Weekly Sentiment Update: Bears Are Everywhere and They’re Killing Volatility!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. In last week’s sentiment update, the data indicated that traders had gone bearish even before the US missile attack on Syria and the nonfarmpayrolls miss. Yesterday, we clearly saw even more bears coming out of their caves. So let’s take a complete look at where we stand ahead of the long holiday weekend. 1) VIX Spread – Bearish The VIX is near a 6-month high and the 3-month curve has inverted. Typically, we see this after the market gets wrecked — not when the SPX is less than 3% off all-time highs. This is definitely bearish. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 28, down from 43 last week. F&G operates on a 1-100 scale, and a reading of 28 means traders are most definitely fearful. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 29% of individual investors are bullish, up slightly from last week’s 28.3% reading. This is well below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.69 yesterday with a 3-day moving average is 0.70. This is indicates that traders are bearish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 139 (139 calls bought for every 100). The 10 day moving average is just 87. So the recent trend shows higher put option demand. However, I’ll actually call this neutral because the ISE Sentiment index has been so down for so long, that today’s 139 reading counts as pretty bullish activity. Please note: I am strongly considering dumping ISE Sentiment from this weekly update simply because it’s almost always reading bearish no matter what happens in the market. I may replace it with the CBOE Skew Index, which measures how much traders are paying for protection against tail risk. Conclusion Out of 5 sentiment indicators, we have: 0 bullish 4 bearish 1 neutral This is reminiscent of last summer, when we consistently had mixed-to-bearish sentiment and stock prices that looked stretched. The result was a seemingly endless sideways grind, because bearish sentiment and high valuations are a good recipe of a whole lotta nothing. The bear case certainty seems the same — what goes up must come down. So the question is whether market volatility has been low enough for a long enough time for a trend change to actually occur. Here a chart of the S&P 500 along with realized volatility from last July. I marked the Snooze Periods so you can see just how long the present on has persisted: As you can see, it’s been trending down since October — that’s a pretty long stretch considering how much news we’ve gotten. When the trend changes, I don’t know. We’ve had catalyst after catalyst and the market’s shrugged it all off. There’s been the Fed, a lot of economic data and news, a heavy flow of political news, and an explosion in geopolitical tensions. But the fact that traders are so bearish implies that the snoozefest could go on for quite a while.
Continue Reading -->Do you Love the Smell of Fear in the Morning?
Napalm, son. Nothing else in the world smells like that. I love the smell of napalm in the morning. -Lieutenant Colonel Bill Kilgore, Apocalypse Now It looks like traders are starting to worry about serious downside. Yesterday, I pointed out that safety assets were showing big gains amid rising geopolitical tensions. Today, the VIX jumped over 16 for the first time since November 10, 2016. And the VIX is stil trading as a massive premium to actual market volatility. And one of my favorite sentiment indicators — the CBOE Equity Put/Call ratio — skyrocketed to 0.79 yesterday. This is well above the YTD average of 0.65. As you can see in the chart below, we’ve seen 4 spikes to similar levels in the past 5 months. And all of those spikes occurred near interim lows in the S&P 500. Traders can rarely use sentiment indicators as buy/sell signals. They tend to only be useful at extremes. For the CBOE Equity Put/Call, a 0.79 is an outlier, but not a major league freakout. Nonetheless, this latest reading implies that traders are rapidly pricing a lot of fear into the market. When I complete my next Weekly Sentiment Update tomorrow, we should see even more bearishness than last week. The big question now becomes: is a lot of fear enough fear to form a bottom?
