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NFP Preview: Does the Bank of England Trump the Numbers?
Tomorrow, we’ll get the big bad July NFP report, and like last month, it feels like a big one. Here are the consensus numbers: Change in Nonfarm Payrolls (Jul): exp. 180k, prior 287k Two-Month Payroll Net Revision (Jul): prior -6k Change in Private Payrolls (Jul): exp. 171k, prior 265k Change in Manufact. Payrolls (Jul): exp. 4k, prior 14k Unemployment Rate (Jul): exp. 4.80%, prior 4.90% Average Hourly Earnings MoM (Jul): exp. 0.20%, prior 0.10% Average Hourly Earnings YoY (Jul): exp. 2.60%, prior 2.60% Average Weekly Hours All Employees (Jul): exp. 34.4, prior 34.4 Change in Household Employment (Jul): prior 67 Labor Force Participation Rate (Jul): prior 62.70% Underemployment Rate (Jul): prior 9.60% (source: Bloomberg) 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 immediately, then ripped like mad. Equities were fired up on the decline in rates, and the SPX put in a big 1.5% rally. Traders assumed that the report wouldn’t necessarily make the Fed get more hawkish, and it turns out those they were right. Based on some recent weak economic data (GDP, PCE Deflator), plus continued worries over the impact of the Brexit, the Fed’s forward path looks less certain than ever. Fed funds futures are now pricing in a 37% chance of a December rate hike, up from 9% post-Brexit, but down from 45% a week ago. 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. One scenario to consider: we get a modest beat (190K-220K), we see a dip in gold and bonds, and then they rip all over again, just like last month. The Bank of England’s stimulus package is driving the action right now, so traders may just see any NFP-related dips as buying opportunities.
Continue Reading -->The Morning Hammer: Why the VIX Could Collapse, and 4 Other Thoughts on Today’s Market Action
5) Tesla Destroys Options Traders Yesterday, I opined that Tesla (TSLA) options were probably not as cheap as they looked. It turns out they were way oveprriced. As of yesterday morning, they were pricing in a $12.84 move. Tesla is down only $1.30, which is absolutely murdering holders of puts and calls. Weekly at-the-money $225 calls are down -67% while the $225 puts are down -55%. Meanwhile, sellers of the weekly $225 straddle are up an amazing 61% in one day — I wish I was in that crowd! 4) Watch Dem Bios! For the past 2 days, the SPX has looked pretty sleepy. However, relative strength in biotech (IBB,XBI) and the Russell 2000 implied more bullishness under the surface. Today, both IBB and XBI are in the red, but making little moves off the lows, even with sector heavyweight Biogen Idec (BIIB) sinking another -1.7% as takeover rumors extinguish themselves. If I was a bear, I would most definitely not want to see biotech turn green and lead again, especially since the Russell is outperforming SPX by about 30 bps. 3) Sentiment Update Sentiment is still getting more bearish. The CBOE Equity Put/Call is at 0.94 this morning, which is right in-line with the YTD average, but well off the early July lows. However, the ISE Sentiment Index is at 66 this morning (66 calls for every 100 puts). That’s a of aggressive hedging in the early going. Plus, the AAII survey shows 29.8% bulls — well below the long-term 38.6% average. Overall, it looks like traders are looking a little more skittish ahead of a pivotal NFP report tomorrow. 2) Oil Crude oil is still hugging the $40-handle pretty tightly. I’m still a bit puzzled as to how well both equities and high-yield are ignoring oil’s 20%+ drop off the highs. Take a look at this chart of crude oil vs. HYG year-to-date: Energy stocks have been slipping, but overall, the market’s basically yawning at oil weakness. Maybe folks are just rotating into metals? GLD is up 28% YTD while SLV is up 46%. Meanwhile, the miners (GDX) are up 127%! 1) Why the VIX Could Collapse Lots of traders are out saying the VIX is low, but I believe it could drop to the 10-11 range. Remember what the VIX is — a representation of volatility expectations, as measured by 30-day SPX options. With the recent lack of movement, 20-day realized SPX volatility has collapsed to 5.4. So the 12.6 VIX is actually trading at a massive premium to actual market volatility. This means it’s already pricing in an expansion in volatility. If the market continues to go flat (which I expect for the next month) — or if it climbs slowly — the VIX could easily drop below 11 as traders reprice options to reflect persistently low actual market volatility. Now with a wild move, all bets are off (we do have NFP tomorrow) — buyers of puts or call could make a lot of money. But if the markets go flat as I expect, folks buying what look like “cheap” options will find out that they overpaid. P.S. If you’re into this fancy options stuff, check out today’s FREE webinar with my buddy Doug Robertson.
