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What’s Happening: It’s the Final Countdown to the Fed Mystery
We’re one day away from a very big Wednesday featuring FOMC and Bank of Japan rate decisions. Right now it looks like the BoJ is a bigger deal, since most traders think a Fed rate hikes is off the table tomorrow. Fed Funds futures imply a mere 20% probability of a rate hike. Bloomberg ran an interesting story this morning about how Barclays and BNP Paribas think the Fed moves tomorrow: Two of the Fed’s 23 preferred bond-trading partners — Barclays Plc and BNP Paribas SA — are betting against their peers and the bond market by forecasting officials will raise rates Wednesday. It’s the first time more than one dealer has gone against the consensus during the week of a policy meeting since last September, data compiled by Bloomberg show. Economists at both banks say traders have too steeply discounted officials’ intent to hike after the Fed has remained on hold for longer than expected. It’s a tricky situation to say the least. Remember, the rate decision itself is not everything. The signaling for the future pace of hikes is just as important. There is a very real possibility that the Fed hikes but signals an extremely slow pace of future hikes. But no one really knows, so be very careful when placing your bets. SPX futures are up fractionally this morning despite a -1.1% drop in oil. Yesterday, we saw large-cap tech leaders sell off into the close, pushing the index to finish roughly flat, though we saw nice outperformance in small caps and biotech. It still feels like traders are happy to stay in a holding pattern until the BoJ and FOMC news hits tomorrow, so it’s going ot be hard to make much sense of the action. In the energy patch, Brazilian giant Petrobas (PBR) cut its 5-year investment plan by 25% to $74.1 billion. Wells Fargo (WFC) caught an upgrade from Morgan Stanley — maybe I should have jumped on it, but I’ll reassess post-Fed. Tessera (TSRA) is buying DTS (DTSI) for $850 million. Bloomber is reporting that Bayer may drop the Monsanto (MON) name if their merger ever gets done — seems like a smart idea. The economic calendar’s pretty light — just housing starts and building permits. But don’t worry — we SHOULD get some excitement tomorrow… though it’s easy to forget that SHOULD is the most dangerous word in financial markets. Good luck out there!
Continue Reading -->T3’s Take 3: Stocks Hit the Snooze Button Ahead of a Very Big Wednesday
Prop Trading May Not Be Right For You… But it has incredible financial benefits for many traders. Click here to learn more… 1) Holding Pattern Ahead of a Very Big Wednesday Last week, we saw a rebound in volatility as traders put the summer snoozefest behind them. But stocks quieted back down today ahead of Wednesday’s big Federal Reserve and Bank of Japan meetings. The S&P 500 was flat 2139.12. The Nasdaq underperformed due to weakness in select large-cap tech names like Apple (AAPL) and Amazon.com (AMZN). The Russell 2000 was an outlier to the upside with a 0.6% gain, and we also saw nice gains in utilities, real estates, financials, and transports. US Treasuries, retailers, and pharmaceutical names led the decliners’ column. 2) Watch the SPX 2147-2148 Pivot This morning, T3’s Jeff Cooper highlighted key levels to watch going forward: 2147/2148 is a key level on the SPX. A) It was the August low of the long summer Slim Jim. Consequently it is the Monthly Swing Pivot—where the monthlies tuned down In September on trade below the August low. B) It ties to a 50% retrace from the 2193 all-time high to the 9/12 2118 low. Interestingly, on the Square of 9 Time & Price Calculator, 2148 also points to/aligns with September 21 and the important Gann Autumnal Equinox. Of course, this is also the date of the big Fed announcement on interest rates. You can’t make this stuff up! 3) Be Very, Very Careful Shorting Biotech This morning, Sarepta Therapeutics (SRPT) received FDA approval for Eteplirsen, a treatment for Duchenne muscular dystrophy. The stock hit a circuit breaker, reopened, and skyrocketed to finish up 74% on the day. Eteplirsen is considered to be a controversial drug, so many traders – especially shorts – were shocked by the news. Over 33% of the float was sold short, which means some folks were put out of business. So please folks, be very, very careful shorting biotech. P.S. Don’t forget to sign up for our next prop trading event! Tuesday’s Trading Calendar US Economics (Time Zone: EDT) 08:30 Housing Starts (Aug): exp. 1190k, prior 1211k 08:30 Housing Starts MoM (Aug): exp. -1.70%, prior 2.10% 08:30 Building Permits (Aug): exp. 1165k, prior 1152k 08:30 Building Permits MoM (Aug): exp. 1.80%, prior -0.10% Global Economics 12:50 CAD BOC Gov Poloz Speaks Tentative JPY Monetary Policy Statement Earnings Before Open: Carnival Corp (CCL) Lennar Corp (LEN) After Close: Adobe Systems (ADBE) Copart (CPRT) FedEx Corp (FDX) KB Home (KBH)
Continue Reading -->The Morning Hammer: Ahead of the Fed, Markets Show Fear
