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Did Breaking SPX 2500 Put a Spell on the Bulls?
Last week, sentiment among traders went all-out bullish as the SPX flirted with the 2500 mark for the first time ever. Subsequently, the SPX grinded up to set a new all-time high at 2508.85 before backing down just a bit. So let’s see what’s changed this week. Are traders encouraged by a more hawkish Fed? Do they care at all about North Korea? Let’s find out using our 4 sentiment indicators. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish The VIX is once again hovering around the 10 level after going as low as 9.54 this week, indicating that traders are not pricing in much volatility. The 3-month spread is at +3.98, which means traders are fairly bullish. When this number moves above +4.5, then it’s a clear sign of froth, and we could get there soon. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 66, down slightly from 73 last week. The F&G Index operates on a 1-100 scale, and a reading of 66 qualifies as moderately bullish. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 40.1% of individual investors are bullish. This is down slightly from 41.3% last week. This 40.1% reading indicates that individual investors are basically neutral, though it’s much higher than readings we’ve seen throughout 2017. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.66 Thursday, which is right in line with the long-term average of 0.655. The 10-day moving average is 0.625, which is below the long-term average, and indicate higher-than-normal demand for call options. Stretching out things just a little bit more, this measure has been below the long-term average for 14 of the last 18 trading days. So there have been a lot of folks gunning for more upside through the options market. Conclusion Out of 4 sentiment indicators, we have: 3 bullish (flat from last week) 1 neutral (flat) 0 bearish (flat) We have 3 bullish, 1 neutral, and 0 bearish indicators this week. This week’s readings are a little less crazy than last week’s but make no mistake about it: the crowd is very bullish. Last week, I said to watch for a possible drop in the VIX to the 9.5 to 9.75 range, which could mark extreme complacency. As noted earlier, we got a 9.54 VIX print on Thursday, and maybe we’re about to find out if that did indeed mark a near-term top. Keep in mind, we’ve had a lot of moments like this in 2017. Sentiment gets super-bullish, technicals look stretched, and the leaders start breaking down. We’re certainly seeing that with profit-taking in names like Apple (AAPL) and Nvidia (NVDA), as well as the biotech sector. And every time, just when it looks like all is lost, the market pulls a rabbit out of its hat and just keeps on chugging. The market ‘feels’ shortable, but one thing has me hesitating: the surging Russell 2000, which has been showing relative strength and looking to makes it own all-time high. That’s a sign there’s still an appetite for risk out there, and perhaps more upside to come.
Continue Reading -->Sami Abusaad: How to Trade a Slow and Sleepy Market
In this special video, Nightly Game Plan Moderator Sami Abusaad walks you through how he traded a sleepy week for stocks. Typically, Sami showcases one of his swing trades so you can understand his strategies, but this was a particularly slow week, so instead, he’s going to break down a variety of this trades: In the video, Sami’s going to walk you throgh The extremely tight trend in QQQ, which didn’t matter in August, but which matters now The time frames Sami uses for finding patterns and perfecting entries The bearish 1-2-3-4 continuation pattern The weekly buy setup in Adtran (ADTN) An after-hours entry in Microbot Medical (MBOT) Why Sami bought the controversial Equifax (EFX) Earnings plays in Steeelcase (SCS) and Copart (CPRT) (click here to learn about Sami’s Earnings Play strategy) Click here to learn about Sami’s Nightly Game Plan
Continue Reading -->Did a Whiff of SPX 2500 Makes the Bulls Crazy?
This week, the SPX set multiple records with a new all-time high at 2498.43. And the index is still within striking distance of 2500, even with a missile launch in North Korea and a terror attack in London. So are traders complacent? Are the bulls asleep at the wheel? Let’s find out using our 4 sentiment indicators. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish The VIX is once again hovering around the 10 level, indicating that traders are not pricing in much volatility. The 3-month spread is at +3.86, which means traders are fairly bullish. When this number moves above +4.5, then it’s a clear sign of froth. We’re obviously not there yet. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 73, nearly doubling from 38 last week. The F&G Index operates on a 1-100 scale, and a reading of 73 qualifies as fairly bullish. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 41.3% of individual investors are bullish. This is up huge from 29.3% last week. This 41.3% reading indicates that individual investors are neutral, though it’s much higher than the year-to-date average of 32.9%. This reading has been fairly depressed all year, so I was surprised to see such a big jump, even with the market’s upward momentum. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.56 Thursday, which is well below the long-term average of 0.655. The 3-day moving average is 0.5633, and the 10-day moving average is 0.598. Both are also below the long-term average, and indicate higher-than-normal demand for call options. Conclusion Out of 4 sentiment indicators, we have: 3 bullish (up from 2 last week) 1 neutral (up from 1 last week) 0 bearish (down from 1 last week) Traders are much, much more bullish than last week, and this is perhaps best seen in the AAII Sentiment and CBOE equity put-call measures. AAII sentiment isn’t bullish. But it’s made a huge jump, and a relatively large number of individual investors just got on board the bull train. The CBOE equity put-call is even more interesting. It has been below the long-term average for 11 of the past 13 trading days, which implies that traders are loading up on calls. I love trolling the permabears by correctly pointing out that they always say everyone’s bullish — even when the numbers clearly point to bearishness. But today, the permabears are right. The crowd is very bullish, which leads to a very logical question: are we set for a fall? It’s tough to say. I would watch for a drop in the VIX to the 9.5 to 9.75 range. That could mark extreme complacency, providing a possible opportunity to speculate on a market dip and spike in volatility. In such a scenario, I would certainly consider buying SPY puts, since they provide a cheap, efficient, and liquid way to speculate on a market decline.
