Category Archives for Articles
Resistance and Support Ahead of Trump’s Big Speech
The Russell 2000 is popping 0.6% today while the major averages are only barely green. On Friday, it nearly tested that descending trendline from which the recent little rally erupted. Has resistance become support? I assume if the Russell can hold this 1380-1400 range, I assume the bears don’t stand much chance of finally breaking the bull. Looking ahead, the next major potential catalyst is President Trump’s address of Congress tomorrow. The big question is how much will he detail will he offer? Trump won the election on sweeping generalities, but there’s a lot of demand on him to get down to brass tacks. Since Trump is a typical CEO (long on broad visions, short on the details that get left to underlings), expectations are extraordinarily low in this regard. However, I would not be so quick to count him out completely. From about August 2016 until the election in November 2017, Trump cut through the competition like a hot chainsaw through butter. He was the hammer for a while… and now he’s the nail. For the past month or so, he’s been hammered relentlessly and is in need of a win. The bar is low. And perhaps by offering even minimal ‘real’ information on tax reform, infrastructure spending, and health care, markets may respond very favorably. Why? Because they’re not expecting much. It’s the equivalent of a company heading into earnings after getting a bunch of downgrades and estimate cuts — it doesn’t take much positive news to start a countertrend rally. There’s also the possibility that Trump offers significant details to confound his critics. And if indeed Trump does deliver, the Russell may really rip.
Continue Reading -->Weekly Sentiment Update: The Broken Permabear Clock Is Finally Right!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling after what may have been a change in complexion yesterday. With hot momentum stocks like NVIDIA (NVDA) and Tesla (TSLA) taking beatings, let’s measure the market’s mood for insights on where things may go: 1) VIX Spread – Bullish The VIX is ticking up, but the 3-month VIX spread is at +3.83, which indicates traders are still not concerned with volatility. This is a bullish reading. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 75. F&G operates on a 1-100 scale, and 75 is in extreme greed territory. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 38.5% of individual investors are bullish, which is right in-line with the long-term average of 38.5%. This is Neutral. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio is at 0.62 with a 3-day moving average of 0.61. This indicates higher-than-average bullishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 92 (92 calls for every 100 puts) this afternoon – which is a bearish reading. And the 10-day moving average is 81.3. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 3 bullish, 1 neutral, and 1 bearish. Plus, keep in mind that the ISE Sentiment Index seems to always read bearish no matter what’s going on in the market. So that 1 bearish indicator doesn’t count for much. So just as a broken clock is right twice a day, the permabears are now right: traders are indeed very bullish right now. And when bullish sentiment meets stretched technicals, the bears tend to have a better chance at mounting successful attacks.
Continue Reading -->Vintage Wall Street: The Paul Tudor Jones Documentary ‘Trader’
Paul Tudor Jones, founder of Tudor Investment Corporation, is one of the greatest traders of all time. Jones has amassed billions of dollars in assets under management and personal net worth trading everything from futures to currencies to commodities. In the 1987 documentary Trader, PBS takes us inside Jones’ world of high-stakes, practically 24/7 trading. In it, you’ll learn: Why like our own Scott Redler, Paul Tudor Jones wakes up so early in the morning Just how quickly Jones can change his mind in the heat of the moment The awesome-at-the-time-but-horrible-now fashion choices of 80’s Wall Street giants. If you’re interested in learning about Jones’ trading style, we suggest you watch the embedded YouTube video — complete with Russian subtitles — above now. When it does surface online, it tends to disappear due to copyright claims. Interestingly, in the 1990’s, Jones requested it be removed from circulation, possible because it revealed too much about his trading style.