Global markets are rallying this morning as commodities rebound and the dollar retraces ahead of Wednesday’s big FOMC rate policy announcement. Traders are pricing in a mere 20% probability of a hike this Wednesday, so traders will mostly be looking for clues to see if the Fed moves in December. Europe is up nicely despite continued weakess in Deutsche Bank (DB) which is facing liquidity concerns due to the DoJ’s demand for a $14 billion payment to settle an MBS dispute. In Asia, the overnight interbank yuan rate skyrocketed amid speculation that China’s central bank is intervening to boost its currency. Traders are also shaking off terror concerns in New York City. Over the weekend, explosive devices were set off in New York City and Seaside Park, NJ. Another devices was found in Elizabeth, NY. Venezuelan President Maduro said OPEC members are close to reaching an agreement on stabilizing the market. However, such an announcement is likely not forthcoming at the September meeting next week. OPEC’s Secretary General said September is a “meeting of consultation and not of decision-making.” SPX futures are modestly positive this morning, much to the chagrin of the bears. Sentiment is leaning modestly bearish right now. As always, the bears say everyone’s bullish and the bulls say everyone’s bearish, but the numbers (which too many people ignore) are all over the place. The 10-day moving average of the ISE Sentiment Index is 91, which points to modest bearishness. The CBOE equity put-call is 0.65, which is about in-line with the 6-month average. The AAII sentiment survey shows that 27.9% of investors are bullish vs. a long-term average of 38.5%. The only data that really shows traders being complacent is the Investors Intelligence Survey, which shows that 49% of newsletter writers are bullish. So even though markets are just -2.5% off the highs, traders very quickly rushed to price in some downside. Volatility has returned to the market after 2 months of nothing, though we could end up in a holding pattern until Wednesday, which is not only has the Fed, but a Bank of Japan rate decision. There has already been chatter that the BoJ will go even further into negative rate territory. I’d love to get some excitement ahead of then, but I’m not counting on it.
Continue Reading -->T3’s Take 3: Stocks Get Stuck in First Gear
Learn Dave Green’s Trading Secrets Click here to start speculating the SMART way… 1) Stuck in First Gear Stocks were stuck in first gear today following a downturn in Europe overnight. European banks fell hard after Deutsche Bank (DB) said the Department of Justice is seeking $14 billion to settle a legal case related to mortgage-backed securities. Bloomberg Intelligence had estimated the settlement would be in the range of $4 – $8 billion. The S&P 500 fell as low as 2131.20, but recovered some of its losses into the close and finished at 2139.09, down -0.4%. The Nasdaq outperformed due to strength in large-cap biotech names, notably Celgene (CELG), which reported positive study data. Crude oil declined again, sending energy shares down, with notable weakness in oil service. This morning, Intel (INTC) raised its third-quarter revenue and gross margin guidance on rebounding demand for PC’s. Intel shares rose 3.0%, but failed to significantly lift the broader semiconductor universe. 2) CPI Surprise! US economic data has been deteriorating since the July 29 Q2 GDP report, which had some traders losing faith in the Fed’s ability to hike rates this year. But the hawks got a small boost today with the better-than-expected August Consumer Price Index report, the last major economic data release before Tuesday’s Federal Reserve rate decision. The CPI rose 1.1% year-over-year, beating the 1.0% consensus, while the core CPI, which excludes volatile food and energy prices, rose 2.3%. The report had traders upping their rate hike bets, and Fed funds futures now imply a 55% chance of a December rate hike, up from 50% earlier today. 3) Traders Sell the Apple News Apple’s (AAPL) iPhone 7 went on sale today after a week of positive news, though they were not easy to find. In fact, demand is so strong that some iPhone models will not be delivered until November. Earlier this week, T-Mobile (TMUS) and Sprint (S) both said that iPhone pre-orders grew substantially from last year. iPhone 7 reviews have been very positive, and meanwhile, the Samsung Galaxy Note 7 – a key iPhone 7 competitor — has been recalled due to exploding batteries. That certainly tipped the iPhone vs. Galaxy debate in Apple’s favor. However, Apple shares saw a “sell the news” reaction to the actual release today as traders locked in profits after 4 days of strong gains. Monday’s Trading Calendar US Economics (Time Zone: EDT) 10:00 NAHB Housing Market Index (Sep): exp. 60 , prior 60 Global Economics 21:30 AUD Monetary Policy Meeting Minutes Earnings Before Open: None of Significance After Close: None of Significance
Continue Reading -->The Morning Hammer: Is Today a Big Day?
