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The Morning Hammer: Another Day, Another Record, Another Yawn
Yesterday, the S&P, Dow, and Nasdaq all made new record highs as the most boring bull market ever just kept on chugging. The S&P has now gone 24 days without a 1% move. Bulls obviously won’t argue with the results. Bears are sweating like crazy because they’re playing the “what goes up must come down” game. But sometimes, what goes up stays up much longer than seems reasonable. It’s been an especially bad month for traders buying puts, because there’s nothing worse than a slow grind up with declining volatility — you just get eaten alive a penny at a time. Getting wiped out in a spike high is actually better because at least you know it’s over and you can move on. That said, I am long VIX calls, which means I’m speculating on a significant volatility spike. I may have gotten into this trade a little early, but I still believe the odds are on my side. Overnight, Euro-area GDP came in as expected, though Italy’s was weak. The UK also reported weaker-than-expected construction spending in June. So while economic data around the Brexit was actually generally decent relative to expectations, it’s now falling off a little bit. This lends some credence to the Bank of England’s massive reduction in its GDP forecasts. And China’s factory output, retail sales, and fixed-asset investment all missed expectations. Today, SPX futures are flat as an ironing board, and there’s not much movement elsewhere. The dollar’s flat, commodities aren’t doing anything dramatic, and European stocks and bonds are roughly flat. There’s some movement in Europe, but overall, the world is falling asleep. Sentiment is still somewhat bullish, as judging by the steep VIX curve, Investors Intelligence Survey, and CBOE equity put-call. Permabears are saying everyone’s complacent, but I wouldn’t go that far. I’d say we’re at about a 7/10 in terms of crowd bullishness. (with 10 out of 10 being psychotically bullish) On today’s calendar, we’ve got retail sales, PPI, U. of Michigan Sentiment, and the Baker Hughes Rig Count. Maybe retail sales can shake things up a little bit. JC Penney (JCP) just reported a small sales miss, which is a little disappointing after the beats from Macy’s (MC) and Kohl’s (KSS) yesterday. I’d watch the usual suspects today — oil, biotech, small caps, and high-yield. These are the key attack areas for the bears if they’re ready to rock. Good luck friends.
Continue Reading -->T3’s Take 3: Strong Oil Means More Bull Action
1) Crude Oil Booms Crude oil surged over $43 today in an extension of the rally off the August 2 lows. Saudi Arabia’s energy minister said that next month’s OPEC meeting in Algiers could include plans to stabilize the oil market. Plus, the International Energy Agency said that demand from refiners will help the global oil market rebalance this year, which quieted fears about record oil production in Saudi Arabia and other OPEC nations. This news had traders forgetting about this week’s bearish US oil inventory reports, and energy stocks rallied with a vengeance today, with oil service names especially strong. The Vaneck Vectors Oil Services ETF (OIH) rose 1.4% to $28.51 today. 2) Stocks Bounce Stocks responded well to the oil price surge, and the S&P 500 rose 0.5% to 2185.79, setting an all-time intraday high at 2188.14 The solid stock action had the VIX continuing its dip from yesterday’s 12.50 intraday high. Retail stocks got a nice bump on strong earnings from Macy’s (M) andKohl’s (KSS), while biotechnology (IBB) rebounded from a weak open to rise 1.1% to $291.91. The US dollar and Treasury yields rose today, putting pressure on bonds, and the real estate and utility stocks. 