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 -->Steve Levay’s Morning Call Express Video
In today’s Morning Call Express Video, T3’s Steve Levay discusses the action in SPY, as well as individual names like SINA, TWLO, and VRX.
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 -->What’s Moving in the Forex Markets
In this week’s What’s Moving in the Forex Markets video, T3’s Kurt Capra delivers an in-depth analysis of the action in USDCAD.
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)
Continue Reading -->The Morning Hammer: Most Boring Stock Market Ever
1) YAWN! I like being right… but not today. I’ve been calling for a sideways grind in August but it’s growing painful. We had a nice up day on Friday with some real movers, but today, the indices are barely moving, and outside of energy and biotech, there aren’t many real movers. It feels like run-of-the-mill consolidation… and I’ve had enough of it already. 2) Headline of the Day “Mattress Firm Ratings May Be Raised by Moody’s” That’s a pretty good illustration of how sleepy things are, and how boring the news flow is. 3) Oil! Oil looks good so far today, and it’s driving a nice move in high-yield, and a big rip in oil service names, which took a decent hit off early June highs. Traders will be especially eager for this week’s inventory data (API after the close Tuesday, EIA at 10:30 a.m. ET Wednesday). If we get bullish numbers, odds are WTI crude slinghots above $45. 4) High-Yield Too Hot? One my favorite underappreciated sentiment indicators is discount levels on closed-end funds, because they are a sign of serious disgust/overenthusiasm on the part of individual investors. And with oil’s big rebound off the February 11 lows, high-yield closed-end funds are looking a little frothy these days. One such fund is the PIMCO Corporate & Income Fund (PCN). At the beginning of the year, it traded at around a -4.5% discount. Now it’s at an 8.1% premium. Most other funds I follow have seen similar gains. 5) Energy Funds Though… However, energy closed-end funds look a little cheap. My custom index is trading at a -5.5% discount vs. a 1-year average of -4.6%. So if you think oil will continue to rally, you can take a look at funds like KMF, GMZ, and GER, which are all trading at large discounts relative to recent averages. If oil rallies, they will also likely deliver alpha relative to something like XLE. But beware… energy closed-fund funds are extremely volatile. They’re like trading Exxon (XOM) with the beta of Tesla (TSLA).
Continue Reading -->Earnings Season Review: When Not That 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 So 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, so investors are holding their noses and buying. Or maybe they’re just fooled by central banks drenching the market in monetary perfume? However, Q2 will go down as the fifth straight quarter of earnings declines, something we haven’t seen since the 2008-2009 crisis. I accept the market for what it is, and I always roll my eyes are melodramatic bear cases because they always omit the most important variable — WHEN. It does feel somewhat “wrong” for SPX earnings to be so weak while the index is regularly making new all-time highs. That’s creating stretched valuations. Aside from Telecom Services, all services have forward P/E’s is above 5 and 10-year averages: But consider the flip side. Stock prices are a current representation of the perception future earnings and cash flows. Pretty soon, companies will be facing weak comps, so stocks could simply be discounting a return to normalish growth. Maybe that’s simplistic thinking, but complex thinking has gotten the permabears absolutely nowhere.
Continue Reading -->Steve Levay’s Morning Call Express Video
In today’s Morning Call Express video, T3’s Steve Levay breaks down the action in SPY, as well as individual stocks like AMZN, TWLO, and SCSS.
Continue Reading -->