Continue Reading -->Weekly Sentiment Update: That Is a Moderate Bull I See!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling into today’s inauguration: 1) VIX Spread – Bullish The 3-month VIX spread is at +3.65, which indicates traders are not very concerned with volatility This is a bullish reading. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 80. F&G operates on a 1-100 scale, and 80 is in extreme greed territory. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 33.1% of individual investors are bullish, which is below the long-term average of 38.5%. This indicator is slightly bearish. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio is at 0.58 with a 3-day moving average of 0.57. This indicates higher-than-average bullishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 85 (85 calls for every 100 puts) this afternoon – which is a bearish reading. And the 10-day moving average is 77.3. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 3 bullish and 2 bearish. Interestingly enough, the VIX spread has contracted from 5 to 3.65 over the past week, which implies that options market players are backing off their bullish bets a bit. And the ISE Sentiment Index implies that traders are still buying plenty of downside protection, though to be fair, that indicator seems to be losing predictive value. This could be because of Trump-related uncertainty. So overall, traders appear moderately bullish.
Continue Reading -->Russell 2000 Hits Record Highs, May Be Ready for a Breakout
The Russell 2000 just made a new all-time high, matching last week’s records in the SPX, Dow, and Nasdaq. In doing so, it is above this little 1385-1390 range at which it failed 3 times in a row: We can also view those 3 failures as top points of a descending trendline: I’d keep an eye on it to see if it can keep moving with authority above 1400. Round numbers are meaningless for judging direction but 1400 is just enough above the recent range to judge this extension Yellen’s testimony may be key tomorrow. If she’s hawkish, that could help the Russell bust a power move higher since a strong dollar is generally better for small caps than large caps.
Continue Reading -->Weekly Sentiment Update – Traders Actually Look Bullish!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling into today’s inauguration: 1) VIX Spread – Bullish The 3-month VIX spread is at +5, which indicates traders are not concerned with volatility. This is a bullish reading. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 67. F&G operates on a 1-100 scale, and 67 indicates that traders are moderately bullish. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 35.8% of individual investors are bullish, which is below the long-term average of 38.5%. This is basically neutral. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio is at 0.69 with a 3-day moving average of 0.73. This indicates higher-than-average bearishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 85 (85 calls for every 100 puts) this afternoon – which is a bearish reading. And the 10-day moving average is 79.2. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 2 bullish, 1 neutral, and 2 bearish signs. Now this seems neutral, but I’d argue that traders are actually leaning bullish. Why? Because options-based indicators (notably the ISE Sentiment Index) have become fairly detached from equity markets. Using sentiment as a signal for buys/sells is often a bad idea. And in the case of these options indicators, they seem to be losing value as times go on.
Continue Reading -->Not Even Trump Can Help Twitter!
Yesterday after the close, Twitter (TWTR) announced yet another disappointing quarterly earnings report. On the surface, Twitter has the wind at its back. We just had the craziest Presidential election in history, and the most active global news flow I’ve ever seen. Black Lives Matter. Migrant crisis. Syria. The Brexit. Italy’s No Vote. Right wing nationalist movements rising worldwide. There’s never been more stuff to talk about! Heck, President Trump Tweets so often that you’d think he owns the stock. Plus, Twitter gets a staggering amount of exposure from the media. Athletes and celebrities’ feeds are constantly promoted on the mainstream media. Yet Twitter’s ad revenues DECLINED year-over-year in Q4. Facebook (FB) grew ad revenues by 53%! And Facebook has a revenue base that’s 10 times as big! So what’s the deal here? Aside from the fact that Twitter is not user-friendly and offers little in the way of instant gratification — Facebook has the greatest advertising platform the world’s ever seen. It has in-depth personal information on almost 2 billion people. Think about it. Odds are, Facebook knows: 1) Your full name, age, location, marital/family status, and employment history 2) All of your hobbies and personal interests 3) Your political affiliation 4) What websites you visit 5) What companies you buy from 6) Who you talk to 7) Where you go Twitter surely has some of this data, but it also has some major disadvantages: 1) A smaller user base, and smaller data set 2) More anonymity Speak to anyone in the Internet marketing world, and you’ll know that businesses are tossing huge sums of money at Facebook and Instagram ads. Twitter? Not many folks seem to care.