3) Jeff Cooper on the SPX This morning, my buddy Jeff Cooper issued a report with in-depth analysis of the SPX, saying the following: The SPX is either topping just below 2200 or is going to run to 2290 ish into the end of August/early September. Youse puts up ya money, yousetakes ya chances. Although the market does its diabolical best to misdirect players, it should be easy to see which one once Mr. Market shows its hand –probably over the next 2 to 3 days. We have had two quick downdrafts since last August. I suspect there could be 2 to 3 air pockets between August and October if the above Gann symmetry plays out — despite The Hand unleashing a swarm of V’s since last summer. Click here for the full report Friday’s Trading Calendar US Economics (Time Zone: EDT) 08:30 Retail Sales Advance MoM (Jul): exp. 0.40% , prior 0.60% 08:30 Retail Sales Ex Auto MoM (Jul): exp. 0.10% , prior 0.70% 08:30 Retail Sales Ex Auto and Gas (Jul): exp. 0.30% , prior 0.70% 08:30 Retail Sales Control Group (Jul): exp. 0.30% , prior 0.50% 08:30 PPI Final Demand MoM (Jul): exp. 0.10% , prior 0.50% 08:30 PPI Ex Food and Energy MoM (Jul): exp. 0.20% , prior 0.40% 08:30 PPI Ex Food, Energy, Trade MoM (Jul): exp. 0.20% , prior 0.30% 08:30 PPI Final Demand YoY (Jul): exp. 0.20% , prior 0.30% 08:30 PPI Ex Food and Energy YoY (Jul): exp. 1.20% , prior 1.30% 08:30 PPI Ex Food, Energy, Trade YoY (Jul): exp. , prior 0.90% 10:00 Business Inventories (Jun): exp. 0.10% , prior 0.20% 10:00 U. of Mich. Sentiment (Aug P): exp. 91.5 , prior 90 10:00 U. of Mich. Current Conditions (Aug P): exp. 109.5 , prior 109 10:00 U. of Mich. Expectations (Aug P): exp. 80 , prior 77.8 10:00 U. of Mich. 1 Yr Inflation (Aug P): prior 2.70% 10:00 U. of Mich. 5-10 Yr Inflation (Aug P): prior 2.60% 13:00 Baker Hughes U.S. Rig Count (8/12): prior 464 13:00 Baker Hughes U.S. Rotary Gas Rigs (8/12): prior 81 13:00 Baker Hughes U.S. Rotary Oil Rigs (8/12): prior 381 Global Economics 02:00 EUR German Prelim GDP q/q 05:00 Flash GDP q/q Earnings Before the Open: J C Penny Co. (JCP) After the Close: None of significance
Continue Reading -->Crude Oil Goes Boom… and 4 Other Thoughts on Today’s Action
Attention! This afternoon, T3 Live’s Dave Green is hosting a FREE trading webinar. Click here to learn how Dave crushes the market! 1) Crude Rips Crude oil is slamming above $43 on an International Energy Agency report saying the market will continue to rebalance as demand from refiners grow. Predictably, energy stocks (especially oil service names) are doing great work on the upside, and it’s also pulling up high-yield (HYG). The bull run off post-Brexit lows may ‘feel’ long in the tooth, but strong crude oil could help extend it. 2) If You’re a True Believer… If you think oil’s going to continue running higher, look at energy closed-end funds. They are still showing large discounts, which could close if oil prices rise. Names to watch include KMF, KYE, and GMZ. 3) ANOTHER Record High? Assuming crude oil can keep moving higher, SPX may be in for yet another record high today. A colleague commented today that since the market’s so high, it’s probably destined to crash soon. I’m technically short the market, but I fully understand the reality on the ground: what goes up must come down — but before it comes down, it may go up. A lot. 4) Still No Vol The VIX had a 13% spike from Tuesday’s low to Wednesday’s high, but it’s round-tripped most of the move. I popped in a daily chart of the VIX vs. 20-day realized volatility on the SPX: Both are at yearly lows as the sideways grind continues. Unless something drastic happens, we’re going on 24 days without a 1% move. I really should have gone on vacation this week because the action is so boring! 5) Bio-Blah Biotech is up a little but it’s still showing pretty anemic action overall. It’s partly good old-fashioned consolidation after a big run higher, but it could also be a sign of exhaustion. If IBB starts surging towards $300, I imagine it would give the bears quite a scare. Click here to check out Dave Green’s webinar today!
