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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 -->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 -->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 -->Market Analysis: There Is No Such Thing As a Perfect Rally
If you look for perfection, you’ll never be content. -Leo Tolstoy Markets are mostly in a happy mood following Friday’s NFP-driven rally. I have serious doubts as to whether the Fed’s going to raise this year, but traders are now pricing in a 47% chance of a December rate hike, up from 9% post-Brexit. I peg the odds as more like 20-25%, though admittedly, that’s based on a feeling more than anything. The yen is down on news that Japan’s Emperor Akihito publicly hinted that he will be stepping aside. German industrial production beat expectations in June (pre-Brexit data), while Visa and Market said UK consumer spending accelerated in July from June, thouhg it was Q1 numbers. France’s central bank said its economy will rise 0.3% in Q3. Economists expected a 0.2% increase. This data implies that perhaps the UK really kitchen-sinked its growth forecast, creating low expectations it can beat. As you can see in these charts of the Citi UK and EU economic surprise indexes, European economic data remains pretty solid relative to Wall Street forecasts: UK: EU: The hot bio/pharma complex may get a lift today on solid numbers from Allergan (AGN) and Horizon Pharma (HZNP). Crude oil is still on the upswing with a move over $42 this morning. OPEC’s president predicted the current dip in oil will be short-lived, and that OPEC members are in “constant deliberations” on stabilizing the market. The group will hold talks in Algiers in September. Gold is selling off as the aforementioned rate hike expectations get ratcheted up. However, bonds are pretty flat — there’s no big rush to sell. On the deal front, TIAA said it is acquiring Everbank (EVER) for $19.50/ share in cash. Everbank has been rumored to be in play for a while and just surged big-time, which explains the small premium over Friday’s $18.64 close. Sentiment is still leaning bullish, as based on the shape of the VIX curve, ISE Sentiment Index, and the Investors Intelligence Survey. The AAII survey shows that individual investors are bearish, but overall, the bulls are still quite giddy. This is why it’s important to respect price above all else. A lot of folks were declaring the market as overheated at 2100, then 2150. And today, with futures up a few points, the S&P looks like it will open at all-time highs around 2190. As far as game planning goes, I wouldn’t think too hard. Watch small caps, biotech, oil, and high-yield. When they’re moving in the right direction, it’s hard to stop the bull. I’m really zoning in on oil right now. Its ascent off the $26 February low was a major factor in the bull’s revival this year. But when it broke down from $51 to $39, the bulls didn’t skip a beat. We could be a situation where the bulls ignore oil when it goes down, and they get encouraged when oil goes back up. I hear a lot of folks complaining that the Russell 2000 hasn’t confirmed the SPX record highs, but remember: there is no such thing as a perfect rally. In almost every rally in the past few years, there’s been one type of problem or another — lousy earnings, lousy economic data, low volume, narrow leadership, etc. Good enough can be good enough. Good luck friends.
Continue Reading -->T3’s Take 3: SPX Makes Record High on Huge Jobs Report
1) Jobs Report Delivers, and Then Some! For the second month in a row, the monthly nonfarm payrolls report blew away expectations. The US economy added 255,000 jobs in July, easily smashing the 180,000 consensus. Plus, June and May’s numbers were revised higher, and average hourly earnings beat forecasts with a 0.3% gain. With two strong months in the bag, the awful May jobs report now looks like a statistical anomaly, and traders are also quickly forgetting last Friday’s weak GDP report. The market’s conclusion reaction was clear… 2) The Fed Is Gonna Hike. Really? In the aftermath of the report, investors see a higher probability of a Fed rate hike this year. Fed Funds futures now imply a 47% chance of a December rate hike, up from 37% yesterday, and just 9% post-Brexit on June 27. Plus, all the usual hawkish trades quickly fell into place today: The US dollar ripped Gold took a major hit US Treasuries fell Now as far as whether this report actually moves the Fed, I have my doubts. The Fed’s been sitting still for so long that I doubt a couple data points makes a huge difference at this point. The Brexit is also still an issue. The Bank of England made a huge downgrade to its growth forecasts, and European commercial/investment banks are doing the same, which implies a good degree of fallout. This could give the Fed another reason to hold off. But either way, the numbers had equity traders in a great mood today… 3) New Record Highs! After the numbers hit, I said I would not count out a strong rally in stocks today. I thought it would take an upward reversal in bonds to make that happen, but that was wrong. Unlike in last month’s post-NFP rally, bonds stayed down, as did gold. The S&P 500 hit a new all-time record high at 2182.87, led by a big move in bank stocks, which benefit from higher interest rates. The index rose 0.9% to close right on the highs. Regional banks were especially strong with the KRE ETF powering 3.5% higher. Small caps and transports also posted strong gains. The decliners’ column was led by the G.U.T.S complex that has dominated the action in 2016: Gold, Utilities, Treasuries, and Silver, all instruments that suffer from higher rates. Crude oil was down for most of the day on the dollar’s rise, but nearly squeezed into the green by day’s end. Monday’s Trading Calendar US Economics (Time Zone: EDT) 10:00 Labor Market Conditions Index Change (Jul): prior -1.9 Mortgage Delinquencies (2Q): prior 4.77% MBA Mortgage Foreclosures (2Q): prior 1.74% Global Economics 08:30 CAD Building Permits 21:30 AUD NAB Business Confidence 21:30 CNY CPI y/y 21:30 CNY PPI y/y Earnings Before the Open: Allergan (AGN) Dean Foods (DF) Horizon Pharma (HZNP) After the Close: Arena Pharma (ARNA) Ctrip.com (CTRP) Hertz Global (HTZ) Nuance Comm. (NUAN)
Continue Reading -->July NFP Report Instant Analysis: Is a Reversal in the Wings?
