All posts by Michael Comeau
The Morning Hammer: Another Record High
The SPX finally squeezed through to make a post-election all-time high yesterday to catch up with the Dow, Nasdaq, and Russell 2000. And with futures in modestly positive territory, we very well could see another record at the open. The VIX is now down to 12.43, and as I’ve said, it could drop under 12. Check out the chart below — it’s getting down towards yearly lows. Commodities are up in the early going, with crude oil posting modest gains and gold up 0.6%. The volatile gold miners (GDX) are indicated up nearly 1%. Copper’s also in good shape. Nigeria expressed optimism about a possible OPEC deal announcement at the November 30 meeting. But overall, it’s hard to make heads and tails of everything because it’s a holiday shortened weak. Markets appear stretched technically but sentiment is only modestly bullish, which typically isn’t a good recipe for excitement. In fact, bears are probably still unwinding all the bearish bets they made ahead of the US Presidential election. Speaking of politics, news reports indicate that the Trans-Pacific Partnership has almost no chance of working since President-elect Trump vowed to withdraw. Trump said would look to make bilaterally negotiated trade deals, and end some restrictions on shale oil and coal production. For now, things are looking pretty slow. I’ve got close eyes on gold and the miners. Gold’s been destroyed since the election, but it’s getting a strong bounce off $1200, which could mean a double bottom. Biotech is indicated up pre-market. That’s a good sign. It ripped on the Trump victory, then stumbled a bit. If it makes a power move higher, that could signal continued momentum in the major indices. Good luck out there!
Continue Reading -->Trump Made Traders Like the Market Again
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So I like regularly run through a wide variety of sentiment measures to get an accurate reflection of the market’s mood. According to 5 sentiment measures I track, traders hated the market ahead of the November 8 US Presidential election. As you’ll see, that’s clearly changed. Let’s Dive In: 1) AAII Sentiment – Bullish The latest AAII Sentiment Survey shows that 46.7% of individual investors are bullish, which is well above the long-term average of 38.5%. This is the highest level seen since February 2015. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 62. F&G operates on a 1-100 scale, and 50 is neutral. This 62 reading indicates moderate bullishness. 3) VIX Spread – Bullish The 3-month VIX spread is at +4.69, which indicates traders are pricing in very low near-term volatility. This means traders are bullish. 4) CBOE Equity Put-Call – Neutral The CBOE Equity-Put Call ratio is at 0.65, with a 3-day moving average of 0.62. This indicates slightly higher-than-average bullishness, but nothing extreme, so I’ll leave it in the neutral category. 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 82.9. That also indicates bearish sentiment. ******* Pre-election, 5 of 5 sentiment indicators were reading bearish. Now we have 3 bullish indicators, 1 neutral, and 1 bearish. So Trump not only changed the minds of a lot of voters, he’s changed traders too. And if the S&P 500 makes new all-time highs again, we could easily see the bulls go 5 for 5 in our next sentiment check.