Continue Reading -->Weekly Sentiment Update: The Bears Were on Patrol, Even Before Syria and the Weak Jobs Report
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. With the US missile attack on Syria and the NFP report miss, now is the perfect time for a sentiment update. Last week, the bears were out in force as we digested near all-time highs. But with the bulls still holding steady, let’s see if anything’s changed. 1) VIX Spread – Neutral The VIX spiked a bit post-Syria, but interestingly enough, it’s now DOWN on the day — even after the NFP miss. That has the 3-month VIX spread is at +2.16 which indicates that traders are starting to grow skittish. Readings around +2 are neutral. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 43, up slightly from 34 last week. F&G operates on a 1-100 scale, and a reading of 43 means traders are moderately fearful. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 28.3% of individual investors are bullish, down from 30.2% last week. This is well below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.66 yesterday with a 3-day moving average is 0.63. This is indicates that traders are slightly bearish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 108 (108 calls bought for every 100). The 10 day moving average is just 90. This indicates that demand for put options continues to outstrip that for calls. However, I’ll actually call this neutral because the ISE Sentiment index has been so down for so long that 90 is actually high relative to recent history. Please note: I am strongly considering dumping ISE Sentiment from this weekly update simply because it’s almost always reading bearish no matter what happens in the market. I may replace it with the CBOE Skew Index, which measures how much traders are paying for protection against tail risk. Conclusion Out of 5 sentiment indicators, we have: 0 bullish 3 bearish 2 neutral This shows even more bearishness than last week. Note that the all of these indicators except for the VIX spread, were released BEFORE the attack on Syria and the nonfarm payrolls miss. So it’s not like the market was necessarily braced for good news, even though traders were optimistic about NFP because of the recent ADP and jobless claims beats. It is indeed possible that the next readings of the 4 others may grow more bearish in the near future. And interestingly enough, the SPX just slipped into the green, thoguh small caps and banks are underperforming. It should be an interesting day, to say the least…
Continue Reading -->Scott Redler Discusses the Market Complexion with CNBC
In yesterday’s Market Insider Column with Patti Domm on CNBC.com, T3 Live Chief Strategic Officer Scott Redler broke down yesterday’s weak market action in the aftermath of the release of the Fed’s March Meeting Minutes: The real test is whether the market will fall below and close below the 50-day moving average, which it hasn’t done since Election Day. That would be a signal the complexion has changed, and that would breed more caution,” said Scott Redler, partner with T3Live.com. Redler, who follows the market’s short-term technicals, said the dramatic reversal in the S&P 500 Wednesday may be a forewarning of more turbulence to come. “When you break key levels and hold them, it’s a constructive signal for the bulls. If you push above levels and it fails, it could give you some clues that there’s more weakness to come. The banks and small caps were giving clues even before the Fed said the market is quite high,” said Redler. Click here to read the full article on CNBC.com, which also includes commentary from market legend Art Cashin, who serves as director of floor operations at UBS.
Continue Reading -->9 Tips for Picking the Right Stocks for Swing Trading in 2022
As a swing trader, one of the most important decisions you’ll make is choosing which stocks to trade. You can learn all the winning swing setups in the world, but if you trade the wrong stocks, you’re going to lose money. So we’ve put together 9 simple tips that can help you steer clear of the ticking time bombs, and keep you focused on the winners. (if you’d like to learn about our swing trading program, click the green button) Click to Learn About Sami’s Strategic Swing Trader Program! 1) Don’t Get Hyped Over Hype. Price Action Is What Really Matters to Swing Traders.Many swing traders focus exclusive on companies that are always in the news with product announcements, press releases, and CEO interviews. That’s great for entertainment purposes, but we make our money on price action. For example, IBM (IBM) puts out a lot of news, but its stock doesn’t move all that much. IBM has a beta of 0.95, meaning that if the market moves 1%, IBM will move just 0.95%. So why trade it? Focus on stocks that make significant moves on multi-day to multi-month time frames. So if you want to trade a stock that moves faster than an IBM, you could look at high-beta names like Beyond Meat (BYND), Uber (UBER), Snap (SNAP), Amazon (AMZN), Advanced Micro Devices (AMD), or Netflix (NFLX). According to swing trading expert Sami Abusaad, “momentum is important. I look for high-momentum stocks that I believe are set to move in the next day or two.” Sami’s also not afraid of international stocks from regions like India and China. “It’s all about the chart, as long as the stock fits my volume requirements” says Sami.”2) Watch the Calendar for Trading OpportunitiesWhile price action is more important than news, news can drive price action. So if you’re long or short a stock, know what’s on the calendar. It’s good to know if your names are reporting earnings, appearing at conferences, have executives appearing on TV, unveiling new products, or can be impacted by economic news. For example, if you’re long Apple, you better know when it’s reporting earnings and when it’s showing new products. As you can see in this chart, Apple gapped up big on earnings (the circle), and it had a wide-range bar on the iPhone 8 release. Being aware of the calendar would have kept you on alert for big moves: And these days, more and more corporate executives are getting chatty on Twitter (TWTR) — perhaps most notably Tesla’s (TSLA) Elon Musk — so you should be monitoring their Tweets too! In August 2018, Elon Musk sent Tesla’s stock pricing skyrocketing after saying he was considering taking the company private.Am considering taking Tesla private at $420. Funding secured.