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Bears Trump Bulls Ahead of the Presidential Steel Cage Match
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side ever provides evidence for their views. So I regularly run through a variety of sentiment measures to get an accurate reflection of the market’s mood. According to 5 sentiment measures I track, traders are certainly looking bearish heading into November 8’s Presidential election. Donald Trump’s wild-card image seems to be roiling traders’ nerves because of all the possible variables. Does he win? Does he lose? Does he lose and contest the outcome? Who really knows at this point? So let’s drill down to the numbers: 1) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that just 23.6% of individual investors are bullish, well below the long-term average of 38.5%. But what’s really interesting is that bullishness has been below the long-term 38.5% average for 51 straight weeks, and 84 of the last 86. 2) ISE Sentiment – Bearish The ISE Sentiment Index is at just 31 this morning — that’s just 31 calls for every 100 puts. And the 10-day moving average is 80 — that’s the type of reading you see after a major volatility spike, not before one. 3) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio has been over 1 for the past 4 days. That indicates serious bearishness. 4) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 17. F&G operates on a 1-100 scale, and 50 is neutral. This 17 reading indicates extreme fear. 5) VIX Spread – Bearish The 3-month VIX spread is at -0.3, which indicates traders are pricing in high near-term volatility. This is bearish. ********* So we have all 5 of these sentiment indicators pointing bearish, and they’re likely to get more bearish as traders hedge against possible post-election downside. Interestingly, I hear a lot of traders chattering about going long into the election on the assumption that downside is already priced in. We’ll certainly see!
Continue Reading -->Traders Don’t Get Much More Neutral Than This!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So I like regularly run through a wide variety of sentiment measures to get an accurate reflection of the market’s mood. According to 7 sentiment measures I track, traders appear to be very, very neutral, even though the S&P 500 is still within a stone’s throw of the 2193 all-time high. 1) SPX Options Prices – Bearish SPX options prices show a high put skew. I looked at 10% out of the money 6 month SPX options. There is currently a 9.6 point skew in implied volatilities on the options. That’s the 86th percentile. So relative to calls, traders are paying more for 10% OTM 6 month puts than they have 86% of the time over the past 5 years. 2) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 25.5% of individual investors are bullish, well below the long-term average of 38.5%. But what’s really interesting is that bullishness has been below the long-term 38.5% average for 49 straight weeks! 3) ISE Sentiment – Neutral The ISE Sentiment Index closed at 65 yesterday (81 puts for every 100 calls). And its 10 day moving average is just 101 — a level that indicates a neutral mood. 4) Wall Street Strategists – Neutral The average year-end target price for the S&P 500 is 2171, according to Bloomberg. That implies the market rises 1% into year-end. YAWN! 5) CBOE Equity Put-Call – Neutral The CBOE Equity-Put Call ratio was 0.66 yesterday, which is just below the YTD average of 0.69. This points to neutral sentiment. 6) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 48. F&G operates on a 1-100 scale, and 50 is neutral. So it’s basically right in the middle. 7) Investors Intelligence – Bullish Yesterday, the Investors Intelligence Survey of newsletter writers showed a slight decrease in bullishness to 46.1%. This is still a positive reading. ********* So we have 2 bearish indicators, 4 neutral indicators, and 1 bullish indicator. Blend them together and you have a moderately bearish crowd. I’m hearing a lot of bears say that everyone’s complacent… but I just don’t see it.
Continue Reading -->The Truth About the Brexit: It’s All in the Charts
Want to know the truth about the Brexit? Look at the charts. We didn’t hear much about the GBPUSD since the Brexit decision… and then there was the pound’s flash crash. Now that the GBPUSD is really moving, we’re seeing countless headlines about economic uncertainty and political instability and central banks gone wild. But does all this explaining — after the fact — help us make money? Nope… The right question to ask is how could we have seen the pound’s collapse coming? And how could we capitalize on it? If we are always waiting for news and the next story to drop, by definition, we will always get left behind… similar to a reporter that’s last to the scene. In most cases, the answer is right in front of you. Just look at the charts. People lie. But charts tell the truth. With the charts, you will see the story before it hits the front page. The GBPUSD is a great example of this truth. Post-Brexit, the GBPUSD was in a sideways range for several months. Most people wrote it off, looking for other opportunities. But the pound remained in a downtrend throughout the entire sideways move. This told us to be bearish overall. To see that, look no further than the weekly chart below. If any traders were fortunate enough to see the action prior to the breakdown, they probably would not have pulled the trigger. Why? Because every other time it tested the lows, it rallied. So why should this time be any different? This is where your ability to ‘listen’ to what the chart is saying becomes so crucial. Look at this daily chart. I have highlighted the three main pivot lows. What happened prior to the breakdown was the key. The first two pivots pushed up relatively easily. When GBPUSD came down for the third time, it struggled multiple times to move up. In other words, supply was increasing and demand was decreasing. And for the first time, price was staying below the moving averages. This told us GBPUSD was getting close to making a move. And once it broke down, that was the time to act. This was the story: fear overcoming greed. Not a slowdown in the UK or negotiations with the EU. Humans love stories. We always want to know why. But does why matter as much as when… and how much? I think not. I’d love to hear your thoughts on this. Email me at kurt@t3live.com.