Continue Reading -->T3’s Take 3: This Bull Can’t Be Killed by Conventional Weapons
Want to Kick Your Options Trading Up a Notch? My buddy Doug Robertson is hosting a FREE options trading webinartomorrow where he’s teaching his secrets for generating major options profits in volatile markets. Click here for more information 1) This Market of Ours… The bull kept on charging ahead today, once again frustrating naysayers crying “what goes up must come down!” The S&P 500 rose 0.3% to 2163.79 today, which is not exactly a huge move. But markets looked very strong below the surface. The Russell 2000 was up 0.9%, showing pretty solid outperformance. The action in biotech was particularly impressive. Even with Biogen Idec(BIIB) down 2.7% on media outlets denying yesterday’s takeover rumors, theIBB ETF rose 1.1% to $297.92. That’s pretty surprising given that BIIB constitutes 8.7% of IBB. We also saw a major intraday rebound in crude oil prices on today’s E.I.A. inventory report, which in turn pushed up energy stocks. And on the flip side, traders took profits in safety assets like gold, silver, and utilities stocks. 2) Rumor Has It… Twitter Edition Twitter (TWTR) was once again the subject of takeover rumors, and traders are buying in even though we’ve seen this story play out all too many times. The alleged buyer is Steve Ballmer and Saudi Prince al-Waleed. Twitter call options traded at 3.2X normal volume and the stock rose 7.3% today. The recent wave of reminiscent of the nonstop rumored takeovers of BlackBerry (BBRY) back when we called it Research In Motion (RIMM). Frankly, I have a hard time believing any company’s going to pony up the $15 billion+ required to acquire Twitter, given its collapsing growth during a booming news and social media ad cycle. Plus, Twitter almost feels like it’s out of style. Ask any teens or college students what they’re hooked on, and you’ll hear Instagram and Snapchat way more than Twitter. And if you know anyone doing online marketing, ask where they’re putting their ad dollars. Many industry folks I know are throwing piles of money at Facebook (FB) because of its sophisticated targeting technology. Twitter… not so much. 3) Is Gold About to Correct? This morning, my colleague Jeff Cooper gave his views on why the Junior Gold Miners ETF (GDXJ) may be set to pull back: As the daily GDXJ below for 2016 shows, there have been 3 tests/undercuts of the 20 day line this year. Each has perpetuated a continuation in keeping with the idea of pullbacks to a rising 20 day as a Holy Grail Buy signal. When the 20 day m.a. was regained in early June, a new high followed. Ditto late July. 50 is a key level squaring out the low of the year. GDXJ broke out in the first week of February and this week is 180 degrees/days opposite early Feb. Yesterday, GDXJ gapped up setting an opening high and tailed off a tad, leaving a little Gilligan sell signal. Markets often play out in 3’s and GDXJ shows 3 tests which perpetuated 3 drives to new highs. So theoretically, a stab back below the prior swing high from July 13 at the key 50 level probably indicates a correction is on the table. P.S. T3’s Doug Robertson is hosting a free options trading webinar tomorrowafter the close. Click here for more information.