Continue Reading -->14.4% of Traders Say Trump Slays the Bull
Over the weekend, we sent a survey to the T3 Live community to get their thoughts on pressing market issues like the Fed, gold, and what they think could take this market down. If you’d like to participate in our next trader survey, sign up for this week’s forex webinar via this link: https://t3campaigns.clickfunnels.com/optin10668137 Before I get started, let me point out the obvious: these survey results only represent a portion of the T3 Live trading community — NOT traders or investors as a whole. Still, I think you’ll find them interesting… especially when it comes to what traders think will destroy the bull market. So let’s go through our questions one by one: 1 ) The S&P 500 closed at 2164 on Friday. Will it make a new all-time high above 2193 before 2017? 81.3% of survey participants said the S&P will make new all-time highs before year-end. This was a pretty big surprise to me, given that broader market sentiment is fairly bearish. Then again, we’re less than 2% from a new record above 2193. 2) Gold fell 3.3% to $1225 on Friday. What will it hit first – $1200 or $1250? 58.7% said that Gold would hit $1,200 first, and so far they’re right. Gold is ticking lower today, and the downtrend isn’t showing signs of stopping. 3) Will the Fed raise interest rates in December? 74.3% of surveyed traders believe the Fed will hike in December. The CME’s FedWatch Tool currently shows an 85.8% probability of a December rate hike. That’s not terribly far off. 4) Are traders too bullish or too bearish right now? 34.3% of respondents believe traders are too bullish. 19.3% believe traders are too bearish. And 46.4% think trader sentiment is just about right. Next time around, I’ll simplify this with just two choices — too bullish or too bearish. 5) Which sectors will perform best into year-end? The banks and biotechs have been ripping since Donald Trump’s US Presidental election victory, and our survey indicates that traders expect more of the same. A whopping 51.4% believe financials will lead into-year end. In second place was health care & biotechnology at 26.1%. Technology has been lagging, and just 5.8% of traders think it will lead into year-end. 6) Which area of the market will perform worst into year-end? On the flip side, traders expect bonds to lead the decliners’ column. 31.2% of respondents said bonds will perform worst into year-end with gold in second place at 16.7% 7) What single factor is most likely to break the bull market? Please be as detailed as you’d like. This question was an open-ended question designed to determine whether traders believe Donald Trump will disrupt the bull market. I wanted to see how many traders would offer up Trump without being prompted first. 14.4% of traders cited Trump as the single factor most likely to break the bull market. Meanwhile 15.6% of traders believe the Fed or monetary policy will be the culprit. 13.3% cited terror attacks or other negative geopolitical events. Here are some of the more interesting responses to this question: (I made minor edits for clarity) “The alt right and rising nationalism around the world.” “Too much too fast based on nothing new. The market is overbought and tech is selling off based on assumptions that Trump will go after them. If they really think he will and put taxes on imports, the companies will get ready for bad times which result in high unemployment.” “Interest rates going too high too fast because President-elect Trump has huge fiscal package that will require massive debt via bonds.” “Negative world event such as significant terror attack on or around inauguration.” “Debt will be a big drag on companies bottom line and government debt is unsustainable. So governments and Central Banks should continue to print and go nuclear on interest rates to try and finance that debt. Banks will then put that money to work by sticking most of it in the stock markets. There will be a big tug of war between inflation and deflation over the next couple years. Want to participate in our next trader survey? If so, sign up for this week’s forex webinar via this link: https://t3campaigns.clickfunnels.com/optin10668137 We’ll add you to the list!
Continue Reading -->The Morning Hammer: The Trump Bump Continues!
The State of the Markets, Straight from Scott Redler Download Scott’s FREE presentation now by clicking this link: https://t3campaigns.clickfunnels.com/optin10692005 Yesterday, markets staged a big rally following an overnight session that was so bad that SPX futures went limit down. Traders were disappointed with Donald Trump’s historic victory over Hillary Clinton, The Trump Bump continues this morning, with SPX and NDX futures well into positive territory, and the Euro Stoxx 50 up 1.1%. One big story in the news today is that following the Brexit and Donald Trump’s US Presidential election victory, we could see even more major political upheavals. Now many folks think that Marine Le Pen, leader of France’s far-right National Front party, could become President of that nation next year. And Italy has a major reform referendum vote coming up on December 4 aimed at limiting the powers of regional governments in order to streamline legislation. But that could get rejected since Italian PM Renzi supported Hillary Clinton, which does not fit with the growing wave of global populism. All across the globel, the establishment is becoming less established. Maybe THAT is the big trading/investing theme we need to focus on. We could even look at Germany. PM Merkel has been considering running for a 4th term. Polls have indicated that about half of Germans oppose that. If she does run, I suspect she would get destroyed. The tide is just too strong. Anyway… The VIX is still falling and is under 14 this morning. So all those put buyers that were scrambling to buy election protection are getting decimated once again. The ISE Sentiment Index was just 68 yesterday even with the rally, pushing the 10 day moving average down to 67.4. That implies very, very negative sentiment. The 10 day moving average of the CBOE equity put call is 0.735, which is slightly above the YTD average. So we have a lot of hedges that probably need to be unwound, and that could propel the S&P 500 to record highs. Good luck out there!