The July NFP report hit this morning at 8:30 a.m. ET and it was pretty impressive. The headline number was 255k, smashing the 180k consensus. We also saw an 18k upward revision to the past 2 months and better-than-expected hourly earnings. This is the second big beat in a row, which has the big May miss looking like a one-time statistical aberration. We’re seeing a big rip in the dollar, a big dip in gold, and US and German government bonds are sliding. The big question now is whether this will be a repeat of last month. Last time around, we had a huge dip in bonds and gold that was bought very, very quickly. Then, equities followed through after a bad start with SPX ripping 1.5%. I would watch USD/JPY very closely. If the dollar pulls back, that means the dovish status quo trade may keep on raging. Also watch gold. If it bounces back, maybe the doves still wanna rock. Keep in mind we’re less than 30 minutes past the report and NFP is an anything goes day. But as I write this, USDJPY is dipping back. SPX futures are now up 8 handles I am not counting out a big run up in stocks today. I would watch the following levels as possible signals for a reversal: USD/JPY: 101.05 Gold: $1367/$1368 10YR US Treasury Yield: 1.500% 10YR German Bund Yield: -0.085%
Continue Reading -->For the Love of Everything That Is Holy, Can We Please Get a Real Move?
With market volatility at 20-month lows, I’m falling asleep. It’s like April-May all over again, but worse. Thankfully, we’ve got a pivotal NFP report coming today at 8:30 a.m. ET. So maybe, just maybe we’ll get some real movement today. Economists are looking for 180K on the headline number, 0.2% MoM growth in hourly earnings, and a 4.8% unemployment rate. Last month, we saw a huge 107K beat on the headline number, which just about made up for the 122k miss the month before. On the surface, it seemed like a very much hawk-supporting report, but the market’s reaction said otherwise. Gold and bonds dipped on the report, then ripped like mad. Equities followed through on the decline in rates with a big 1.5% rally in SPX. Traders assumed that the report wouldn’t necessarily make the Fed get more hawkish, and it turns out those traders were right. Based on some weak economic data (GDP, PCE Deflator) and the Bank of England’s huge forecast cut for UK growth (which implies a nasty Brexit impact), the Fed’s forward path looks pretty dovish, at least-near term. But remember, Fed expectations tend to turn on a dime. Fed funds futures are now pricing in a 37% chance of a December rate hike — but that mumbers was down to 9% post-Brexit. I’m not in the silly business of making NFP guesses. But the scenario I would like to see is a modest beat on the headline numbers — say 190k-220k — which I think could drive a rip above 2200 within a day or two on the basis that “the number’s not hot enough to move the Fed but it’s good enough to show things aren’t falling apart.” SPX futures are up fractionally this morning following modest gains in Europe. The dollar is down a tad against the euro and yen, while gold is up a hair. Gold miners are indicated up after strong performances in euro-areaminers. Cybersecurity name FireEye (FEYE) is getting hit hard on its awful quarter. It may end up in the M&A rumor column soon, so maybe put it on your radar screen. LinkedIn (LNKD) beat by a mile, which means Microsoft (MSFT) timed the deal pretty well. Well done fellas. The sideways grind means we’re working off overbought conditions, and some sentiment indicators have cooled off. The AAII survey shows that individual investors are fairly bearish, and the ISE Sentiment Index’ 10-day moving average is coming down a bit. I will admit that some others like the shape of the VIX curve (though the VIX could drop even more) and Investors Intelligence Survey indicate serious complacency. So sentiment is still bullish, but slowly moving towards being mixed. I’d rather see more outright bears, but let’s deal with what we’re given instead of what we want. Good luck friends!