Continue Reading -->The Morning Hammer: 5 Thoughts on Today’s Market Action
Make sure you check out Doug Robertson’s options webinar, which is scheduled for Thursday after the close. Click here for more details. 1) Biotech Looks Great The SPX and NASDAQ are basically flat, but the Nasdaq Biotech ETF (IBB) is up 0.4%. That’s pretty impressive given that Biogen Idec (BIIB) is off -3.6% today as cold water was thrown on yesterday’s takeover rumors. BIIB is 7.8% of IBB, so biotech really is doing well on this shaky dayy. The S&P Biotech ETF (XBI), which is muct more diversified, giving a better view of biotech overall, is up 0.7%. 2) Crude Oil Too Strong? I’d rather see crude oil down into today’s inventory number at 10:30 a.m. ET. Oil has acted horribly and I’d rather just see an all-out collapse of expectations ahead of the data release. Economists are pricing in a -1.75 million barrely draw. We’re about to find out if that hurdle is low enough to clear. 3) Sentiment Weakening Just a Tiny Bit The VIX is flat today, but other indicators show that traders are getting a tiny bit spooked. The CBOE equity put-call ratio is still above the YTD average and the ISE Sentiment Index shows increased demand for put options. But one thing I don’t like is that the Investors Intelligence Survey has barely budged. 52.9% of newsletter writers are bullish, down just 1% from last week. That’s still within range of II’s danger zone. On balance, I’d say that traders are still pretty complacent — just not extremely so. 4) Tesla on Tap Tesla (TSLA) reports earnings today after the close, and a few options guys are chattering that Tesla options look cheap into earnings. Tesla options are pricing in a $12.84 move, which is actually small relative to some of its recent post-earnings report reactions. But I’m not so sure the options are cheap. Tesla has recently announced a boatload of news, including a capital raise, launch of Model 3 reservations, and the SolarCity (SCTY) deal. So Tesla may not have many big ‘shockers’ left to move the stock. And when you buy options into earnings, you want a big move in your direction. So tread carefully. (by the way, if you’re into options, make sure you sign up for Doug Robertson’s webinar) 5) Respect Price As of late, we’ve seen a lot of market commentators making “what goes up must come down”-type arguments against the market. Yes, we’ve come a long way since the Brexit bottom. But that’s been for good reason. Earnings season has not been as bad as expected, and economic data has generally been pretty decent. You must always remember the biggest lesson Mr. Market likes to teach — that price trends tend to last a lot longer and go further than may seem reasonable. So always respect price… even when it seems crazy. Remember, the most important question in markets is now who, what, why, or how. It’s WHEN. A great thesis means zero without equally great timing. So avoid a rush to judgement when it comes to price.
Continue Reading -->Did We Just See the Return of Volatility?
Want to Kick Your Options Trading Up a Notch? My buddy Doug Robertson is hosting a FREE options trading webinar this Thursday where he’s teaching his secrets for generating major options profits in volatile markets. Click here for more information By Michael Comeau 1) The Return of Volatility Over the past two weeks, market volatility collapsed as the S&P 500 made a succession of all-time highs within an extremely tight trading range. And in fact, the S&P hasn’t had a real down day since June 27, when it fell -1.8% in the aftermath of the June 24 Brexit vote. The zero-volatility trend felt like it started to break today as the index dropped as much as -1.1% intraday before finishing at 2156.2, down -0.7%. The Nasdaq Composite and Russell 2000 showing even bigger losses as traders cut down risk. Japan set off the selling by announcing a much smaller-than-expected increase in government spending, which sent the yen higher and global equities lower. The yen is seen as a key safety asset, and thus it tends to rise when markets are uncertain. But that wasn’t the only issue today… 2) Oil, Economic Data, Banks Crude oil gave up an early gain to slide back below the $40/barrel mark, which means it’s nearly 25% off the highs. Given that crude oil’s ascent was a major driver of equity market sentiment in the rally off the February 11 lows, a fast drop down can’t be good. We also saw some disappointing economic data, with Personal Income and PCE Deflator numbers missing expectations. This followed Friday’s lousy GDP report, which ended a pretty impressive streak of economic data beats. And finally, Germany’s Commerzbank lowered its full-year earnings forecast, with its stock dropping -8.5% intraday to a 24-year low. That put a chill under US banks. 