Continue Reading -->The Morning Hammer: Trump Wins, Trump Wins
Want to Join the Exciting, Lucrative World of Prop Trading? Join Amber Capra for our next special information session: https://t3campaigns.clickfunnels.com/optin10627329 May you live in interesting times… -English expression of what may be a Chinese curse I’ve been saying that we couldn’t count out Donald Trump until the final vote was tallied, and lo and behold, he pulled it off. If you’re interested in learning why Trump won, I recommend watching this video — there is a good case to be made that Trump’s persuasion skills put him over the top. But let’s focus on the market. First things first… what’s going on with the Mexican Peso? Well, it’s down -9% — making a far bigger move than it did on the Brexit. The iShares Mexico ETF (EWW) is down -11%. The Euro Stoxx 50 is down -1.9%. The yen is up 1.7% vs. USD. The Nikkei is down -5.4%. SPX futures are down -2.1% with NDX futures off -2.4%. Meanwhile, biotech is flying! IBB is up a quick $15. Clinton has been critical of drug company pricing practices, and Trump’s victory means the pressure is off. It was pricing in a $10 move, so that’s a pretty spectacular rally. The VIX is up 7.3%. Gold is up 2.4%. You get the point… The big question now is whether this is a repeat of the Brexit action, meaning a massive volatility spike that looks like blip on the radar in a few months. I suspect we’re going to see a very interesting open. A lot of individual investors may look to dump quickly, and odds are we’re going to see a huge put option demand. I’d watch the ISE Sentiment Index. The first reading will be out at 10:10 a.m. ET. The 10 day moving average was at 72 (72 calls for every 100 puts), which is actually lower than what we saw at the February lows. I suspect we’ll get a sub-30 open, good enough to push the 10 dma under 70, which means serious, serious bearishness. Good luck out there.
Continue Reading -->The Morning Hammer: Happy Election Day?
How to Thrive in the Future of Trading Want to go Quant without a PhD? Check out our latest live event here: https://t3campaigns.clickfunnels.com/optin10626572 I’d say Happy Election Day but there’s doesn’t seem to be much happiness out there today. So I added a question mark. If there’s one sign of the times… it’s the lack of signs. I’ve lived in Brooklyn, NY my whole life, and every election, I’ve seen tons of signs for Presidential candidates in front of people’s homes. This time around… nada. Anecdotes aren’t evidence, but I think this says something about the state of affairs. It seems like the market wants Hillary Clinton to win to avoid the Trump wild card. I guess folks will decide the ramifications of a Clinton Presidency after the fact. However, what’s most important is resolution. The market wants a clean Clinton victory without Trump disputing the results and extending the spectacle. That said, I wouldn’t count Donald out until the final vote is tallied. Reuters is saying it sees a 90% chance of Clinton winning. But Trump was never supposed to even be in this race. Yet here he is at the homestretch. The Brexit was not supposed to happen. Yet it did. Futures are down slightly this morning, which feels like run-of-the-mill profit-taking after yesterday’s big surge. One interesting story I caught yesterday was Reuters’ report of Wall Street banks prepping for Brexit-like turmoil tomorrow. That may reduce the chances of a massively negative reaction to a Trump win or a sell-the-news reaction to a Clinton victory. In recent years, investors have generally overhedged, in the process throwing away untold billions of dollars on put options. Look at the chart below of the ISE Sentiment Index since inception in 2002.: As you can see, it’s slowly drifted lower, which means that put option demand has grown relative to call option demand. We’ll soon see if the recent spate of put buying was just another big waste of investor cash. Good luck out there.
