All posts by Michael Comeau
Weekly Sentiment Update: That Is a Moderate Bull I See!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling into today’s inauguration: 1) VIX Spread – Bullish The 3-month VIX spread is at +3.65, which indicates traders are not very concerned with volatility This is a bullish reading. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 80. F&G operates on a 1-100 scale, and 80 is in extreme greed territory. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 33.1% of individual investors are bullish, which is below the long-term average of 38.5%. This indicator is slightly bearish. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio is at 0.58 with a 3-day moving average of 0.57. This indicates higher-than-average bullishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 85 (85 calls for every 100 puts) this afternoon – which is a bearish reading. And the 10-day moving average is 77.3. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 3 bullish and 2 bearish. Interestingly enough, the VIX spread has contracted from 5 to 3.65 over the past week, which implies that options market players are backing off their bullish bets a bit. And the ISE Sentiment Index implies that traders are still buying plenty of downside protection, though to be fair, that indicator seems to be losing predictive value. This could be because of Trump-related uncertainty. So overall, traders appear moderately bullish.
Continue Reading -->Trader Mailbag: IBB vs. XBI
Dear Mike, I noticed that sometimes in your newsletter (Editor’s Note: sign up free at the bottom of this article), you talk about XBI and other times IBB. What is the difference between these? Carl Thank you for the question Carl. XBI and IBB are the two most popular biotechnology ETF’s. XBI is the symbol for the SPDR S&P Biotech ETF. IBB is the symbol for the iShares Nasdaq Biotechnology Index ETF. As you can see in this 10-year monthly chart comparing the two, over the long run, they more or less trade in a similar fashion: But on a day-to-day basis, their performance can vary wildly. Here’s why. The IBB ETF is concentrated in a small number of large cap biotechnology stocks.. As of February 14, 2017, its top 5 holdings are as follows: Amgen (AMGN): 8.9% Celgene (CELG) : 7.5% Biotech (BIIB): 7.3% Gilead (GILD): 7.0% Regeneron (REGN): 6.6% These 5 stocks comprise a whopping 37.3% of its assets, and a large movement in just 1 of them can disproportionately move the ETF. For example, if Amgen was to rally 10%, it alone would push the entire ETF up 0.89%. (for my fellow math nerds: 10% X 8.9% = 0.89%) XBI, on the other hand is much more diversified, an includes a number of small and mid-cap biotech stocks. Here are its top 5 holdings: ARIAD Pharmaceuticals (ARIA): 3.9% Clovis Oncology (CLVS): 3.6% Tesaro (TSRO): 2.9% ACADIA Pharmaceuticals (ACAD): 2.9% Exelexis (EXEL): 2.7% These 5 names account for just 16% of assets vs. 37.3% for IBB’s top 5 holdings. Interestingly enough, while IBB gets significantly more media attention than XBI, IBB is actually less liquid. XBI trades an average of 5.8 million shares per day vs. 1.4 million per day for IBB. This is likely because of IBB’s higher nominal price of $268 vs. XBI’s $69.
Continue Reading -->Russell 2000 Hits Record Highs, May Be Ready for a Breakout
The Russell 2000 just made a new all-time high, matching last week’s records in the SPX, Dow, and Nasdaq. In doing so, it is above this little 1385-1390 range at which it failed 3 times in a row: We can also view those 3 failures as top points of a descending trendline: I’d keep an eye on it to see if it can keep moving with authority above 1400. Round numbers are meaningless for judging direction but 1400 is just enough above the recent range to judge this extension Yellen’s testimony may be key tomorrow. If she’s hawkish, that could help the Russell bust a power move higher since a strong dollar is generally better for small caps than large caps.
Continue Reading -->Weekly Sentiment Update – Traders Actually Look Bullish!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling into today’s inauguration: 1) VIX Spread – Bullish The 3-month VIX spread is at +5, which indicates traders are not concerned with volatility. This is a bullish reading. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 67. F&G operates on a 1-100 scale, and 67 indicates that traders are moderately bullish. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 35.8% of individual investors are bullish, which is below the long-term average of 38.5%. This is basically neutral. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio is at 0.69 with a 3-day moving average of 0.73. This indicates higher-than-average bearishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 85 (85 calls for every 100 puts) this afternoon – which is a bearish reading. And the 10-day moving average is 79.2. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 2 bullish, 1 neutral, and 2 bearish signs. Now this seems neutral, but I’d argue that traders are actually leaning bullish. Why? Because options-based indicators (notably the ISE Sentiment Index) have become fairly detached from equity markets. Using sentiment as a signal for buys/sells is often a bad idea. And in the case of these options indicators, they seem to be losing value as times go on.
Continue Reading -->Not Even Trump Can Help Twitter!