Continue Reading -->The Morning Hammer: Those That Know Don’t Tell…
Options > Dividends Find out more at our FREE training event… ******** The pound is rallying after UK PM Theresa May said that Parliament should vote on her Brexit plan. This implies a more deliberate approach to the UK leaving the building, which could soften the Brexit blow a bit. Crude oil popped above $51 after OPEC said it has a firm commitment from Russia to participate in an output cut. However, keep in mind that the oil newsflow is all over the place, and this story is truly not over until it’s over. (you know what I mean) As an illustration of how fluid the situation is, Bloomberg is reporting that Venezuela and Iraq are disputing OPEC’s reported output data. I assume that having no consensus on where output is now makes it more difficult to decide on where output should be. Meanwhile Goldman Sachs is out saying US oil explorers will boost activity with oil in the $50 – $55 range. I don’t think the market disagrees with that, given that oil service names (OIH) have already rallied nearly 50% off February lows. Samsung cut its Q3 operating profit forecast by $2.3 billion after halting production of the Galaxy Note 7, which is prone to catch fire. The big item on today’s agenda is the release of the September Fed Minutes at 2:00 p.m. ET. Even with Friday’s mediocre jobs numbers and the Fed’s mixed message in the September rate decision, traders have been upping their bets on a December rate hike. Fed Funds futures are pricing in a 67% chance of a December rate hike, up from 62% at the September rate decision. Of course, the big question isn’t necessarily “what will the Fed do in December?” It’s “how fast is the pace thereafter?” Remember, at the September meeting, the Fed cut its own forecast for 2017 rate hikes to 2, down from 3 previously. Some very smart people think there’s a decent chance the Fed is one and done due to recession risk. I won’t hazard any guesses. I’ll just remind you of the 2 simple truths of Fed days: 1) Those who know don’t tell and those who tell don’t know 2) The first reaction isn’t always the right one… and neither is the second The hawk hammer has the dollar moving higher again this morning, while SPX futures are slightly red. Yesterday, we had a nasty down day on a confluence of bad news (huge currency volatility, AA/DOV earnings, Samsung), and there was a clear risk-off flavor to the action. The Russell 2000 and biotech (IBB) took huge lumps, and the VIX popped pretty hard. I’d key off 4 things today: 1) Apple (AAPL) Apple’s gotten a nice boost from Samsung’s Note 7 recall, which eliminates one of iPhone 7’s main competitors. Apple does a lot of heavy lifting for the indices, so I’d watch to see if there is some belated profit-taking. 2) Oil Clearly, equities like strong oil. And WTI crude looks like it wants to take out the 2016 high at $51.67. A power move through there could mean good things for the bulls. 3) Hot New Issues ACIA, TWLO, TTD, ACIU, PI, etc. are the new F.A.N.G. These names are not looking healthy. It would be a clear plus if they regained traction. 4) The Usual Risk On/Off Suspects As I said, the Russell and biotech got spanked pretty hard yesterday. I’d closely watch them, along with HYG. And remember… The Fed Minutes release means it’s an anything goes day. Good luck out there. P.S. Don’t forget to sign up for Doug Robertson’s special options training session!