3) So What’s Next? The pickup in volatility is a good thing, because it means fear is coming back into the market. That could be exactly what we need to reload for another leg higher following this sideways consolidation. But near-term, there’s a decent chance the market goes nowhere until Friday, when the eagerly-awaited July nonfarm payrolls report hits. Traders’ rate hike expectations have been declining since Friday’s GDP report. But strong jobs numbers could flip that around in a jiffy, which could send positive reverberations throughout global markets, which is exactly what we saw last month. Wednesday Preview US Economics (Time Zone: EDT) 07:00 MBA Mortgage Applications (7/29): prior -11.20% 08:15 ADP Employment Change (Jul): exp. 170k, prior 172k 09:45 Markit US Services PMI (Jul F): exp. 51, prior 50.9 09:45 Markit US Composite PMI (Jul F): prior 51.5 10:00 ISM Non-Manf. Composite (Jul): exp. 55.9, prior 56.5 10:30 DOE U.S. Crude Oil Inventories (7/29): exp. -2000k, prior 1671k 10:30 DOE Cushing OK Crude Inventory (7/29): exp. 275k, prior 1110k 10:30 DOE U.S. Gasoline Inventories (7/29): exp. -1000k, prior 452k 10:30 DOE U.S. Distillate Inventory (7/29): exp. -500k, prior -780k 10:30 DOE U.S. Refinery Utilization (7/29): exp. 0.00%, prior -0.80% 10:30 DOE Crude Oil Implied Demand (7/29): prior 16713 10:30 DOE Gasoline Implied Demand (7/29): prior 10250.9 10:30 DOE Distillate Implied Demand (7/29): prior 5122.4 Global Economics 04:30 GBP Services PMI 21:30 AUD Retail Sales m/m Earnings Before the Open: 3D Systems (DDD) Charles River Laboratories (CRL) Humana (HUM) After the Close: Albemarle Corp (ALB) Allstate Corp (ALL) Continental Resources (CLR) J2 Global (JCOM) Oasis Petroleum (OAS) Tesla Motors (TSLA)
Continue Reading -->Earnings Season Stinks… Just Not As Much As We Thought
We came into earnings season with remarkably low expectations. But it turns out things don’t stink that much. FactSet just updated their earnings season stats, and as of Friday, things stink — just not as much as they were expected to. At the end of Q2, traders expected a revenue decline of -0.8%. And as of last week, actual results have dragged that number up to +0.1%. 57% of companies have beaten revenue forecasts, which is slightly above the 55% 5-year average. Consumer discretionary (namely AMZN), Tech (think AAPL), Health Care, and Financials have been leading the way The earnings side is looking decent too. Q2 is showing a -3.7% earnings decline. Now that’s pretty bad on its head, but at the end of Q2, analysts expected a -5.5% decline. The conclusion: once again, earnings season stinks… just not as much as we thought. And remember, these numbers don’t reflect today’s solid earnings reports from Pfizer (PFE), CVS (CVS), and others. This is another reason the market’s falling apart. Everyone’s been bracing for disaster and we’re clearly not getting it. And of course, it helps that economic data has been generally decent. Disclosure: Position in AAPL
Continue Reading -->The Morning Hammer: Weak Oil Means Nothing to This Bull
I’ve been out since last Thursday to get my eyeballs upgraded but not much has changed. When I’m not working, I make a point of not looking at the market or reading anything related to it. But I didn’t miss a thing. Crude oil is still deteriorating, yet SPX cracked yet another all-time high. The index has been consolidating in a remarkably tight range between 2160ish and 2180ish. I’ve been predicting that the market would head into a snoozefest like the one in April-May, and we’ve been getting it thus far. Futures are down slightly on weak earnings from Germany’s Commerzbank and a smaller-than-expected spending package from Japan which is sending the yen up. As you probably know, a strong yen means risk-off, though US markets have been yawning at everything including the kitchen sink. Sentiment is cooling off just a smidge. The ISE Sentimenmt Index fell to 72 yesterday and hasn’t been over 100 since July 18. That means call option demand is waning a bit, a good sign for the bulls because it means we’re still digesting and doubt is building. Pfizer (PFE) beat analysts’ expectations but is trading off slightly. We’re also seeing good numbers out of CVS (CVS), Procter & Gamble (PG), and Shire Plc. Watch closely to see how the pharma/biotech complex reacts. We’ve got some big economic data points on tap today, with Personal Income/Spending and the PCE Deflator (the Fed’s preferred inflation measure) on the way. As of late, US economic data has been generally strong relative to expectations, though Friday’s GDP report was lousy. Check out the chart below of the Citi US Economic Surprise Index: I added the UK index just for the fun of it so you can see that the Brexit impact hasn’t been that bad so far: Now, what’s interesting is that the weak GDP numbers turned traders a little more dovish. Fed Funds futures now imply a 36% probability of a December rate hike, down from 48% last week. Strong economic data this morning could flip it back. As I’ve been emphasizing, perceptions of the Fed’s forward path are EXTREMELY volatile. Remember, after the Brexit, traders priced in a 9% chance of a December rate hike. And in less than a month, that number was up to 50%. So if you’re trading bonds, golds, forex, or anything else that’s rate-sensitive, you may be in for quite a ride. Good luck friends.