— Elon Musk (@elonmusk) August 7, 2018 3) You Can Swing Trade Penny Stocks, But Be CarefulMany traders, particularly beginners, are attracted to penny stocks and small caps. While these kinds of stocks can give us the volatility we need to make real profits, they offer less liquidity than better-known large-cap stocks. They may also subject to manipulation and negative one-time events like secondary offerings. However, the fact that they can move so much so fast may make the potential reward worth the risk, particularly for advanced traders. Sami will trade any stock with a price above $1 with average daily volume around 500K shares a day, so long as there is a quality pattern. Keep in mind that Sami is a highly-experienced trader with a disciplined approach to risk management. Sami recently produced a video about swing trading penny stocks which you may find interesting:4) Be Aware of Your Typical Holding TimePick stocks to trade that match up with your intended holding time. We recommend going through your trading history to see the time frames of your most profitable trades. If you tend to make the most money on a 1-month time frame, then focus on stocks that make large moves on that time frame. The same goes for 1-week trades… and 1-year trades.5) Follow the Leading Stocks… and the LosersQuite often, the best-performing stocks in the market can go a lot farther and move a lot faster than the critics claim. Therefore, always know which stocks are crushing the market on an extended basis, because they’ll give you regular trading opportunities on both pullbacks and breakouts. Chipmaker Nvidia (NVDA) has been one of the best performing stocks of the post-crisis bull market. It has regularly led both the technology sector and broader markets, so it has been a go-to stock for swing traders: And on the flip side, track the worst names in the worst sectors. The laggards that look “cheap” often get cheaper since they typically suffer from bad earnings and negative news. According to Sami, “stocks showing relative weakness to the market and multiple time frame alignment (bearish daily/weekly/monthly charts) work best on the short side.”6) It’s Okay to Be Late to the PartyYou don’t have to arrive at the party perfectly on schedule. You can be a little late and still capture most of the fun. Don’t try to time exact bottoms (or tops if you’re going short). When a stock makes a major move, you can miss the first 20% and still make a lot of money. Take a look at this weekly chart of Facebook: In an ideal world, you would have bought it under $20 in late 2012: But you could have bought it much higher — at $40, $50, or $60 — and still made money. It’s better to wait for a setup to fully complete and give you a strong signal than rush in early, trying to catch the absolute lowest price.7) Be Careful with Falling KnivesOne of the single biggest reasons traders blow up their accounts is that they rush to catch falling knives. They’ll see a leading stock gap down 20% after earnings, and buy it right on the open. Then, the stock will drop another 20% in a week, and the trader is left asking “what now?” Resist the urge to throw your money at stocks posting big declines. Commonly, these names need to settle a bit before offering a fresh buy setup. Taking a look at Twitter, you can see how many times the stock gapped down huge,
Continue Reading -->17 Killer Tips Every Momentum Trader Should Know
When people hear the word “momentum,” they think excitement. Volatility. Big wins, and big losses. But the reality is that the most successful momentum traders are highly disciplined. To help you get better momentum trading results, we’ve put together a list of 17 handy rules that will keep you out of trouble: 1. Create a Game Plan and Stick To It You should have a reason for entering each trade and always have a stop-loss price and a level to take profits before you enter a position. In the long-run, discipline is the key to consistent success. 2. Adapt to Changes Quickly If a short-term trade isn’t working, don’t hesitate to switch sides. The market action can change very quickly, and you must be able to change with it. Don’t be stubborn! 3. Don’t get Married to Stocks If you are losing money in a stock, you don’t have to make it back in that particularly stock. Likewise, don’t force a trade in a stock only because it has made you money before. Always trade the best set-ups only. 4. Don’t Try to Pick Tops and Bottoms Trying to identify tops and bottoms will lose you money over the long run. The trend is your friend, so focus on that. And when you find it, follow it. Don’t trade with a bias because you think something should or shouldn’t happen. Let the stock tell you what its next move will be. 5. Accept Losses As Part of the Game Prepare yourself mentally and emotionally, because you will lose money at times. It’s part of the game, so there’s no use in fighting it. Just try to keep your losses small, and don’t be afraid to take a break if they’re getting bigger. 