Continue Reading -->Morning Call Express: Risk-On Ahead of the Weekend
Catch T3 Live’s latest Morning Call Express video with Kurt Capra:
Continue Reading -->Sami Abusaad’s Trade of the Week: NLNK
In this special video, Nightly Game Plan Moderator Sami Abusaad walks you through a winning trade in Newlink Genetics (NLNK). Biotechnology stocks have been hot as of late, but few are hotter than NLNK, which recently skyrocketed on positive results from a clinical study. After NLNK’s rally, Sami spotted the opportunity for a Climactic Sell Setup, giving him a profit of over $3,100 in 4 days*. Here’s how the trade worked: *(click here for a breakdown of our P&L calculations) In the video, Sami’s going to walk you through the trade from start to finish so you can understand: Why NLNK showed up on his radar What qualified NLNK as a climactic play Where Sami set his entry, stop, and target for a 3:1 reward:risk ratio How the Climactic Sell Setup works Why he used the 5-minute time frame on this trade The pattern that signaled a breakdown in NLNK was coming Click here to learn about Sami’s Nightly Game Plan
Continue Reading -->Traders Are Betting on a Market They Hate
Last week, traders got fairly bullish following the massive bounce off Tuesday’s spike low. This week, things are tricker. The North Korea situation is not going away, Hurricane Irma is on the horizon, and the safety trade is picking up, with Treasury yields dropping like rocks. So let’s see what kind of mood the bull is in ahead of the weekend. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish The VIX hit a low of 10.02 last Friday morning, putting it in close range of generational lows. It’s hovering around 12 today. The 3-month spread is at +3.10, which means traders are somewhat bullish. However, they’re clearly not as bullish as last week when this reading was at +4.41. Readings of +5 should be considered outright froth, so we’re not even close to that territory. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 38, down from 46 last Friday. The F&G Index operates on a 1-100 scale, and a reading of 38 qualifies as modestly bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 29.3% of individual investors are bullish. This is up from 25% last week. This 29.3% reading indicates that individual investors are slightly bearish. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.55 Thursday, which is well below the long-term average of 0.655. The 3-day moving average is 0.5933, which is below the long-term average and thus bullish. These numbers indicate that traders are very bullish Conclusion Out of 4 sentiment indicators, we have: 2 bullish (flat from last week) 0 neutral (down from 1 last week) 2 bearish (up from 1 last week) We have 2 bullish, 0 neutral, and 2 bearish indicators this week. This is a slight degradation from last week, when traders were in a fairly buoyant mood. I find it interesting that the CBOE equity put-call ratio has been so bullish as of late. The equity put-call has been below the long-term average for 9 of the past 10 days. Unless traders are shorting massive amounts of calls, it looks like there are a whole lot of folks betting on a big rebound to new all-time highs above SPX 2490. This implies some level of complacency. However, the AAII Sentiment Survey remains depressed, even though the SPX is less than 2% off the record. This says that a lot of people are sitting on the sidelines, or are at least worried about the market. And that’s been a common trend all year. Bullish AAII readings have averaged just 32.9% this year. Let’s compare that to 2007, since people love comparing current market conditions to the last top, even though using a sample size of 1 is completely unscientific. From the start of 2007 to 9/6/2007, bullish AAII readings averaged 41.8%. So the overall market picture is pretty weird. I suspect that for some time, traders have been holding their noses while hitting the buy button, and that certainly seems to be the case today. There’s a lot of money riding on an extension of the bull market. But people don’t trust it. Isn’t it ironic?
Continue Reading -->Morning Call Express: Calm Before the Storm
In today’s Morning Call Express video, T3 Live’s Kurt Capra breaks down the market action ahead of the weekend. Kurt covers: This week’s contraction in volatility What could signal more momentum to the downside Levels that could indicate a move back to all-time highs The down move in financials The strength in gold (GLD) and gold mining stocks (GDX) The downtrend in the US dollar P.S. Looking for Scott Redler’s Morning Call videos? They are only available to Redler All-Access subscribers. Click here to learn more.