Continue Reading -->Trader Mailbag: What’s the Deal with PHK?
Hi Mike, You have been in PHK for a long time. What is the reason for the heavy selling? -Tom Hi Tom, Thank you for the question. Indeed, I have been in the PIMCO High-Income Fund (PHK) for a long time and it has been clobbered, dropping from a peak of $10.15 in August to $8.55 today. PHK is a closed-end high-yield bond fund that uses leverage to juice its returns. Closed-end funds are significantly more volatile than plain-vanilla ETF’s and mutual funds. And PHK has been trading at a giant premium to net asset value (NAV). So with the high-yield market coming under pressure on the decline in oil prices and pre-election jitters, PHK has gotten slammed, with that premium to NAV closing hard. As I’ve discussed before, I only like buying volatile closed-end funds like PHK on extreme down days. Why? Because they get absolutely destroyed, creating attractive buying opportunities. As far as my long-term strategy with PHK goes, it’s a buy and hold position for me, and I just leave it alone with dividends reinvesting. That helps cushion me against the short-term volatility, which can be pretty extreme. I’d only consider another outright buy on a dip below $8.
Continue Reading -->Bears Trump Bulls Ahead of the Presidential Steel Cage Match
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side ever provides evidence for their views. So I regularly run through a variety of sentiment measures to get an accurate reflection of the market’s mood. According to 5 sentiment measures I track, traders are certainly looking bearish heading into November 8’s Presidential election. Donald Trump’s wild-card image seems to be roiling traders’ nerves because of all the possible variables. Does he win? Does he lose? Does he lose and contest the outcome? Who really knows at this point? So let’s drill down to the numbers: 1) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that just 23.6% of individual investors are bullish, well below the long-term average of 38.5%. But what’s really interesting is that bullishness has been below the long-term 38.5% average for 51 straight weeks, and 84 of the last 86. 2) ISE Sentiment – Bearish The ISE Sentiment Index is at just 31 this morning — that’s just 31 calls for every 100 puts. And the 10-day moving average is 80 — that’s the type of reading you see after a major volatility spike, not before one. 3) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio has been over 1 for the past 4 days. That indicates serious bearishness. 4) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 17. F&G operates on a 1-100 scale, and 50 is neutral. This 17 reading indicates extreme fear. 5) VIX Spread – Bearish The 3-month VIX spread is at -0.3, which indicates traders are pricing in high near-term volatility. This is bearish. ********* So we have all 5 of these sentiment indicators pointing bearish, and they’re likely to get more bearish as traders hedge against possible post-election downside. Interestingly, I hear a lot of traders chattering about going long into the election on the assumption that downside is already priced in. We’ll certainly see!
Continue Reading -->Traders Don’t Get Much More Neutral Than This!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So I like regularly run through a wide variety of sentiment measures to get an accurate reflection of the market’s mood. According to 7 sentiment measures I track, traders appear to be very, very neutral, even though the S&P 500 is still within a stone’s throw of the 2193 all-time high. 1) SPX Options Prices – Bearish SPX options prices show a high put skew. I looked at 10% out of the money 6 month SPX options. There is currently a 9.6 point skew in implied volatilities on the options. That’s the 86th percentile. So relative to calls, traders are paying more for 10% OTM 6 month puts than they have 86% of the time over the past 5 years. 2) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 25.5% of individual investors are bullish, well below the long-term average of 38.5%. But what’s really interesting is that bullishness has been below the long-term 38.5% average for 49 straight weeks! 3) ISE Sentiment – Neutral The ISE Sentiment Index closed at 65 yesterday (81 puts for every 100 calls). And its 10 day moving average is just 101 — a level that indicates a neutral mood. 4) Wall Street Strategists – Neutral The average year-end target price for the S&P 500 is 2171, according to Bloomberg. That implies the market rises 1% into year-end. YAWN! 5) CBOE Equity Put-Call – Neutral The CBOE Equity-Put Call ratio was 0.66 yesterday, which is just below the YTD average of 0.69. This points to neutral sentiment. 6) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 48. F&G operates on a 1-100 scale, and 50 is neutral. So it’s basically right in the middle. 7) Investors Intelligence – Bullish Yesterday, the Investors Intelligence Survey of newsletter writers showed a slight decrease in bullishness to 46.1%. This is still a positive reading. ********* So we have 2 bearish indicators, 4 neutral indicators, and 1 bullish indicator. Blend them together and you have a moderately bearish crowd. I’m hearing a lot of bears say that everyone’s complacent… but I just don’t see it.