I thought yesterday would be a big down day for the market with yet another string of economic data misses, and I was wrong. Equities were pretty strong yesterday, with nice action in biotech and large cap tech. This morning is another story. Deutsche Bank (DB) said the US Department of Justice is seeking $14 billion to settle its MBS probe. DB is not willing to pay that much and the stock is taking a bit hit. That’s helping push European banks down -2.4% in the early going, while the broader Euro Stoxx 50 is off -1.4%. In analyst-land, Nicholas Smith of CLSA said he is “absolutely certain” that the Bank of Japan will stop buying Nikkei 225-based ETFs to boost equities. However, said the bank will not stop buying — they will simply shift their purchases to the Topix and JPX-400. SPX futures are taking a -0.4% dip this morning, following Europe down. Apple (AAPL) is up premarket as iPhone 7 goes on sale. Canaccord also raised its target price to $140 from $120. However, the big news today is the CPI report which hits at 8:30 a.m. ET. The market is split right down the middle on rate hikes. Fed funds futures imply a 50% chance of a December rate hike, down from 60% last week. Economic data has been slipping hard since the July 29 GDP report, and it seems like traders just started paying attention to this important trend. This CPI report will be the last major economic data release before the September 21 rate decision, so there’s a chance we end the week with a bang. The only problem is we can’t figure out what kind of bang. Yesterday, we got a huge batch of dove-supporting bad data and gold and US Treasuries still fell. And equities seem to be reacting randomly to Fed chatter and data too. So even if you gave me the numbers now, it still wouldn’t be easy to trade this CPI report. Near-term, I’d keep a very close eye on Apple (AAPL) and biotech because they’ve been holding up the market. Apple’s got a chance of a sell-the-news reaction today as we see 10 million news reports about iPhone sellouts. Biotech’s still a wild card because the whole sector is moving on takeover chatter surrounding individual companies. Today is also quad-witching options expiration, so get ready to hear everyone’s cockamamie theories on what it means for the action. (I think it’s completely random) I’d also keep an eye on oil. Good luck out there!
Continue Reading -->Wells Fargo May Be Buyable Soon… and 4 Other Thoughts on Today’s Market
1) Wells Fargo’s Trip Wells Fargo (WFC) is coming under a ton of heat for its fake credit card account scandal, and it looks like it’s about to form a triple bottom with its February and June Brexit lows. I’m putting it on my long radar. I’m sure the company will pay a penalty, beef up employee oversight, and get a stern talking to from the powers that be. The optics are awful, but this scandal will eventually pass. If British Petroleum (BP) came back from its oil spill, Wells Fargo can recover from this. 2) Buy the Bad News? Today’s economic data was mostly lousy, yet the hawk trade — dollar up, banks up, gold down — is still going. So it looks like traders just weren’t surprised because the data has been so lousy lately. Fed funds futures barely budged. They’re pricing in a 50% chance of a December rate hike, essentially unchanged today. Or maybe folks just want to see CPI tomorrow before pressing dovish bets. 3) The Apple Market As I write this, the DJIA is up 58 points. Apple (AAPL) accounts for 23 of those points. I thought the stock was peaking near-term yesterday, but it’s above $115 for the first time since December 2014. 4) Donald’s Health Donald Trump released lab test results for the first time today, showing normal cholesterol, blood pressure, liver function, and thyroid function. Now I try to steer clear of politics, but people are increasingly focused on the health of the candidates. Anything that’s good for Donald tends to be good for biotech (IBB) — even though like Hillary, Donald has called for negotiating Medicare drug prices. 5) Sentiment Update AAII sentiment is 27.9% bullish, well below the 38.5% long-term average. The ISE Sentiment Index is at 76 this morning, indicating moderate bearishness. Yesterday’s Investors Intelligence survey showed that 49% of traders are bullish, slightly down but still fairly high. So sentiment remains very mixed. Traders are spooked a little, but not freaked out.
