Maybe the Brexit Didn’t Kill Planet Earth After All…
European stocks are up this morning after German’s Ifo’s business confidence reading came in better-than-expected, implying once again that Brexit-related fears have gone too far. As we’ve been noting on the Virtual Trading Floor again and again, global economic data has actually outperformed expectations since the Brexit. Below, you can see 2 charts showing the Citi economic surprise indices for Europe (first chart) and the US (second chart): In both cases, the trend is UP, not down. Plus this morning, Irish airline Ryanair kept its 2017 profit forecast in place even though presumably, the Brexit and recent string of terrorists attacks could impact air travel volume. And in fact, traders are once again pricing in Fed rate hikes this year. Fed funds futures now show a 45% implied probability of a rate hike this year, up from 9% after the Brexit. So faith in the economy is returning… whether that marks a near-term top remains to be seen. We’ve got some deal activity this morning. Yahoo (YHOO) is selling its main web properties to Verizon (VZ) for $4.8 billion. Yahoo will operate as a publicly-traded investment company with holdings in Alibaba (BABA) and Yahoo Japan. CEO Marissa Mayer says she will stay with Yahoo. AMC Entertainment (AMC) raised its bid for Carmike Cinemas (CKEC) by about 10% to $1.2 billion. SPX futures are as flat as an ironing board this morning. We are seeing minor profit-taking in commodiites, with oil, gold, and silver all off as US Treasury and Euro bond yields rise. The 10-year German bund is still negative though. Sentiment measures including CBOE equity put/call, VIX spreads, and the II survey still show that traders are in a pretty bullish mood, so the best past forward may be a little break that lets moving averages catch up, and lets the bears reload. I still think we’re heading for a summer stalemate that looks like the amazingly boring April-May stretched, and that’s ultimate a good scenario for the bulls. My main worry now is that crude oil just trades horribly. Crude was a major catalyst for equities off the February 11 low, and with oversupplly worries coming back to the forefront, it could just as easily serve as a downward catalyst. It would also be nice to see the Nasdaq and Russell 2000 confirm the SPX all-time high. But it’s very rare that markets behave cooperatively across the board, so keep your eyes on the important stuff. As long as biotech (IBB), high-yield (HYG), and the Russell don’t break down, equities will likely keep it together. And oh yeah — the Pokemon-driven Nintendo hype train just got derailed. The stock is down 18% today after investors that Nintendo’s clearly not going to make enough money from Pokemon to justify a doubling in the stock price.
Continue Reading -->All-Time Highs on the Table?
Happy Friday! We’re less than a day away from a much-needed weekend, so let’s try to go out strong… though I’ll settle for making it out alive. I’m picking Runaway Child, Running Wild by the Temptations as my morning pick-me-up since coffee wasn’t enough. Asian markets are slipping and Europe is slightly green following yesterday’s down day in the US. Japan is down on Governor Kuroda’s stated opposition to “helicopter money.” Markit’s euro area PMI hit an 18-month low at 52.7, while its UK PMI showed what they’re calling a “dramatic deterioration” in business activity. This is disappointing because UK economic data has actually been fairly strong relative to low expectations recently. On the plus side, Germany’s PMI was strong, though interestingly, the DAX is the worst performing major market this morning. Crude oil is off the lows but still down for the week as traders remain concerned about seasonably high gasoline inventory levels. In earnings, GE (GE) beat expectations despite a sluggish global macro picture, though fellow industrial Honeywell (HON) is off on light guidance. SPX futures are up fractionally on the boost from GE, so we could see the 7th new all-time high in the past 10 days. Sentiment continues to lean positive, which is probably best illustrated by the low VIX and steep VIX curve. However, bulls are not quite leaning “all in.” The ISE Sentiment Index has read bearish in 2 of the past 3 days and the AAII survey showed neutral sentiment. On my own personal back-of-the-envelope sentiment meter, I’d say that on a 1-10 scale, we’re at about a 7 out of 10 in terms of sentiment. (with 10 being ecstatically bullish) Near-term, the best course forward for the bulls seems to be a sideways grind like we saw in April-May. That horrendously boring lull tricked the bears into wasting all their money on put options, which ultimate provided the fuel for this recent streak of record highs. The economic calendar is more or less empty today — we’ve got just the Markit US Manufacturing PMI and Baker Hughes Rig Count, so odds are the news flow will be pretty light. I try to stear clear of politics here, but there is chatter that Democratic candidate Hillary Clinton will appoint a running mate today. If she happens to appoint Massachusetts Senator Elizabeth Warren (I see a less than 25% chance of this myself), the banks could get hit short-term. I wouldn’t mind seeing a modest down day today to digest gains Good luck out there friends.
