day-to-day movement has gone to basically nothing. The word on the street is that traders are waiting on Thursday’s healthcare vote before putting their chips down. However, throughout the year, we’ve seen plenty of big events — Trump’s inauguration, then his first address, jobs numbers, the ECB, Fed statements, etc. — and none have driven real volatility for more than a few hours. So my big concern is that we’ll see some fireworks on the healthcare vote, and then head right back into this low-volatility snoozefest. 3) But There’s This… This morning, Bloomberg News reported that the CBOE SKEW Index rose for 5 straight days, the longest streak since June 2016. This indicates that traders are paying up for out-of-the-money options, which only pay off in the face of a huge market move. According to Bloomberg, the last time the SKEW Index was so high relative to the VIX, the VIX surged 65%. However, before throwing your money at VIX calls, consider that we’re dealing with a sample size of 1 — that’s far from reliable.
Continue Reading -->Snap’s Earnings Date Is an Awfully Valuable Piece of Insider Info…
UPDATE: Snap finally announced May 10 as its earnings date. Click here for more info. Snap Inc. (SNAP) (a.k.a. Snapchat) options have been trading for about a week, so let’s take a deep dive to see what the story is. First things first: Snap options are fairly liquid. The spreads on most contracts are pretty reasonable. As with all new issues (especially volatile high-beta tech names), the options are expensive, with implied volatility readings in the 47% – 60% range, depending upon the strikes/expiration. It looks like traders expect earnings to be reported the week of May 19. We know this because that week’s series has the highest implied volatility readings. So do you know what is an EXTREMELY valuable piece of insider info? Snap’s exact first earnings date. Why? Because for the options expiring on the week of earning, implied volatility (and thus option prices) will skyrocket. I’d be shocked if they didn’t go over 100% for the week of earnings. For example, the $20 calls expiring May 19 are going for about $1.95, with implied volatility of 60%. Let’s imagine a hypothetical scenario where Snap says today that earnings would be announced on May 18. If implied volatility went up to 100% from 60%, all things being equal, the price of that $20 call would go up to $3.18! (Number calculated with CBOE’s options pricing calculator. Please note: this only holds true for today, since options prices are heavily impacted by time to expiration and other factors) So keep your eyes peeled for the announcement — there could be money to be made if you are very, very fast. (as in able to place orders in seconds) One thing that really surprises me is that there isn’t an especially large put skew in Snap options. A large put skew means the put options are very expensive compared to the calls. Typically, hot new issues that are heavily shorted (which describes Snap to a T) have very high put skews. This is because when stock is hard to borrow (common with heavily-shorted stocks), demand for puts goes way up because traders are desperate to get in. Now, there is a put skew in Snap options, but it’s just a few percentage points here and there — not nearly as big as what we’ve seen with stocks like TWLO, FIT, and GPRO.
Continue Reading -->T3’s Take 3: The Go-Nowhere Market Is Still Going Nowhere
1) Another Day, Another Yawn I was really hoping that the Fed rate announcement and Dutch elections this week would spur some actual, real-life, lasting volatility. But following Wednesday’s post-Fed power rally, the market went right back into snooze mode. The S&P 500 fell -0.1% to 2378.25, with the Nasdaq flat. The Russell 2000 showed a little relative strength, which was nice to see. We also saw key large-cap tech stocks like Apple (AAPL) and nVidia (NVDA) rally intraday to finish near the highs of the day. Regional banks (KRE), which have been key in the post-election rally, also made a nice move off its morning low. 2) Levels to Watch in SPX This morning, T3 Live Chief Strategic Officer Scott Redler issued analysis of the S&P, saying the following: “Watch 2370-2377. We need to hold above that. Otherwise, more choppy downside can happen.” The S&P actually bottomed today at 2377.74, just missing Scott’s key range that would indicate trouble is ahead. So the bulls remain out of reach of the frustrated bears. 3) Quick Sentiment Update In yesterday’s Weekly Sentiment Update, I pointed out that the ISE Sentiment Index showed a huge surge in call options buying. But call buyers backed off quickly today. The ISE Sentiment Index fell to the low 70’s, indicating that traders went right back to buying up puts in anticipation of downside.. Increased put buying is actually good for the bulls, because it indicates that traders are still somewhat nervous. It’s very rare for traders to be skittish at the top.
Continue Reading -->Weekly Sentiment Update: The Crowd Is Neutral but Options Traders Are Running Wild
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, we saw sentiment fall to neutral territory after two weeks of strong bullishness. (see here and here) So with the Fed out of the way, let’s see if anything’s changed using our 5 primary sentiment indicators: 1) VIX Spread – Bullish The 3-month VIX spread is at +3.01 which indicates that traders are moderately bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 53, down from 66 last week. F&G operates on a 1-100 scale, and 53 is basically neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 31.2% of individual investors are bullish, which is well below the long-term average of 38.5%. Bullish AAII Sentiment has been below the long-term average for 7 of the past 8 weeks. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.61 yesterday with a 3-day moving average is 0.68. This is slightly bearish. 5) ISE Sentiment – Bullish This is where things get really interesting. The ISE Sentiment Index is at an insane 304 this morning. That means 304 calls purchased for every 100 puts. We very rarely see reading this high, even in a hard rally. So there are a ton of post-Fed call buyers. , which is a bullish reading. The 10 day moving average is just 83, but I’ll call this bullish becasue of today’s extraordinary surge. Conclusion Out of 5 sentiment indicators, we have: -2 bullish -2 bearish -1 neutral So we’re still stuck in neutral territory, though the insane call buying indicated by the ISE Sentiment Index implies that traders are extremely optimistic near-term. With stocks creeping lower intraday, we’re about to see if those call buyers marked the top.