Continue Reading -->The Morning Hammer: Let’s Talk About the Royal Institution of Chartered Surveyors
Attention! This afternoon, T3 Live’s Dave Green is hosting a FREE trading webinar. Click here to learn how Dave crushes the market! We’re looking at another potential snooze-fest with US stock futures showing fractional gains. Gold, oil, and US Treasuries are basically flat. Alibaba (BABA) is up nicely on a solid earnings beat and acceleration in growth, while Shake Shack (SHAK) is getting smacked up on a revenue miss. Europe is up at a 7-week high on solid earnings from European financials. The Stoxx Europe 600 Index is now inches away from erasing all its post-Brexit losses. That’s just another example of why you should always think twice about buying into stories of ultimate doom & gloom. There are meteors flying around all across the universe, but very few will ever actually hit the Earth. However, the Royal Institution of Chartered Surveyors said the Brexit is hurting the UK housing market, which is keeping a lid on the FTSE 100. And yes, that’s how boring today is — I’m talking about the Royal Institution of Chartered Surveyors. So it’s back to the waiting game. We’ve gone 23 days without a 1% move in the S&P 500. Typically, the S&P moves 1% on about 1 of every 3 days, so during normal times, we’d have seen 7 1% moves during this time span. But what can you do? This aint normal times. It’s August, sentiment is mostly positive, and the indices need to digest big post-Brexit gains. I’m long VIX calls so I obviously have a vested interest in a big market shakeup, but I’d also like a reason to pay attention to the market! Now, one reason we may get a big move soon is the street is short volatility in a big way. The short VIX futures trade is huge right now, and as we know, when everyone leans the same way, Mr. Market likes to pull the rug out. The only question is the only question that matters in financial markets: when? I’m sitting tight… not that I have a choice. Click here to check out Dave Green’s webinar this Thursday!
Continue Reading -->Crude’s Big Move… and 4 Other Thoughts on Today’s Action
Attention! On Thursday afternoon, T3 Live’s Dave Green is hosting a FREE trading webinar. Click here to learn how Dave crushes the market! 1) Crude Move Crude oil got a nice lift on this morning’s EIA inventory numbers. We saw a substantial builds in overall and Cushing, OK inventories, but massive draws in gasoline and distillate inventories. However, we’ve gotten other recent data (Saudi pumping levels, API data) that is bearish, and it’s now down a little. If crude oil can’t hold, it will embolden the bears. 2) Bio/Pharma Weakness Biotech and pharma are getting hit today on negative news from Eli Lilly (LLY) and Mylan (MYL), which is not good because health care is a key bull driver However, they’ve rocketed off post-Brexit lows so it’s fair to accept some consolidation after big, dramatic moves. A move off the lows would be encouraging, though I wouldn’t count on it. 3) Sentiment The ISE Sentiment Index is reading 100 as of 10:30 a.m. ET, which is perfectly neutral. (100 calls bought for every 100 puts) However, there is opposing action between individual names and the index/ETF sides. On the index side, traders look pretty bearish. (just 35 calls for every 100 puts) In individual names, the reading is 155 (155 calls for every 100 puts). Meanwhile, the Investors Intelligence survey was released today, showing that 54.3% of newsletter writers are bullish. This is very close to II’s 55% danger zone. 4) Large Cap Tech Sagging Big tech names like Apple (AAPL) and Facebook (FB) are looking “saggy” today, for lack of a better term. Like the health care complex, they could use a little consolidation time after posting big gains. That said, traders may get discouraged of tech loses its leadership status, since it’s played a big role in keeping equities at all-time highs. 5) Still No Vol… Volatility is still nowhere to be found. So far today, the S&P has trade in a less than 5-point range, which is threatening to put me to sleep all over again. I still think we’ll get a volatility spike soon, but there’s no sign of it yet today. Look at oil. We’ve gotten a lot of news is the past 18 hours, and it’s still barely doing anything. Click here to check out Dave Green’s webinar this Thursday!
Continue Reading -->More All-Time Highs, More Yawns!