Continue Reading -->The Morning Hammer: Those That Know Don’t Tell…
Options > Dividends Find out more at our FREE training event… ******** The pound is rallying after UK PM Theresa May said that Parliament should vote on her Brexit plan. This implies a more deliberate approach to the UK leaving the building, which could soften the Brexit blow a bit. Crude oil popped above $51 after OPEC said it has a firm commitment from Russia to participate in an output cut. However, keep in mind that the oil newsflow is all over the place, and this story is truly not over until it’s over. (you know what I mean) As an illustration of how fluid the situation is, Bloomberg is reporting that Venezuela and Iraq are disputing OPEC’s reported output data. I assume that having no consensus on where output is now makes it more difficult to decide on where output should be. Meanwhile Goldman Sachs is out saying US oil explorers will boost activity with oil in the $50 – $55 range. I don’t think the market disagrees with that, given that oil service names (OIH) have already rallied nearly 50% off February lows. Samsung cut its Q3 operating profit forecast by $2.3 billion after halting production of the Galaxy Note 7, which is prone to catch fire. The big item on today’s agenda is the release of the September Fed Minutes at 2:00 p.m. ET. Even with Friday’s mediocre jobs numbers and the Fed’s mixed message in the September rate decision, traders have been upping their bets on a December rate hike. Fed Funds futures are pricing in a 67% chance of a December rate hike, up from 62% at the September rate decision. Of course, the big question isn’t necessarily “what will the Fed do in December?” It’s “how fast is the pace thereafter?” Remember, at the September meeting, the Fed cut its own forecast for 2017 rate hikes to 2, down from 3 previously. Some very smart people think there’s a decent chance the Fed is one and done due to recession risk. I won’t hazard any guesses. I’ll just remind you of the 2 simple truths of Fed days: 1) Those who know don’t tell and those who tell don’t know 2) The first reaction isn’t always the right one… and neither is the second The hawk hammer has the dollar moving higher again this morning, while SPX futures are slightly red. Yesterday, we had a nasty down day on a confluence of bad news (huge currency volatility, AA/DOV earnings, Samsung), and there was a clear risk-off flavor to the action. The Russell 2000 and biotech (IBB) took huge lumps, and the VIX popped pretty hard. I’d key off 4 things today: 1) Apple (AAPL) Apple’s gotten a nice boost from Samsung’s Note 7 recall, which eliminates one of iPhone 7’s main competitors. Apple does a lot of heavy lifting for the indices, so I’d watch to see if there is some belated profit-taking. 2) Oil Clearly, equities like strong oil. And WTI crude looks like it wants to take out the 2016 high at $51.67. A power move through there could mean good things for the bulls. 3) Hot New Issues ACIA, TWLO, TTD, ACIU, PI, etc. are the new F.A.N.G. These names are not looking healthy. It would be a clear plus if they regained traction. 4) The Usual Risk On/Off Suspects As I said, the Russell and biotech got spanked pretty hard yesterday. I’d closely watch them, along with HYG. And remember… The Fed Minutes release means it’s an anything goes day. Good luck out there. P.S. Don’t forget to sign up for Doug Robertson’s special options training session!
Continue Reading -->