Continue Reading -->This Is the Most Boring Market Since December 2014
Kick Your Options Trading Up a Notch My buddy Doug Robertson is hosting a FREE options trading webinar this afternoon where he’s teaching his secrets for generating major options profits in volatile markets. Click here for more information 1) The Bank of England Throws Money at the Brexit The Bank of England is afraid of the Brexit, so they’re throwing everything including the kitchen sink at the problem. This morning, the BoE cut rates by 25 bps, expanded its QE program by 60 billion pounds, and started a new 10 billion-pound corporate bond purchase plan. The BoE took a massive hack at its growth forecasts, and now sees 2017 GDP at 0.8% vs. 2.3% previously, the biggest cut in its history. 30-year UK Gilt yields dropped to all-time lows, and European equity markets rebounded intraday. The UK’s FTSE 100 Index rose 1.6%, while the German DAX was up 0.6%. 2) The Grind Continues Markets have been in a holding pattern over the past few days ahead of tomorrow’s pivotal NFP report, which could move markets in a big way. (more on this below) And the S&P 500’s epic boring sideways grind continued today with the index rising 0.02% to 2164.25. Not 2%, not 0.2%, but 0.02%. So you have some perspective on the action, the index has not made a 1% move since July 8, and market volatility is even lower now than during the April-May snoozefest. In fact, S&P 500 volatility hasn’t been this low since December 2014! Check out this chart of S&P 500 volatility: No wonder we can’t stay awake… Once again, the Russell 2000 showed a smidge of outperformance, though biotech (IBB) cooled off after 2 days of solid action. The Bank of England’s stimulus package pushed up gold and US Treasuries, and crude oil notched a 2.4% gain on what appears to be short covering. Energy stocks were mixed, but high-yield bonds were strong. When crude oil goes up, high-yield energy bonds perform well because default expectations fall. 3) NFP Preview Traders are expecting a 180K increase on nonfarm payrolls with a 4.8% unemployment rate. (see the full consensus estimates below) Last month, we saw a huge 107K beat on the headline number, which just about made up for the 122k miss the month before. Gold and bonds dipped on that report, and then ripped like mad. Equities followed through on the decline in rates with a big 1.5% rally in SPX. At this point, it seems like it may take a big headline number to get traders believing the Fed will hike rates — perhaps 250K or more — and it would also help to have the June number revised up. Click here for my in-depth NFP preview. Friday’s Trading Calendar US Economics (Time Zone: EDT) 08:30 Trade Balance (Jun): exp. -$43.0b, prior -$41.1b 08:30 Change in Nonfarm Payrolls (Jul): exp. 180k, prior 287k 08:30 Two-Month Payroll Net Revision (Jul): prior -6k 08:30 Change in Private Payrolls (Jul): exp. 171k, prior 265k 08:30 Change in Manufact. Payrolls (Jul): exp. 4k, prior 14k 08:30 Unemployment Rate (Jul): exp. 4.80%, prior 4.90% 08:30 Average Hourly Earnings MoM (Jul): exp. 0.20%, prior 0.10% 08:30 Average Hourly Earnings YoY (Jul): exp. 2.60%, prior 2.60% 08:30 Average Weekly Hours All Employees (Jul): exp. 34.4, prior 34.4 08:30 Change in Household Employment (Jul): prior 67 08:30 Labor Force Participation Rate (Jul): prior 62.70% 08:30 Underemployment Rate (Jul): prior 9.60% 13:00 Baker Hughes U.S. Rig Count (8/5): prior 463 13:00 Baker Hughes U.S. Rotary Gas Rigs (8/5): prior 86 13:00 Baker Hughes U.S. Rotary Oil Rigs (8/5): prior 374 15:00 Consumer Credit (Jun): exp. $16.000b, prior $18.558b Global Economics 02:00 EUR German Factory Orders m/m 03:00 CHF Foreign Currency Reserves 03:30 GBP Halifax HPI m/m 08:30 CAD Unemployment Rate 10:00 CAD Ivey PMI Earnings Before the Open: Cognizant Technology Solutions (CTSH) SouFun Holding (SFUN) After the Close: None of significance
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