Continue Reading -->Scott Redler’s Morning Call Express: Rotation of Things
In today’s Morning Call Express, Scott Redler reviews the technical action in the SPX as it has moved to new all time highs. He also looks at the Nasdaq Biotech Index (IBB) as it can play catch up. Finally, Scott also looks at Intel (INTC), eBay (EBAY) and others that have reported earnings.
Continue Reading -->Jeff Cooper: Today Sets Up as a Key Day
Follow Jeff Cooper on Twitter: @JeffCooperLive Has anything really changed that justifies the extreme levels of bullish sentiment — other than stocks going up? Is the stock market discounting something favorable that bulls are chasing? I don’t think so. Rather, my sense is that after the Brexit vote, players were poised to pounce and short the Brexit Bounce — especially within the context of a tedious 18 month trading range punctuated by several sharp downdrafts. In other words, I think the way we got here was with an extraordinary level of players set to lay out shorts around a 50% retrace of the June trading range — to wit, SPX 2120 to 1992, which gives a mid-point of 2056. A funny thing happened on the way to collecting on those bets. The SPX rocketed through the 2056 like the proverbial knife through butter. In fact as the below daily SPX from June shows, the SPX closed at 2070 on day 2 off the Brexit low — above the monthly equilibrium pivot. The next session, the SPX cleared its 50 day line with authority. The bottom line: the perception that the impact of an exit vote could mean the breakup of the EU was prevalent, which caused an extraordinary level of bearish sentiment. In short, too many market participants were leaning to the short side of the ship; there was no shortage of players ready to short the Brexit Bounce which perpetuated a contrarian move. The Brexit Bounce morphed into the Brexit Bungee. Extreme bearish sentiment on the surprise vote has quickly shifted to extreme bullish sentiment. This is borne out by put/call ratios, the smart money/dumb money index and a decade high in the Greed/Fear Index. While some may chalk up this speedy shift from a selling panic to a buying panic to our modern era of twitterpated, computer driven information and hence this can only provide us with insight as to the short term, as in a few weeks, I am mindful of the market maxim that volatility precedes price. Be that as it may, assuming that the current upside spike in sentiment only speaks to a pullback over the next few weeks, I think the takeaway is that a picture perfect, pat pullback to the breakout pivot of 2110-2120 may be undercut leading to a push below the big psychological 2100 level. A decline below 2100 would raise red flags as to a failed breakout. If this plays out it would not surprise me to then see an contrarian bounce that tests current levels and perhaps nominally exceeds them. But if this scenario plays out, the damage will have been done. The damage I am referring to is the inherent structure of a blow-off. Blow-offs typically do not pullback for more than 3 days before resuming their runaway trajectory. So a meaningful pullback indicates the blow-off has culminated. Strategy. A 10 min SPX below shows a spike to 2170 on July 15 followed by a little decline to 2156. The index has been trading inside since. This morning’s the futures are indicating a push into yesterday’s gap window which if exceeded will likely satisfy our idealized 2174 level today, on the idealized July 20 turning point day. As a refresher, 2174 aligns/vibrates off this week on the Square of 9 Wheel and is opposite January 20, the primary low in 2016. So today sets up as a key day. Click here to read more about how Jeff is crushing the market with the Daily Market Report.
Continue Reading -->Scott Redler’s Morning Call Express: No Mister Softie Here!
In today’s Morning Call Express Video, Scott Redler discusses the trend in SPX, and the action in Microsoft (MSFT), which is up big after earnings yesterday. Scott also discusses Facebook (FB), gold (GLD), and JP Morgan (JPM).
Continue Reading -->T3’s Daily Recap Report: Earnings Are Blah, but This Bull Won’t Blink!