Continue Reading -->T3’s Take 3: (Un)Lucky 13
1) (Un)Lucky 13 Most would say thirteen is an unlucky number. Maybe this time around it will prove to be lucky. The S&P 500 was sideways for the thirteenth (13) straight session closing, down .11%. Most of the weight was caused by weakness in energy as the Energy Select Sector (XLE) was down just over 3%. Weakness in oil was the major reason for energy names being down. Read the Oil Update below, by Jeff Cooper for additional thoughts. We continued to see the Nasdaq outperform as it was able to ride the strength of theNasdaq Biotech. Index (IBB), which closed up 1.29%, to a .47% gain. Apple (AAPL) and Netflix (NFLX) were also up big today, gaining 1.80% and 3.56% respectively. 20 Year Treasury Bonds (TLT) were also down sharply, losing 1.49% 2) Oil Update Today, our friend Jeff Cooper is back to weigh in on oil: Oil bounced off its 200 day m.a. on Friday and judging by the outsized moves on many names in the sector such as CLR (flagged in this morning’s report as vulnerable) and CXO which left large range outside up days (to mention a few), it looks like many players suspected oil was going to make a V Bottom at its 200 day. However oil is right back down today despite a retreat in the dollar and it looks like our 38/39 square-out level is magnetizing oil lower—assuming this is part of a constructive pullback if that level holds. Today’s downdraft in many energy names following Friday’s sharp turnup puts the possibility of a Hook, Line & Sinker bearish pattern short term on the table. So we could see some fast, climactic action in coming sessions in the group especially if oil snaps 40 which was a key level on the way down early this year. 3) Who Says to Sell In May? The one and only Scott Redler lends his insight into how to navigate this market: Those who said, “sell in May and go away” didn’t do so well. Now a lot of people are saying to sell in August. Before we just go off following the crowd, let’s go step by step. The 8 day moving average is $216.54- if you are micro trader, you get out with a close below that. If you are more of a swing trader, use $215.30.Otherwise, stay the course. We have pivot resistance at $217.54. A trade and close above that, look for continuation towards $220, or a big Red Dog Reversal (RDR) with that pivot to give a clue. We’ll also want to see oil hold last week’s low.