Yesterday after the close, Twitter (TWTR) announced yet another disappointing quarterly earnings report. On the surface, Twitter has the wind at its back. We just had the craziest Presidential election in history, and the most active global news flow I’ve ever seen. Black Lives Matter. Migrant crisis. Syria. The Brexit. Italy’s No Vote. Right wing nationalist movements rising worldwide. There’s never been more stuff to talk about! Heck, President Trump Tweets so often that you’d think he owns the stock. Plus, Twitter gets a staggering amount of exposure from the media. Athletes and celebrities’ feeds are constantly promoted on the mainstream media. Yet Twitter’s ad revenues DECLINED year-over-year in Q4. Facebook (FB) grew ad revenues by 53%! And Facebook has a revenue base that’s 10 times as big! So what’s the deal here? Aside from the fact that Twitter is not user-friendly and offers little in the way of instant gratification — Facebook has the greatest advertising platform the world’s ever seen. It has in-depth personal information on almost 2 billion people. Think about it. Odds are, Facebook knows: 1) Your full name, age, location, marital/family status, and employment history 2) All of your hobbies and personal interests 3) Your political affiliation 4) What websites you visit 5) What companies you buy from 6) Who you talk to 7) Where you go Twitter surely has some of this data, but it also has some major disadvantages: 1) A smaller user base, and smaller data set 2) More anonymity Speak to anyone in the Internet marketing world, and you’ll know that businesses are tossing huge sums of money at Facebook and Instagram ads. Twitter? Not many folks seem to care.
Continue Reading -->There Are More Bears Than Bulls Out in the Wild
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling into today’s inauguration: 1) VIX Spread – Bullish The 3-month VIX spread is at +4.51, which indicates traders are pricing in very low near-term volatility. This means traders are bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 49. F&G operates on a 1-100 scale, and 50 is neutral. So we’re right in the middle. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 32.8% of individual investors are bullish, which is below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio is at 0.71 with a 3-day moving average of 0.74. This indicates higher-than-average bearishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 79 (79 calls for every 100 puts) this morning – which is a bearish reading. And the 10-day moving average is 81.3. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 1 bullish, 1 neutral, and 3 bearish. I’ve been hearing a lot of chatter about how bullish the crowd is. But if anything, traders are leaning against the market, hoping for a fall.
Continue Reading -->Trump Pumps Up Pipeline Stocks, and I’m Holding On
Way back on December 11, 2015, I tossed the Kayne Anderson MLP Closed-End Fund (KYN) into my retirement account, back when it was around $14. President Trump signed orders to expedite the goverment’s review of the Keystone XL and Dakota Access pipelines, which is driving up shares of MLP’s, with KYN breaking through $20. KYN’s second biggest holding is Energy Transfer Partners (ETP) (19% of the fund), which is building the Dakota Access pipeline. This is a nice gain, but I’m not selling any. Why? Because KYN’s 4 most recent quarterly dividends have been returns of capital, not actual income. That means KYN has been distributing fund assets back to fund owners. So there are no actual income gains — they’ve all been from price appreciation. Assuming these pipelines go through, and assuming we see more domestic oil production under Trump, KYN could actually start distributing real income back to shareholders. That would be a huge catalyst, possibly breaking KYN out of its 8-month channel. Also, KYN is trading at a mere +0.2% premium to NAV vs. a 3-year average of +3.8%. That premium has actually gone as high as 16.4% over the past 5 years. So I’m going to let it ride. It’s come a long way but I don’t think froth has set in.
Continue Reading -->T3’s Take 3: Yellen Goes Hawk, Spikes the Dollar
1) Yellen Goes Full Hawk Today, Federal Reserve Chair Janet Yellen gave a speech at the Commonwealth Club in San Franscisco, and she swung her hawk hammer. Yellen said the Fed is close to meeting its dual mandate of full employment and price stability, and that Fed officials expect a few rate hikes this year. The US dollar immediately ripped on the news, gaining 1.7% against the yen and 0.7% against the euro. The dollar in strength put a hurting on gold, which fell -0.7%. The ever-volatile gold miners ETF(GDX) dropped -1.5%. 2) Stocks Bounce Yellen’s hawkiskhness drove a rebound in stocks, and the S&P 500 managed to squeeze up 0.2% to 2271.89. That’s not exactly exciting, but there were some signs of strength under the hood. The Russell 2000 rose 0.5%, and the Nasdaq Biotech ETF (IBB) rose 0.8%. Yellen’s hawk talk drove the S&P Financials ETF (XLF) up 0.8%, with Regional Banks (KRE) up 1.1%. Retail, energy, and US Treasuries led the decliners’ column today. After the close today, Netflix (NFLX) reported better-than-expected Q4 earnings and surged over $10. 3) Jeff Cooper on Gold This afternoon, T3 Live’s Jeff Cooper issued the following analysis of gold: Yesterday, GLD gapped up into a shelf of resistance from the spring of 2016 around 115. Today, after treading water in the early going, the bears came out to play. GLD is pulling back into the gap window from yesterday. GLD and the miners have done a lot of work and are entitled to inhale. However, GLD is doing something it hasn’t done for many moon: GLD has delivered a Golden Cross with the 50 week crossing above the 200. Click here to learn more about Jeff Cooper’s Daily Market Report.
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