1) Earnings Season Rages On We walked into some big earnings reports today, and unfortunately, they were mostly bear-friendly: –Netflix (NFLX) issued very weak guidance, driving a -13.1% drop in this high-profile momentum name. -IBM (IBM) and Goldman Sachs (GS) beat expectations, but still couldn’t rally. –Rio Tinto (RIO) sank on weak demand for iron ore. –Johnson & Johnson (JNJ) and UnitedHealth (UNH) surpassed analysts’ estimates and staged modest rallies, but finished off morning highs. Coming into this earnings season, expectations were remarkably low, with analysts expecting the fifth straight year-over-year decline in earnings. And as it stands now, S&P 500 companies are not doing a very good job of vaulting over those lowered expectations. FactSet data shows that companies are reporting an earnings decline that’s basically in-line with the -5.5% consensus. So even though the bar is low, we’re not getting over it. 2) And the Reaction Many traders have been arguing that the investing public is very complacent. That was not true 2 weeks ago, but it certainly looks true today. CBOE put-call ratios, the ISE Sentiment Index, and various sentiment surveys all point to widespread bullish sentiment. Typically, markets top out when sentiment is very positive. However, let’s give this market some respect. The S&P 500 has barely budged in the face of geopolitical tensions, stretched charts, and the aforementioned weak earnings season. And with today’s -0.1% decline to 2163.78, it’s still within 0.2% of the all-time 2069.05 high set Friday! How could this be? Well, there are two elements at play. First, the Brexit is likely driving some buying of US equities, which are perceived as less risky. And second, US economic data has actually been quite strong over the past few months. This is a chart of the Citi US Economic Surprise Index, which measures economic data reports relative to expectations: The yellow line represents the S&P 500, and as you can see, it has been tracking economic data surprises pretty closely all year. 3) An Intel Options Idea Intel (INTC) is reporting earnings after the close tomorrow, and implied volatility on weekly options is incredibly high. This creates a good opportunity for a calendar spread, where you short expensive near-term options and go long cheaper long-term ones. Here’s a trade I’d look at: -Sell $36 call (this Friday’s expiration) for 30 cents (IV of 44%) -Buy $36 call (August 19 expiration) for 44 cents (IV of 20%) Debit of 14 cents per lot (give or take 2 cents). This is an extremely cheap way to play a flat or up reaction in Intel shares, and it could profit even if the stock drops modestly into earnings. The best case scenario is Intel closing at $35.99 on Friday. That would put the short call at 0, and the long call worth around 58 cents, assuming a drop in IV to 17%. That would be a 314% profit. Worst case is Intel drops big, which would wipe out the entire 13 cent debit.
Continue Reading -->Morning Call Express: Stay or Go!
In today’s Morning Call Express, Scott Redler talks about some key levels of support in the SPX and what it would mean if these levels break. He also talks about the poor earnings from Netflix (NFLX) and will be watching to see if the weakness is contained to just NFLX or permeates into other names.