Continue Reading -->Apple Options Breakdown: Traders Can’t Get Enough!
Traders are loving them some Apple (AAPL) today. The stock is ripping up 3.9% on a perfect storm of good news. First, one of the new iPhone 7’s biggest rivals — the Samsung Galaxy Note 7 — has been recalled due to exploding batteries. Yesterday, T-Mobile (TMUS) and Sprint (S) reported huge pre-order numbers, and now there is chatter about strong pre-order activity. Today, CEO Tim Cook appeared on Good Morning America and discussed “augmented reality,” which he believes is more commercially viable than virtual reality. That’s a clear nod towards a major new product category. Plus, the new iPhone 7 and Watch Series 2 are getting very positive reviews. But while the stock is ripping, the real action is in the options. 843K call options have traded today. This is 2.5X the average daily volume over the past 10 days. And it’s not even lunch time yet! The put-call ratio ratio for Apple options today is 0.29. The 10-day average is 0.65. So normally, about 1.5 Apple calls trade for each put. Today, 3.4 calls have traded for each put. We could be setting up one heck of a “sell the news” reaction but for now the ride is pretty nice!
Continue Reading -->The Morning Hammer: The Comeback
Crude oil is up fractionally this morning despite a smaller-than-expected drop in crude oil inventories, as reported by the API yesterday after the close. EIA inventory numbers are due at 10:30 a.m. ET. Bloomberg is also reporting that China is boosting crude oil imports due to declining domestic output. It looks like oil traders are cautious heading into the OPEC meeting. It’s clear that chatter about production freezes/cuts has helped oil climb off the lows, but we are seeing lots of conflicting headlines about OPEC’s strategies and there’s no telling what’s going to actually happen. SPX futures are in positively territory after the second big decline in the past three days. The bears definitely drew some blood, and It definitely feels like volatility is back after 51 trading days without a -1% down day. Sentiment is mixed but leaning negative. The CBOE equity put-call ratio was 0.75 yesterday, which isn’t overly bearish. The ISE Sentiment Index was 60 though (60 calls for every 100 puts), which is a sign of tension. The 10 day moving average has moved down to 82.6 which is a sign of growing bearishness. Apple (AAPL) is up this morning on chatter that iPhone 7 chip orders are higher than expected. This is no surprise given that T-Mobile (TMUS) and Sprint (S) both reported strong iPhone 7 pre-orders yesterday. The WSJ issued a negative article on Tesla (TSLA), saying the Model 3 will be hurt by competition from the Chevy Bolt. And yesterday, noted hedge fund manager and short seller called Tesla/Solar City (SCTY) a “walking insolvency.” But yesteday, Schaeffer’s Research reported that Tesla’s 10-day put/call ratio is at an annual, implying that a lot of traders are betting hard against Tesla. That kind of negativity can actually form a cushion because it implies that negativity is priced in. As was rumored yesterday, Bayer agreed to buy Monsanto (MON) for $128/share in cash, up slightly from the last offer of $127.50. Overnight, UK unemployment remained at an 11-year low in July. France’s CPI was in-line with expectations. Thailand left rates unchanged, as expecteed. China’s aggregate financing was 1.47 trillion yuan in August, blowing away the 949 billion consensus. I’d continue to keep it simple. Watch oil, biotech (IBB), and the Russell 2000 for clues. That’s the stuff the bears can use to generate a real scare, so see if they build higher. Good luck out there.