Continue Reading -->The Trouble With Crude Oil
The action in crude oil has been hideous as of late, as you can see in this weekly chart: To be fair, it doubled in a year, so some profit-taking may be in order. However, let’s hope it can resume the uptrend, or at least hold the uptrend in the $46-$47 area. The oil rebound off the $26.05 February 2016 low played a huge role in last year’s rebound. There’s been no volatility in 2017 but oil is certainly a candidate for messing up the party. Remember, oil affects a lot more than energy stocks. Many regional banks have large energy loan books, and weak oil means more defaults. There are also an awful lot of high-yield energy bonds that would suffer. And historically, weak high-yield markets means trouble for the broader equities market. For now, the bulls remain in firm control, but oil could inspire the bears to finally step up after getting destroyed in the post-election rally.
Continue Reading -->Q&A: How to Judge an Economic Data Point
Dear Michael, How can you call the jobs report ‘Meh’? NFP came in at +235K and beat the street expectations. How is that meh? -Randy Dear Randy, The 235K headline number was fine, but that’s not the totality of the report. Average hourly earnings grew by just 0.2% vs. the 0.3% consensus, which offset the impact of the headline number beat. Plus, you have the remember that expectations were running very high headed into the report. On Wednesday, the ADP employment number beat by a mile. In addition, bonds have been sinking while the US dollar has been rising, indicating that traders have been anticipating the type of strong economic data that has bolstered the Fed’s case for rate hikes. How to Look at Economic Data Points In isolation, economic data points are completely useless. To properly understand them, you must bring them into context by doing 2 things: Measure them against expectations as set by economists and the market itself. Measure them against expectations as set by the market itself. First, let’s look at expectations as set by economists. News and data providers like Bloomberg and Reuters collect forecasts from various economists to determine a consensus forecast, which is a rough approximation of the market’s expectations. With economic statistics, the consensus forecast is determined by taking a median of the data set. Now, for last Friday’s jobs report, the consensus forecast (the median) was 190K. So 235K was a beat. Had the consensus forecast been 300K, 235K would have been disappointment. However, we must also take the actual market’s behavior, because they also play into expectations. As I stated earlier, bonds were falling headed into the report. This is because a strong report would support the case for more Fed rate hikes, which would push down bonds. But what if bonds rallied ahead of the jobs numbers? That would indicate that traders expected a miss in the jobs number. Admittedly, this is more art than science, and it’s generally only applicable to major economic data points like NFP, GDP, CPI, etc. But by focusing on how economic data is reported relative to expectations, you can get a sense of just how ‘good’ that data actually is. And just so you don’t forget, I’ll say it again: In isolation, economic data points are completely useless. To properly understand them, you must bring them into context by doing 2 things: Measure them against expectations as set by economists and the market itself. Measure them against expectations as set by the market itself.
Continue Reading -->Shorts Gone Wild! How to Avoid Getting Crushed by Stocks Like MBLY
Mobileye (MBLY) is a name I cover in my Morning Note fairly regularly. Today, it’s up $14+ after getting taken over by Intel (INTC). Unfortunately, Citron put out a short report on it a few weeks ago, saying it was going to $35, and I got away from it. However, the MBLY action is teaching us a good lesson about shorting stocks. When a stock is still above the 8/21 day moving averages in the face of a negative report, then it’s showing strength. So even if we’re not getting long the stock, there’s no way we’re shorting it when it’s strong. If the stock action doesn’t confirm bad news, the bad news may not matter.
Continue Reading -->T3’s Take 3: The US Dollar Sinks on a ‘Meh’ Jobs Report
1) A ‘Meh’ Jobs Report This morning, the US Bureau of Labor Statistics said that 235,000 nonfarm payrolls were added in February, beating the 200,000 consensus. The unemployment rate was 4.7%, in-line with expectations. However, average hourly earnings grew by just 0.2%, missing the expected 0.3% reading. That drove profit-taking in the US dollar, which has been moving higher in anticipation of a March rate hike. That said, the headline number was still pretty good, and traders are unwavering in their belief that March is in play. The CME’s FedWatch Tool shows that markets are pricing a 91% probability of a rate increase this month. 2) The Big Yawn Market While I was hoping for some volatility on today’s jobs numbers, we didn’t it. Stocks once again traded in a very tight range, with the S&P 500 trading up 0.3%. The Russell 2000 and S&P 500 also made modest gains. Like the US dollar, bank stocks saw profit-taking on the disappointing hourly earnings number. Meanwhile, rate-sensitive groups like gold miners and utilities caught a bid. The brightest spot of the day was biotech, which rallied nicely in the afternoon on speculation that sector leader Gilead (GILD) is about to announce an acquisition. Plus, President Trump is expected to appoint Scott Gottlieb, a doctor with deep ties to the pharma industries, as FDA commissioner. Presumably, he’d create the friendlier regulatory environment that Trump has promised. 3) Neutrality Last week, various sentiment indicators showed that traders were getting very cocky. This week, the picture is quite mixed. The AAII Sentiment Survey showed that individual investors have become much more cautious, even though the major indices barely moved. Click here to read my full Weekly Sentiment Update.
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