1) Another Day, Another Yawn! US markets put in yet another astoundingly boring session, and I’m trying as hard as ever to put an interesting spin on these August doldrums. The S&P 500 and Nasdaq Composite notched new all-time highs shortly after the open, but the action quickly turned to yet another yawn-fest. The S&P rose +0.04% to 2181.74, which means we’ve now gone 22 days without a 1% move in the index. Year-to-date prior to this astoundingly boring stretch, the S&P moved 1% on about 1 of every 3 trading days. Crude oil gave up an early gain to sink back below $43, which had traders selling energy stocks. Meanwhile, bonds and gold picked up a little steam following their recent Fed-driven selloffs. 2) A VIX Explosion on the Way? Over the past week, I’ve written extensively that I thought the VIX was set to drop below 11. But after analysis of historical market data, I decided to take a long position in VIX calls just as the S&P 500 was making its latest all-time high this morning. This is not a low-risk trade by any stretch of the imagination since the VIX can stay low for extended periods of time. But prolonged bouts of low market volatility – like the one we’re going through now – are sometimes followed by explosions in the VIX, which could mean profits on VIX calls. Plus today, Bloomberg reported that net short positions on CBOE VIX futures are the biggest they’ve been since 2013. That means that traders are betting aggressively that the VIX will drop from here. Now may be the time to take the other side of the trade, so I stepped up and put my money where my mouth is. 3) The Importance of SPX 2174 This morning, T3 Live’s Jeff Cooper commented on the important of SPX 2174: An hourly SPX shows a breakout above a flat line that started on our key July 20 date from our key 2174 level. The index is pulling back from record highs this morning and testing its 20 period m.a., a break of which could elicit a test of 2174ish. If 2174 is lost, it could signal a Bull Trap being sprung. Follow through will be key here… in either direction now that we are in what is an important anniversary week. If it looks like we will close below 2174, I will repurchase SPXU before the bell at the market. Theoretically, it is possible that one more push below last week’s low plays out that stops in its tracks prior to a run for the roses. This resembles the analogue from 1929. If we do get a little test of last week’s lows which is followed by a momentum move above 2200, a last ditch rally could be on the table, but let’s take one move at a time as the market is not a fine Swiss watch and patterns do not have to play out with precision. The bottom line: any sell signal here, we must take, and if we get stopped out on a new high, we will know what to look for. Click here to learn about Jeff’s Daily Market Report Today’s Trading Calendar US Economics (Time Zone: EDT) 07:00 MBA Mortgage Applications (8/5): prior -3.50% 10:00 JOLTS Job Openings (Jun): exp. 5500, prior 5500 10:30 DOE U.S. Crude Oil Inventories (8/5): exp. -1500k, prior 1413k 10:30 DOE Cushing OK Crude Inventory (8/5): exp. -100k, prior -1123k 10:30 DOE U.S. Gasoline Inventories (8/5): exp. -1300k, prior -3262k 10:30 DOE U.S. Distillate Inventory (8/5): exp. 500k, prior 1152k 10:30 DOE U.S. Refinery Utilization (8/5): exp. -0.50%, prior 0.90% 10:30 DOE Crude Oil Implied Demand (8/5): prior 16996 10:30 DOE Gasoline Implied Demand (8/5): prior 10206.4 10:30 DOE Distillate Implied Demand (8/5): prior 4871.4 14:00 Monthly Budget Statement (Jul): exp. -$115.0b, prior -$149.2b Global Economics 17:00 NZD RBNZ Rate Statement 21:10 NZD RBNZ Gov Wheeler Speaks Earnings Before the Open: Michael Kors (KORS) Ralph Lauren (RL) After the Close: Shake Shack (SHAK)
Continue Reading -->Why the VIX Could Explode
Attention! On Thursday afternoon, T3 Live’s Dave Green is hosting a FREE trading webinar. Click here to learn how Dave crushes the market! I’ve been vocal about my expectation that the VIX could go under 11, and it’s now at 11.08 — just about there. After further analysis, I’m starting to suspect that it will explode. The VIX has dipped below 12 during 10 of the last 16 trading days. This is very reminicent of what we saw in July-August 2015. Between 7/15/2015 and 8/5/2015, the VIX was sub-12 on 7 of 15 trading days — a similiar low-volatility streak. That led to the 8/24/2015 mini-crash, which saw the VIX trade as high as 53.29 intraday before closing at 28. We can also go back to August-September 2014. Then, we saw the VIX go sub-12 for 15 of 25 trading days. It then broke 30 that October. So the pattern seems to be a few weeks of nothing followed by a small grind up in the VIX, and then a VIX-plosion. However, if we go back to June-July 2014, we see a very long pattern of nothing — 39 of 45 days with a sub-12 VIX. If the pattern holds (we are dealing with tiny sample sizes here so this isn’t even close to scientific), the VIX could easily be over 30 within a couple months. The only problem is, that spike could happen next week… or in 2 months. That said, I’m dipping a toe in the water to speculate on a VIX-plosion. SPX just hit a new record high at 2186.65, and I am now long VIX October 20 calls from $1.45. Downside risk is 100% if the VIX goes flat or only rises modestly, but I suspect the VIX will be over 30 within 2 months. The reason I’m putting it on now is that it feels like the absolute hardest trade, which sometimes mean it’s the best trade. Click here to check out Dave Green’s webinar this Thursday!