Continue Reading -->T3’s Take 3: Volatility Is Back in a Big Way
T3’s Take 3: Volatility Is Back in a Big Way Interested in becoming a professional prop trader? Click here to fill out our eligibility form. ********* 1) Bulls Give Back Yesterday, the S&P 500 rose 1.5%, the first 1%+ up day since July 8. The bears got their revenge today as the index dropped -1.5% to 2126.78, with the VIX rising 17.7% to 17.85. Market observers were scrambling to find explanations for the sell-off, but for me, the story remains the same: we are seeing a good old-fashioned return of volatility after 2 months of markets going nowhere. Some folks are pointing at deterioration in US economic data – but that’s nothing new. The real question is what’s next? There are no easy answers, but crude oil will be in focus tomorrow given inventory releases today after the close (from the API) and tomorrow morning (from the EIA). 2) Apple Booms on iPhone Sales Chatter Apple (AAPL) was a superstar amid a sea of red, rallying 2.4% to $107.95. Early this morning, T-Mobile (TMUS) Chief Executive Officer John Legere Tweeted that iPhone 7 pre-orders set company records. Sprint (S) CEO Marcelo Claure then jumped into the news flow and added that iPhone pre-orders were nearly 4X higher than last year’s. Consumers appear to be upgrading their iPhone at a faster-than-expected rate, and Apple may also be benefiting from a stumble by a key rival Samsung. Samsung recalled Galaxy Note 7 smartphone due to exploding batteries, which certainly tilts the iPhone vs. Galaxy debate in Apple’s favor. 3) VIX-Plosion Trade Update On August 9, I went long VIX calls, based on my expectation that the VIX could break over 30 within 2 months. We may now be seeing the seeds of such a move, so I don’t have plans to lock in profits just yet. On Friday, we had the first -1% down day in the SPX since June 27. Yesterday, we had the first 1% up day since July 8. And today, the SPX fell -1.5% with the Russell 2000 down -1.9%. The Nasdaq was ‘only’ down -1.1%, but that’s largely because of Apple’s (AAPL) rally. So it looks like the summer snoozefest has officially made way for some autumn excitement. Wednesday’s Trading Calendar US Economics (Time Zone: EDT) 07:00 MBA Mortgage Applications (9/9): prior 0.90% 08:30 Import Price Index MoM (Aug): exp. -0.10%, prior 0.10% 08:30 Import Price Index YoY (Aug): exp. -2.20%, prior -3.70% 10:30 DOE U.S. Crude Oil Inventories (9/9): exp. 4000k, prior -14513k 10:30 DOE Cushing OK Crude Inventory (9/9): exp. -100k, prior -434k 10:30 DOE U.S. Gasoline Inventories (9/9): exp. -1100k, prior -4211k 10:30 DOE U.S. Distillate Inventory (9/9): exp. 1500k, prior 3382k 10:30 DOE U.S. Refinery Utilization (9/9): exp. -0.35%, prior 0.90% 10:30 DOE Crude Oil Implied Demand (9/9): prior 17600 10:30 DOE Gasoline Implied Demand (9/9): prior 10250 10:30 DOE Distillate Implied Demand (9/9): prior 4655.9 Global Economics 04:30 GBP Average Earnings Index 04:30 GBP Claimant Count Change 04:30 GBP Unemployment Rate 18:45 NZD GDP q/q 21:30 AUD Unemployment Rate Earnings Before Open: Cracker Barrel Old Country Store (CBRL) After Close: Apogee Enterprises (APOG)
Continue Reading -->Why I’m Still Cautious About This Market
Yesterday’s big rally came as quite a surprise to just about everyone I talked to. It’s pretty funny how the market likes to confuse as many traders as it can. Yesterday we still had plenty of warning signs to keep us from getting back in. 1) The market couldn’t regain the 50 day moving average and stalled out just below. 2) If the bulls wanted to negate that nasty down day Friday, they needed to get into Friday’s gap, which they couldn’t. 3) Small caps remained much weaker on their bounce attempt, showing beta wasn’t as good of a place to be. All this being said, I am still waiting for SPY to get into the $211-ish range. It got very close on Friday, and I am still holding out for that.
Continue Reading -->