Continue Reading -->The Bulls Are Coming Out of Their Caves
Last Friday, traders sentiment was right smack-in-the-middle neutral, perfectly reflecting the back and forth action in the market. On Tuesday, the SPX started on a very weak note, trading down to 2428.20 before the dip buyers stepped in, putting us as high as 2478.26 on Thursday. With this big rebound behind us, let’s see if traders’ moods have gotten better to close out the week. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish Three weeks ago, the VIX hit 17.28, but with markets steadying themselves, it hit a low of 10.02 on Friday morning, not far from generational lows. The 3-month spread is at +4.41, which means traders are very bullish. We’ve seen many readings above 4 this year, which is what I regard serious bullishness. Readings of +5 should be considered outright froth. If the SPX breaks out to new record highs, we coudl see such a reading again. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 46, up from just 22 last Friday. The F&G Index operates on a 1-100 scale, and a reading of 46 qualifies as as neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that just 25% of individual investors are bullish. This is down from 28.1% last week. This 25.0 reading indicates that individual investors are bearish, and it’s the lowest reading since May 18. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.57 Thursday, which is well below the long-term average of 0.655. The 3-day moving average is 0.58, which is below the long-term average and thus bullish. These numbers indicate that traders are very bullish Conclusion Out of 4 sentiment indicators, we have: 2 bullish (flat last week) 1 neutral (up from 0 last week) 1 bearish (down from 2 last week) We have 2 bullish, 1 neutral, and 1 bearish indicators this week. So traders are moderately bullish and in a better mood than last week. We’re definitely not in frothy territory, but if the SPX finds its footing again and blasts above 2490 to new all-time highs, that could change quickly. Whether that happens soon is unclear. On the plus side, it looks like traders are looking past today’s weak nonfarm payrolls report (or at least that was already priced in), since financials are very strong. Tech has been very resilient, but it would be nice to see small caps participate on a consistent basis.
Continue Reading -->AVAV: Anatomy of a Winning Earnings Play
In this special video, Nightly Game Plan Moderator Sami Abusaad walks you through a winning earnings play in drone company AeroVironment (AVAV). This video series is typically focused on swing trades, but since no swing trades triggered, this will be a special edition focused on Sami’s proprietary Earnings Play strategy, which he only started using this year. Sami used the Earnings Play to enter AVAV at $39.35, and exit the next morning at $44.67 for a $1,330 profit. (click here for a breakdown of our P&L calculations) Here’s how the trade went down: In the video above, Sami’s going to walk you through the Earnings Play from start to finish so you can understand: How Sami analyzed the daily trend in QQQ, which he uses as a market proxy The rationale behind the Earnings Play strategy Tips for predicting the post-earnings reaction How to judge expectations for earnings Lessons from past earnings playes like DHR, TMO, and CY Why AVAV appeared on Sami’s radar The ‘proof’ Sami got that AVAV was a bullish play Why he only took 250 shares Click here to learn about Sami’s Nightly Game Plan P.S. Earnings Season is still going strong. Be sure to check out this FREE Earnings Season resource: The Ultimate Guide to Trading Earnings Season
Continue Reading -->Sentiment Update: From Depressed to Indifferent
Last Friday, traders became very bearish due to a combination of domestic and international strife, indicating that the market may finally be reacting to political volatility. Markets then powered up off the lows on Monday before a power rally on Tuesday. We’ve drifted sideways since then, so let’s take a fresh look at our 4 sentiment measures to see which way the crowd is leaning heading into this weekend. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish Two weeks ago, the VIX hit 17.28, but with markets steadying themselves, it’s back under 12. The 3-month spread is at +2.65, which means traders are moderately bullish. We’ve seen many readings above 4 this year, which is what I regard serious bullishness. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 22. The F&G Index operates on a 1-100 scale, and a reading of 22 qualifies as extremely fearful. This is just slightly up from 19 last week, and is one of the lowest readings we’ve seen this year. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 28.1% of individual investors are bullish, down from 34.2% last week. This 28.1% reading indicates that individual investors are moderately bearish, and it’s the lowest reading since June 1. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.69 Thursday, which is justl above the long-term average of 0.655. The 3-day moving average is 0.61, which is below the long-term average and thus bullish. These numbers indicate that traders are moderately bullish Conclusion Out of 4 sentiment indicators, we have: 2 bullish (up from 0 last week) 0 neutral (down from 1 last week) 2 bearish (down from 3 last week) We have 2 bullish indicators and 2 bearish indicators, so they cancel each other out. So we’ve gone from very, very negative sentiment last week to pretty much neutral sentiment this week. Unfortunately, that means we don’t have much to go on heading into the weekend. When sentiment is leaning hard one way or the other, that can give us possible opportunities for countertrend trades, but we are definitely not there today. I like to say the bulls always say there are too many bears, and that bears always say there are too many bulls. But today everyone’s wrong: we’re split down the middle
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