Continue Reading -->Post-Earnings Analysis: Tech in Focus
FN — Reported very strongly on Monday and continues to signal strength for my fiber thesis. The most curious thing is how little pin action is occurring off of these strong reports. More on this below. This stock would probably be up more if not for the CEO announcing he is leaving. Selling into the mid/high $30’s here probably makes sense. I still favor other names in the space. OCLR — Case in point, they have sold off since they reported a whopper and again, has shown no real upside pin action, though it’s showing a touch of a bounce today. A possible explanation here is that there have been continuing rumors on OCLR as a target for a FNSR takeout. One would think this could/should have the stock higher, but maybe some think that OCLR has risen a lot and won’t garner a big premium. My view is that the forward PSR is still just barely above 2. This is very cheap on any LT or M&A valuation perspective given the consolidation that’s occurred in the space over the last few years. I was buying some OCLR again recently into the selling. I’ll look to add more in the mid $8’s or lower should it go there. AKAM — Strong report but this stock had already soared and a guide which was largely inline just isn’t enough to keep this stock going. In the mid/high $50’s, I’ll take a gander at this one. This is also somewhat indicative of some rotation action that’s starting to emanate further in the market. Strong reports on hot stocks are seeing more flat to selling action than buying action. This is something I was harping on all the way back in Nov/Dec of last year. NEWR — Another very good report and the stock is down moderately. Again, it was close to yearky highs. I prefer SPLK and VRNS and HDP in this space. LITE — Back to the Fibers… LITE reported a good but not a great QTR at all. However, they talked about a strong forward outlook out past just one QTR and the shares are ripping. LITE has also been seeing product shortages and that’s usually well received in Tech land. Again, I would think this would engender a lot more pin action than we are seeing but that pin action might come in delayed reaction fashion as is popular with Algo trading the last couple years. TWLO — The best report of last night, hands down, was TWLO’s very big beat on the current quarter with a notably raised Rev. guide for both the QTR and FY outlooks. I’m a buyer on any notable weakness here. If one looks at how something like an ANET or several other IPO’s traded in recent years, the first year of trading is fraught with lots of raids and rumors. I suppose the machines can mess with TWLO for another QTR or two but if they keep delivering these sorts of results this could have a very substantial move higher. In the meantime, I think a range trade of 4-6pts will occur a good number of times. And guess what, we just saw a 6pt move off the recent early year lows. A break above $32.50 will break that range and setup the next higher leg. Disclosure: Position in OCLR, SPLK, VMS, HDP, TWLO
Continue Reading -->There Are More Bears Than Bulls Out in the Wild
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling into today’s inauguration: 1) VIX Spread – Bullish The 3-month VIX spread is at +4.51, which indicates traders are pricing in very low near-term volatility. This means traders are bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 49. F&G operates on a 1-100 scale, and 50 is neutral. So we’re right in the middle. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 32.8% of individual investors are bullish, which is below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio is at 0.71 with a 3-day moving average of 0.74. This indicates higher-than-average bearishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 79 (79 calls for every 100 puts) this morning – which is a bearish reading. And the 10-day moving average is 81.3. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 1 bullish, 1 neutral, and 3 bearish. I’ve been hearing a lot of chatter about how bullish the crowd is. But if anything, traders are leaning against the market, hoping for a fall.
Continue Reading -->Trump Pumps Up Pipeline Stocks, and I’m Holding On
Way back on December 11, 2015, I tossed the Kayne Anderson MLP Closed-End Fund (KYN) into my retirement account, back when it was around $14. President Trump signed orders to expedite the goverment’s review of the Keystone XL and Dakota Access pipelines, which is driving up shares of MLP’s, with KYN breaking through $20. KYN’s second biggest holding is Energy Transfer Partners (ETP) (19% of the fund), which is building the Dakota Access pipeline. This is a nice gain, but I’m not selling any. Why? Because KYN’s 4 most recent quarterly dividends have been returns of capital, not actual income. That means KYN has been distributing fund assets back to fund owners. So there are no actual income gains — they’ve all been from price appreciation. Assuming these pipelines go through, and assuming we see more domestic oil production under Trump, KYN could actually start distributing real income back to shareholders. That would be a huge catalyst, possibly breaking KYN out of its 8-month channel. Also, KYN is trading at a mere +0.2% premium to NAV vs. a 3-year average of +3.8%. That premium has actually gone as high as 16.4% over the past 5 years. So I’m going to let it ride. It’s come a long way but I don’t think froth has set in.
Continue Reading -->