The Morning Hammer: Panic Is NOT Here

Throughout August, the market loved hawkish comments from Fed members.

But by last Friday, traders had enough.

The sold the market hard on Rosengren's hawkish commentary.

And of course on Monday, they bought the market hard on Brainard's dovish vibes.

Not that this is anything new, but the market truly is bizarro-land.

Now, traders are pretty much taking a September rate hike off the table.

Fed funds futures indicate a 22% implied probability of a September rate increase (down from 30%), while December is basically unchanged at 57%.

Crude oil is down this morning after the IEA said oversupply will persist well into 2017.

Remember that we have US crude inventory data coming from the API today after the close and from the EIA tomorrow morning.

SPX futures are down -0.7% in the early going, which means volatility may really be back.

Friday was the first 1% SPX down day since June 27, and Monday was the first 1% up day since July 8.

And compared to the July-August snoozefest, a -0.7% move qualifies as real action!

Bonds are firming up a little bit, with 10YR bund yields inching back down towards the zero mark. Treasuries are also up a tad.

Gold is up as dovish vibes come back, though the volatile gold miners (GDX) are red pre-market. If gold stays strong in the early going, maybe those miners snap back up.

Now the real fight begins.

The bears failed at every turn for 2 months, but they're starting to take the lead.

And sentiment is still somewhat mixed, which for the bears is good because it implies the market is not braced for serious downside.

The CBOE Equity put-call is 1.03, which is bearish but not extremely so.

The 3-month VIX spread is +1.98, which is neutral.

And the 10-day moving average of the ISE Sentiment Index is 87.4, which is modestly bearish. (87.4 calls for every 100 puts)

So traders are spooked, but not freaked out. On a scale of 1-10, with 1 being max bearish and 10 being max bullish, I'd say we're at a 3.

Panic is not here… yet.