Continue Reading -->The Morning Hammer: Post-Debate Happiness
The Mexican peso is up 1.7% this morning, which means Mr. Market thinks Hillary Clinton won last night’s steel cage match US Presidental debate. Meanwhile, the pound sterling is still falling in the wake of Friday’s flash crash. Crude oil is rising after Saudi Arabia’s energy minister said crude could hit $60 by year-end. OPEC recently announced a production cut, though market participants would certainly like more detail. European equities are up for the first time in 4 days on strength in automakers, throuhg banks are still looking weak. Deutsche Bank (DB) failed to announce a deal with the Department of Justice as some traders expected. China resumed trading after a week-long holiday, and the yuan dropped to a fresh 6-year low. Goldman Sachs says that US and European markets could stumble a bit into year-end due to political risks, a weak economy in Europe, and high stock prices in the US. The US dollar is still in bull market mode despite Friday’s slightly soft jobs report. Traders are pricing in a 64% probability of a December rate hike, though keep in mind, the pace thereafter what matters. According to some very smart folks I’ve spoken with, there’s an excellent chance the Fed is one and done. However, gold is catching a bid today, so I’d watch for a pop in the beaten down gold miners (GDX). Apple (AAPL) is up fractionally this morning on news reports that Samsung temporarily stopped production of its Galaxy Note 7 smartphone. The device was already recalled, but even replacement models are catching fire, which is a PR disaster. SPX futures are up about 11 handles this morning, so we’re starting the week off on a positive note. Biotech is catching a bid this morning — it’s been lagging to see if the weak trend breaks.
Continue Reading -->Weekly Sentiment Report: Traders Are Pretty Darn Neutral
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side ever provides evidence for their views. So I regularly run through a wide variety of sentiment measures to get an accurate reflection of the market’s mood. According to 6 sentiment measures I track, traders appear to be shockingly… neutral. Seriously, when I mash all the data together, I get a crowd that looks split right down the middle between bulls and bears. 1) SPX Options Prices – Bearish SPX options prices show a high put skew. I looked at 10% out of the money 6 month SPX options. There is currently a 9.6 point skew in implied volatilities on the options. That’s the 88th percentile. So relative to calls, traders are paying more for 10% OTM 6 month puts than they have 88% of the time over the past 5 years. 2) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 28.8% of individual investors are bullish, well below the long-term average of 38.5%, and below the 2016 YTD average of 28.1%. Bearish sentiment is at 27.9%,down huge from last week, and slightly lower than the 30.3% long-term average. 3) Wall Street Strategists – Neutral The average year-end target price for the S&P 500 is 2171, according to Bloomberg. That implies a 1% gain into year-end. 4) ISE Sentiment – Neutral The ISE Sentiment Index closed at 130 yesterday (130 calls for every 100 puts). This is a bullish reading And its 10 day moving average is just 94 — a level that typically indicates modest bearishness. So we’ll call it neutral. 5) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was 0.66 yesterday, which is just below the YTD average of 0.58. This points to slightly bullish sentiment. 6) Investors Intelligence – Bullish Yesterday, the Investors Intelligence Survey of newsletter writers showed a slight increase in bullishness to 46.7%. This is high relative to long-term averages. Bears fell to a 3-week low to 22.8%. ********* So we have 2 bearish indicators, 2 neutral indicators, and 2 bullish indicators. Blend them together and you have a crowd that looks pretty darn neutral. I’m hearing a lot of bears say that everyone’s complacent… but who are they talking about?
Continue Reading -->Panic Hits Gold, and It’s Not Pretty
Yesterday, I talked about the seemingly key $125-ish level on GLD. I wish I had the guts to get in short because this morning, GLD has slammed straight through $125 all the way to $121.86. The ever-volatile gold miners (GDX) and junior miners (GDXJ) are dropping -7.5% and -8.4%, respectively. This has a whiff of panic selling. Earlier today, the Fed’s Lacker and Mester swung their mighty hawk hammers, which has traders chattering about coming rate hikes. And of course, we have the big September NFP report on Friday, which comes on the heels of a decent rebound in US economic data. Interestingly, gold is gapping down towards its interim bottom on June 24. That of course was the date of the big Brexit surprise, featuring a monumental gap up in gold: Gold options are also very active today. GLD puts are trading at 7.4 times the normal volume for this time of day, according to Thinkorswim. However, there appears to be some dip buyers poking around GDX, since call options are actually quite active in that ETF. Precious metals have had a huge year. Even with today’s dip, GLD is still up 20.8% year-to-date and GDX is up 74.3%. So I guess it makes sense that traders are rushing to lock in profits — or get short — ahead of the big jobs report Friday. A huge beat could mean more downside, but either way, I think gold is officially the market’s funnest battleground.
Continue Reading -->Is Gold About to Get Cracked?