Continue Reading -->21 Days of Nothing: Fun Market Stats to Chew On
We really are getting a big-time summer slowdown. Some stats to chew on: -The SPX has now gone 21 trading days without a 1% move -YTD before this 21 day span, SPX moved more than 1% on nearly 1 out of 3 trading days. -During this 21 day span, SPX has moved an average of 0.3% per day -YTD before this 21 day span, SPX moved an average of 0.7% each day The VIX is now at just 11.32, levels it hasn’t seen since summer 2014’s extended downdraft, and August 2015’s spike lows. However. the VIX is actually still trading at a premium to realized SPX volatility. The premium is currently 5.5 percentage points. According to Bloomberg data, this is higher than it’s been 76% of the time over the past 5 years. Therefore, traders are to some extent already pricing in a modest volatility expansion. It does “feel” like the VIX should go up, but also keep in mind that it can stay stuck at very low levels for extended periods of time — and “should” is a dangerous word in these boring summer months. For reference, I am popping in a daily VIX chart from 2014 since so many folks are making the comparison: As you can see, the VIX traded in the 11-14 range for 4 months from April to July, had a modest spike to 17ish in August, but didn’t break 20 until October. UPDATE: Please read my latest views on the VIX here.
Continue Reading -->The Sleepy Time Market
The big bad euro bond trade is still in place with UK and Spanish 10-year yields hitting record lows. Meanwhile, the Bank of England’s Ian McCafferty said more easing will likely be required to fight the after-effects of the Brexit, and it’s steppinig up its bond purchases. That’s sending the pound lower, while the FTSE 100 is up about 0.3%. Crude oil is getting a little follow-through and is up through $43. Yesterday, oil popped on chatter that OPEC may cut output, but that is no guarantee. Remember, a lot of folks were expecting output cuts from February through June, and they never happened. So don’t get your hopes up — they could simply be trying to keep oil sellers unnerved. Coach (COH) reported better-than-expected earnings, which is a nice surprise given all the doom & gloom around luxury retail. However, Japanese cosmetics giant Shiseido cut its forecast. Troubled pharma giant Valeant (VRX) reported a sales and earnings miss, but kept its full-year forecast unchanged. The stock is up about $1.50 in early trade, indicating traders were bracing for a disaster. This is one of those odd days where there’s just not much to talk about, and the lack of movement in futures reflects that. The VIX is down again today, and I would not be surprised to see the VIX break below 11 soon. We’re basically past earnings, the Brexit, and a lot of important economic data, so it feels like the media (myself included) is reaching for stuff to talk about. Each day, I write T3 Live’s Daily Recap newsletter. I always break the day’s action into 3 easily digestible stories. And when I have trouble coming up with 3 things to talk about — like I did yesterday — you know it’s bad. I expect the same today. Yesterday, the SPX and other major indices basically grinded gears. Crude oil’s bump got oil service stocks and high-yield bonds moving hot and heavy, while health care and biotech soured. Beyond that, there wasn’t much to look at. Market volatility is still around 2-year lows, and it seems that everyone’s waiting for an excuse to do something. I’d keep the same game plan on — watch biotech, oil, high-yield, and small caps. As long as they behave decently enough, we’ll stay in good shape.