6. Stay Confident and Positive If you’re not feeling confident about your strategies and execution, don’t hesitate to step back from he market until your head is together. 7. Be consistent with Your Game Plan, Size and Execution. Keep your tier and trade sizes consistent and stick to your game-planned trades. You don’t want to end up with $1,000 gains and $5,000 losses! 8. The First Stop Is the Cheapest Stop Do not give into the temptation to let a losing stock run. Most of the time, you will end up getting destroyed because your small loss will turn into a huge loss. 9. When You are Wrong, Admit It and Move On Don’t waste time with a trade that is no longer compelling. Just move on to the next one. 10. Give Your Trade Time If you believe in a trade, but you’re just not getting movement, wait for it to play out. 11. Never Let a Winning Trade Turn Into a Losing One If you see profits in a trade disappearing, don’t be afraid to cash out. You can always get back in later. 12. Try to Capture the Full Move of a Trade While it is important not to let winners turn to losers, you will make your largest profits from capturing larger moves. So you can give a little back if you’re up big — but not too much. 13. Know Your Trade Type Always be aware of the type of trade you are in and act accordingly. Don’t mix up your time frames and don’t mix up your stock types. If you are in a swing trade, don’t get out impulsively on the first tick against you. If you’re in a fast scalping situation, don’t get tempted to hang on too long. And if you’re in a slower-moving stock, be patient. 14. It’s Okay to Take the Money and Run If you have a highly profitable morning session, it’s okay to take the afternoon off and relax, especially if you start giving some back. Don’t turn a great morning into a losing day. And if you have a bad morning and make it back to flat or a little green, call it a day and declare victory! If you push it, you risk suffering the emotional roller coaster of going from red to green back to red. 15. Trade the Same Way Whether You Are Up or Down Traders tend to press hard when they are down, and they get careless when they are up. You should have the same disciplined approach in either situation. 16. Trade Stocks That Are in Play Don’t trade something just to trade it. Make sure the stock you’re eyeing have regular movement, or have catalysts for movement coming. 17. Learn a Proven Method There are many ways to learn to trade, but too many traders take random pieces of information from different sources, and put them together without a plan for success. The best way to learn to make money trading is to study a proven strategy, and then carefully apply it in real-world market conditions.
Continue Reading -->Weekly Sentiment Update: The Bears Are Growling, But No One’s Listening
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, bears started sneaking out of their caves just in time for Spring. And with the bulls continuing to hold steady in the face of doubt, let’s see if anything’s changed. 1) VIX Spread – Bullish The VIX spiked to 15 early Monday, but it’s back down under 12. That has the 3-month VIX spread is at +2.69 which indicates that traders are moderately bullish. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 34, up slightly from 30 last week. F&G operates on a 1-100 scale, and a reading of 34 means traders are bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 30.2% of individual investors are bullish, down from 35.3% last week. This is well below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.64 yesterday with a 3-day moving average is 0.67. This is indicates that traders are slightly bearish. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at 83 (83 calls bought for every 100). The 10 day moving average is just 90. This indicates that demand for put options continues to outstrip that for calls. However, I am strongly considering dumping ISE Sentiment from this weekly update simply because it’s almost always reading bearish no matter what happens in the market. I may replace it with the CBOE Skew Index, which measures how much traders are paying for protection against tail risk. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 4 bearish 0 neutral This shows even more bearishness than last week. So while the bears are pushing an age-old theme — everyone’s complacent — I’m getting the feeling that traders are waiting for another shoe to drop, even though we’ve seen improvement in the action below the surface. Yesterday, the Nasdaq and Russell showed relative strength, and on Tuesday, we saw great upward action in the banks. So while some of the so-called “Trump Trade” has unwound itself, the bears’ growing isn’t adding up to much. But there’s an important question to ask here: how can sentiment be bearish if the SPX is 2% from all-time highs? We’ve seen this over and over throughout the bull market — markets hovering near record highs, but sentiment reading negative. My guess is that there’s inherent distrust in the market, and traders are eager to turn bearish on even small declines. And those that are buying often appear to be doing so reluctantly. It’s more of a “I might as well buy” attitude than “I’m buying because we’re going straight to SPX 3000.” And that’s a big difference from the last two bull markets.
Continue Reading -->Did Tim Cook and Elon Musk Pull a Trump on Trump?