1) US Economic Data Comeback US economic data continues to firm up following a major drop in momentum since July. In the past week, we’ve seen decent new home sales, Markit Services PMI, durable goods, Chicago PMI, GDP, jobless claims, and ISM Manufacturing numbers. Check out this chart of the Citi US Economic Surprise Index — this could be the start of a new trend following a collapse in expectations: Some reports have been some clunkers, but overall, the strength of data relative to expectations is improving into Friday’s big NFP report. However… 2) Traders Aren’t Sold on the Fed Just Yet A lot of traders believe a December rate hike is a foregone conclusion. The numbers say otherwise. Fed funds futures imply a 61% probability of a December rate increase, so the market’s not buying in whole-hog. This brings us back to this week’s NFP report, which could move the numbers one way or the other. I’d especially be watching… 3) Gold! Call me crazy, but doesn’t this Gold (GLD) $125ish level look pivotal? Gold has been making lower highs, and I’d assume that a big NFP report on Friday could mean a very ugly break of this $125ish support level. There’s been a lot of talk about a possible head & shoulders forming over the past few weeks, but this bigger-picture pattern looks more important. 4) Is Twitter Still in Play? Today, Bloomberg reported that Google (GOOGL) is considering a bid for Twitter (TWTR). Google has perennially been seen as a logical buyer for Twitter because of the latter’s strength in real-time search. But the real good news for Twitter longs is the sheer number of rumored suitors floating around — Salesforce.com (CRM), Disney (DIS), and Microsoft (MSFT) have also been mentioned. This way, if one alleged suitor leaves the picture, we’ve still got others to prevent an all-out collapse. But I’ll still only believe this deal when I see it. Mark your calendars for Twitter’s Q3 earnings report on October 25 — it’s gonna be a big one! 5) A Boom in Call Options? The ISE Sentiment Index, which is my favorite short-term sentiment indicator, is reading 189 this morning as of 10:50 a.m. ET. That’s 189 calls for every 100 puts, which means rampant bullishness, at least on an intra-day basis. Perhaps ironically, we are seeing lots of activity in GLD. NFLX, TSLA, BMY, and CAB are also active. (TSLA announced strong sales, CAB is being taken over)
Continue Reading -->Catch Scott Redler’s Interview With Futures Radio!
T3 Live Chief Strategic Officer Scott Redler was recently interviewed by Futures Radio, and we encourage you to click over to listen! In this in-depth interview, Scott discusses: How he got started in trading in the 1990’s Technical analysis techniques he uses every day Current market issues like Deutsche Bank, the US Presidential election, and more! Click here to listen to the interview!
Continue Reading -->Weekly Sentiment Update: Traders Are Surprisingly Bearish
Want to Earn Serious Income With Options? Then click here to check out Doug Robertson’s special live trading event! Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So I like regularly run through a wide variety of sentiment measures to get an accurate reflection of the market’s mood. According to 7 sentiment measures I track, traders appear to be modestly bearish, even though the S&P 500 is still within a stone’s throw of the 2193 all-time high. 1) SPX Options Prices – Bearish SPX options prices show a high put skew. I looked at 10% out of the money 6 month SPX options. There is currently a 9.8 point skew in implied volatilities on the options. That’s the 94th percentile. So relative to calls, traders are paying more for 10% OTM 6 month puts than they have 94% of the time over the past 5 years. 2) ISE Sentiment – Bearish The ISE Sentiment Index closed at 81 yesterday (81 puts for every 100 calls). And its 10 day moving average is just 78 — a level that indicates bearishness. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 24.0% of individual investors are bullish, well below the long-term average of 38.4%, and below the 2016 YTD average of 28.1%. Bearish sentiment is at 37.1%, down a bit from last week, but well above the 30.3% long-term average. 4) Wall Street Strategists – Neutral The average year-end target price for the S&P 500 is 2169, according to Bloomberg. That implies the market does nothing into year-end. 5) CBOE Equity Put-Call – Neutral The CBOE Equity-Put Call ratio was 0.66 yesterday, which is just below the YTD average of 0.69. This points to neutral sentiment. 6) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 50. F&G operates on a 1-100 scale, and 50 is neutral perfectly neutral. 7) Investors Intelligence – Bullish Yesterday, the Investors Intelligence Survey of newsletter writers showed a slightly increase in bullishness to 45.2%, snapping a 4-week losing streak.Those calling for correction are at 31.7%, the highest since June 29. ********* So we have 3 bearish indicators, 3 neutral indicators, and 1 bullish indicator. Blend them together and you have a moderately bearish crowd. I’m hearing a lot of bears say that everyone’s complacent… but who are they talking about? P.S. Don’t forget to sign up for Doug Robertson’s FREE options event!
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