Continue Reading -->T3’s Take 3: A Record High in a Serious Snoozefest
What do you really know about prop trading? Join my friends Amber Capra and Sami Abusaad for a FREE live webinar on the exciting world of prop trading, including: The unique financial benefits of a prop trading account How to select a program that’s right for you Pitfalls you must avoid Click here for more information 1) New All-Time Highs… and Not Much Else The S&P 500 opened higher today and quickly made another record high at 2185.44. However, the index quickly settled into a tight trading range, extending the summer snoozefest. The S&P has not made a 1% move since July 8, a span of 21 trading days. This action is reminiscent of the exceedingly boring April-May stretch, which is odd considering that we’re in the middle of earnings season with plenty of central banks news and economic data surprises. Health care was weak today after drug giant Allergan (AGN) reported a revenue miss, though to be fair, the sector rose just rose 12% in a straight line off the post-Brexit lows. The S&P fell -0.1% to 2180.86 today, and the Nasdaq and Russell 2000 also posted small losses. 2) Crude Oil Bounces Back Oil’s revival off the August 3 low continued today on OPEC bullishness, with WTI crude hitting $43 for the first time since July 27. OPEC President Mohammad Al Sada said today that the current bear market in oil is “only temporary,” and that higher crude oil demand will push up prices later this year. OPEC will also meet in Algeria next month to continue discussions about a possible output ceiling, though it’s not clear that the meeting will result in any actual output changes. While the equity markets were lackluster overall, crude oil’s bounce drove solid gains in energy stocks, particularly oil service names. The Vaneck Vectors Oil Service ETF (OIH) rose 2.3% to $28.96 today. The strong oil action also boosted the high-yield bond market, which is sensitive to oil prices. 3) Not Completely Awful Is Good Enough FactSet just updated their second-quarter earnings season stats for S&P 500 companies so let’s take a look at just how awful things are: 69% of companies are beating earnings estimates (vs. 5-year average of 67%) 54% of companies are beating sales estimates (vs. 5-year average of 55%) Q2 earnings have declined -3.5%, which is less awful than the -5.5% estimated as of June 30. Health care and tech have had the highest percentage of companies reporting earnings beats This means that the same trend that’s persisted for several quarters is still in place — earnings are nothing to write home about, but they are just a little better than expected. And that’s enough to get investors to hold their noses and buy. Or maybe they’re just fooled by central banks drenching the market in monetary perfume? Tuesday’s Trading Calendar US Economics (Time Zone: EDT) 06:00 NFIB Small Business Optimism (Jul): exp. 94.5, prior 94.5 08:30 Nonfarm Productivity (2Q P): exp. 0.40%, prior -0.60% 08:30 Unit Labor Costs (2Q P): exp. 1.80%, prior 4.50% 10:00 Wholesale Inventories MoM (Jun): exp. 0.00%, prior 0.10% 10:00 Wholesale Trade Sales MoM (Jun): exp. 0.50%, prior 0.50% 10:00 IBD/TIPP Economic Optimism (Aug): exp. 47.3, prior 45.5 12:00 DOE Short-Term Crude Outlook (Aug): prior 52.15 12:00 DOE Short-Term Mogas Outlook (Aug): prior 2.28 12:00 DOE Short-Term Diesel Outlook (Aug): prior 2.71 12:00 DOE Short-Term Ht Oil Outlook (Aug): prior 2.64 12:00 DOE Short-Term NatGas Outlook (Aug): prior 10.57 Mortgage Delinquencies (2Q): prior 4.77% MBA Mortgage Foreclosures (2Q): prior 1.74% Global Economics 04:30 GBP Manufacturing Production 04:30 GBP Goods Trade Balance 23:05 AUD RBA Gov Stevens Speaks Earnings Before the Open: Bitauto Holdings (BITA) Coach Inc (COH) Incyte Corp (INCY) Norwegian Cruise Line (NCLH) Wayfair (W) After the Close: Clean Energy Fuels (CLNE) Cyberark Software (CYBR) Exone (XONE) Fossil Group (FOSL) Infinity Pharma (INFI) Solar City (SCTY) SunPower (SPWR) Twilio (TWLO) Walt Disney (DIS) Yelp Inc (YELP)
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