Continue Reading -->T3’s Take 3: The Sideways Shuffle
By T3 Live Staff Come join us in a FREE webinar! Click here for the upcoming schedule. 1) The Sideways Shuffle Today we saw what many traders have been looking for; an up day in Oil. This is the first time in the last 7 sessions that Oil was able to close bullish. The S&P 500 was sideways, once again, but able to close near the top of the range, up 0.18%. It is closing in on a month since the last time the S&P has produced a 1% move or better. The Nasdaq outperformed, again, on heels of strong earnings from GOOGL and AMZN. Gold found its way to the top of the advancers’ column today, with GLD rising 1.05%. 2) Range Precedes Price Today, Jeff Cooper provided some insight into the action on DexCom (DXCM): Our old friend DXCM continues its runaway move. Note the Spike Volume Bottom in Feb that defined the washout when everyone who wanted out got out. The large range breakout on 7/19 on increasing volume saw DXCM reclaim 50 % of this years range. From that point, DXCM has been in runaway mode. Typically runaway moves don’t offer much in the way of daily pullbacks so using an Opening Range Breakout is a good strategy. Also buying on the first intraday pullback offers defined risk entry. Today for example DXCM gapped open, pulled back into the gap window and exploded higher. 3) In Weakness, Opportunity is Found Our friend, Kurt Capra provided an interesting take on yesterday’s bearish candle on Facebook (FB): So, Facebook (FB) reported earnings after the close on Wednesday leading to a gap up Thursday morning to new all-time highs. After dancing around the first 2 hours of the day, FB began to pullback into the gap. It proceeded all the way down, finally finding support at $124.00, leaving the daily chart with a large red candle. To most, that would be seen as bearish. But, if you look beyond face value, it is an opportunity to get long for a ride back to, and through all time highs. Why would this be case? Take a look at the hourly chart from today and you’ll see a pullback and double bottom. So, the red bar from Thursday was nothing more than a controlled pullback to support and the whole number ($124); nothing to be scared of. In fact, quite the opposite. To the trained eye, this is an opportunity to get long, from a great spot, and enjoy a ride back to, and through, all time highs. If fact, if you go back and look at the daily chart of FB, notice how many times red bars were negated within the next day or two? This is a powerful concept that combines multiple timeframes with pattern recognition; something all traders should intimately understand. P.S.- If a double bottom fails, it can be an even bigger opportunity…even in failure, there is opportunity!!
Continue Reading -->T3’s Take T3: Pop & Drop at the F.B. Corral!
By Michael Comeau 1) Lucky 13 for Facebook Yesterday after the close, social media giant Facebook (FB) delivered a massive earnings beat, sending shares as high as $133.91 in extended trading, or up 8.6%. The company is seeing significant growth in mobile, higher revenue from Instagram, and improving user engagement metrics, Facebook’s huge numbers weren’t exactly a surprise, since the company had beaten Wall Street’s earnings estimates for 12 straight quarters, making yesterday lucky number 13. This set the stage for a sell-the-news reaction, and Facebook finished well off the highs at $125.00 up 1.4% on the day. However, Facebook shares are still doing incredibly well in 2016 with a 19.4% year-to-date gain. 2) Jeff Cooper on Facebook’s Exhaustion Signal This afternoon, my buddy Jeff Cooper issued an interesting take on Facebook’s weakness: FB is poised to leave a large-range Gilligan sell signal if it closes at/near session lows. This is an exhaustion signal marked by a gap up to a new 60 day high with a close at/near session lows. AAPL is a different pattern as its earning’s gap was not a gap to new 60 day highs or 52 week highs or all time highs as is the case with FB. My takeaway is that institutions are scale-up sellers on pops. Tomorrow we get the reaction to two other FANG stocks (AMZN and GOOGL). If they react similarly to FB or don’t blow out expectations, there may be nothing left on the table to prevent a slide. 3) Another Day, Another Grind Given that crude oil is a major drive of equity market sentiment, I’ve been a bit surprised at how well equities have held up in the face of oil’s near-20% decline off the highs. And again today, we saw oil decline sharply… and stocks basically rolled their eyes. The S&P 500 went nowhere for the second day in a row, finishing at 2170.06, up 0.2%. In fact, the S&P hasn’t made a 1% move since July 8. Facebook and Apple’s (AAPL) small gains today helped the Nasdaq outperform. Biotechnology led the decliners’ column today, with the S&P Biotech ETF (XBI) falling -0.5%. Energy stocks were down on oil’s decline, with oil service names showing notable dips. P.S. My partner in crime Kurt Capra is hosting a FREE trading webinar after the close on Tuesday, August 2, 2016. Click here to sign up
Continue Reading -->