The Business of America Is Business -Calvin Coolidge Donald Trump has made a fortune by selling his name. According to the Washington Post, Trump companies have made at least $59 million in revenue. Here’s one of the Washington Post’s examples: In Indonesia, Trump has licensed his name to two projects — a luxury resort and a golf course — for which he earned between $1 million and $5 million each project, each year. Now Apple (AAPL) CEO Tim Cook and Tesla (TSLA) CEO Elon Musk may be running the same game on Trump — selling their names in the name of business. The Washington Post reported that Trump is about to announce “The White House Office of American Innovation,” which is aimed at bringing fresh business-like thinking to Washington. Supposedly the office is already working with Cook, Musk, and Salesforce (CRM) CEO Mark Benioff. After the failure of the healthcare bill on Friday, Trump needs more credibility. Association with tech leaders like Cook and Musk gives him that. Dropping those names when introducing new legislation would be a huge selling point. And odds are, there will be some payback, especially since Trump seems to love everyone that sits down with him. Remember his January 31 meeting with pharma CEO’s? The talk about price controls seemed to dissipate pretty quickly. So what could Cook and Musk get out of Trump? Well, there’s a lot of chatter that having a big personal connection in the White House could help Apple make even more headway in the education market. But I think the real story is the potential repatriation of overseas cash. Apple’s sitting on $246 billion in cash, but $230 billion of it is sitting overseas doing nothing. Cook has said that he’s optimistic about some kind of tax reform including repatration this year, and buddying up with Trump can only help that process. As for Musk, I imagine that Trump could keep government subsidies flowing for electric cars. There’s also potential for some of Tesla’s non-car initiatives, like its energy story solutions, to make their way into Trump’s infrastructure package. And then there’s Solar City (SCTY), Musk’s solar panel company. I can’t imagine that company would hurt by ties to Trump. So Cook and Musk may have struck great deals. They’re selling their names to help Trump build credibility for business-related legislation. And their companies will probably collect big-time cash on the back end.
Continue Reading -->Weekly Sentiment Update: The Bears Are Done Hibernating… and They’re Hungry
Permbulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, sentiment went neutral for the second straight week. The big news this week is today’s healthcare vote (well, let’s hope we get it over with it), so let’s see if traders 1) VIX Spread – Bullish The 3-month VIX spread is at +2.6 which indicates that traders are moderately bullish. However, this number has been sliding steadily as traders slowly price in more volatility. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 30, down from 53 last week. F&G operates on a 1-100 scale, and a reading of 30 means traders are bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 35.3% of individual investors are bullish, which is just below the long-term average of 38.5%. It’s close enough to the middle to cal 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.67 yesterday with a 3-day moving average is 0.73. This is indicates that traders are bearish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 101 (101 calls bought for every 100). So there are a ton of post-Fed call buyers. , which is a bullish reading. The 10 day moving average is just 89.7, up from 83 last week.This indicates strong demand for put options, but the ISE has been extraordinarly low forever, and 89.7 is pretty high compared to recent readings. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 3 bearish 1 neutral So in the past 4 weeks we’ve gone from 2 weeks of bullishness to 2 weeks of neutrality. Markets have been in a slow motion grind lower since the spike high on Trump’s speech, and the sluggishness is impacting traders’ moods.
Continue Reading -->T3’s Take 3: Mr. Market Is Still Telling the Most Boring Story on Earth
1) What a Boring Market Stocks are still in sleep mode, with the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite showing next-to-none movement. The Russell 2000 fell -0.5% to 1384.09, and in today’s low volatility environment, that actually counts as major movement. Traders are still debating just how hawkish the Fed is following its statement last week. That’s driving continued profit-taking in the US dollar, which helped gold catch a bid. Regional banks, which have been key in the post-election rally, are still dropping, while US Treasuries perked up again. 2) Wait and See? We’ve been falling asleep for the past month as day-to-day movement has gone to basically nothing. The word on the street is that traders are waiting on Thursday’s healthcare vote before putting their chips down. However, throughout the year, we’ve seen plenty of big events — Trump’s inauguration, then his first address, jobs numbers, the ECB, Fed statements, etc. — and none have driven real volatility for more than a few hours. So my big concern is that we’ll see some fireworks on the healthcare vote, and then head right back into this low-volatility snoozefest. 3) But There’s This… This morning, Bloomberg News reported that the CBOE SKEW Index rose for 5 straight days, the longest streak since June 2016. This indicates that traders are paying up for out-of-the-money options, which only pay off in the face of a huge market move. According to Bloomberg, the last time the SKEW Index was so high relative to the VIX, the VIX surged 65%. However, before throwing your money at VIX calls, consider that we’re dealing with a sample size of 1 — that’s far from reliable.
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