Continue Reading -->T3’s Daily Recap Report: Mr. Market Is Still Flirting With Record Highs
1) Bears Get Grinded Out… Again! US markets managed to score a small victory today in the face of shaky European markets and geopolitical troubles in Turkey and other areas. The S&P 500 hit an intraday high of 2168.35, putting it less than one point away from making its sixth record high in as many days. The index rose just 0.2% on the day, though there were several signs of positivity below the surface, with traders taking what I’d call “selective risk-on” posture. We saw notable outperformance in biotechnology (XBI) and large-cap technology stocks, with Apple (AAPL) managing to crack the $100 mark for the first time since June 6. High-yield (HYG) was also strong despite a drop in oil prices. In recent months, high-yield and oil have been tightly correlated because of oil’s affect on high-yield energy bonds. Semiconductor stocks were also very strong after Softbank announced it would acquire chip designer Arm Holdings (ARMH) for $32 billion. However, with Netflix (NFLX) down huge this afternoon on its disappointing ugidance, we may see a turnaround in tech tomorrow. 2) A Step Back With the market well past the Brexit and flirting with all-time highs, let’s take a step back and look at how far we’ve come. So far in 2016, we’ve seen a major flip-flop. In 2015, the big winners were biotechnology (IBB) and select large-cap tech stocks, most notably the F.A.N.G. (FB, AMZN, NFLX, GOOGL) names, which rose an average of 77.5% last year. This year, the leaders have been what I call the G.U.T.S. complex — Gold (GLD), Utilities (XLU),Treasuries (TLT), and Silver (SLV). The G.U.T.S. trade is up 26.2% this year after falling -8.9% last year. Why the change? Simple — the Fed got dovish, other central banks are stimulus crazy, and fears of a global slowdown are everywhere. That’s given instruments that benefit from low rates a big boost. Taking a look at the broader indices, the S&P is up 6.1%, while the Nasdaq is lagging, primarily due to a huge drop in biotechnology. However, all US indices are significantly outperforming Europe. The Euro Stoxx 50 Index is down -9.7%, though to be fair, it’s nearly recovered its post-Brexit losses! 3) A Warning in the Russell 2000? This morning, Jeff Cooper of the Daily Market Report discussed the lagging action in the Russell 2000, which may be a hint of trouble to come: This morning’s report walks through another V Bottom by virtue of a Central Bank Slingshot following the Brexit Break, propelling a blow-off in the SPX and DJIA. However secondary, indices such as the RUT suggests risk is hiding out in the larger cap SPX. The same picture that has played out before past significant downdrafts. Moreover, a big SPX time/price square-out is on the table going into a potentially important low to high to high cycle with this week also being an important anniversary. Click here to learn more about Jeff’s Daily Market Report.
Continue Reading -->6th SPX Record High in a Row?
The market really feels like it’s out of gas, but lo and behold, the SPX is within a few point of hitting a new all-time high for the 6th day in a row. So let’s take a deep dive into the action and see if the bears are ready to take the lead. The action is a bit mixed below the surface, but the bulls appear to have a slight edge. Here’s where they’re winning: -The Nasdaq and Russell 2000 are outperforming. –Apple (AAPL) just cracked through $100 for the first time since late May. –Bank of America (BAC) is having a beautiful little grind up post-earnings. –HYG/JNK are green. -The VIX dropped back down. -XBI is RIPPING off morning lows which should scare the bears. -The yen is dropping again. But on the bear side: –Regional banks (KRE) can’t catch a bid. -Gilead (GILD) is getting no love despite a positive story in Barron’s -Crude oil is trading horribly, though the stocks aren’t doing as bad as you’d think. I’m really surprised HYG is green. -The CBOE equity put-call ratio is 0.72, indicating that traders are somewhat complacent.* -The ISE Sentiment Index is at 146, again indicating that traders are somewhat complacent.* *I use the “somewhat complacent” monicker because these measures are extremely volatile day-to-day. So the big 2 questions today are: 1) Will we get that elusive 6th straight all-time high in a row? 2) If we do get it, do we hold up? We’re less than 2 points away from going 6 for 6, so a big buy of Apple shares could put us over the top. And the yen weakness and biotech rebound are helping sentiment in a big way. But that’s where it gets tricky. The consensus thinking seems to be that we have to pull back since things feel so overheated, and sometimes, that means the move’s going to go on a little longer. Remember Mr. Market’s 2 rules: 1) Frustrate as many traders at any given time as possible. 2) Let trends run much further than most people think seems reasonable. So if the crowd thinks we go down, maybe we’ll just keep on going. I’m still watching biotech for confirmation of this move. And right now, XBI is saying we get that new record high. As for the aftermath, see if the biotechs hold or fold. Keep an eye out on the oil complex too. It’s not uncommon for oil to lead equity moves, and traders may start paying attention to crude’s big dip today. I think we go flat to slightly down within the next week. I’m thinking we get stuck in the the 2140-2180 range, and then maybe the lower end of the range pushes down to 2100 for some bounce-around action in the 2100-2180 area.
Continue Reading -->Morning Call Express: Earnings Season Is Here!
In today’s Morning Call Express, Scott Redler discusses the weekend news, the technical setup into earnings season, and the action in bank stocks like JP Morgan (JPM) and Bank of America (BAC). Scott also talks about the setups in Netflix (NFLX), Facebook (FB), and biotech (IBB).
Continue Reading -->