Weekly Sentiment Update: The Bears Are Growling, But No One’s Listening
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, bears started sneaking out of their caves just in time for Spring. And with the bulls continuing to hold steady in the face of doubt, let’s see if anything’s changed. 1) VIX Spread – Bullish The VIX spiked to 15 early Monday, but it’s back down under 12. That has the 3-month VIX spread is at +2.69 which indicates that traders are moderately bullish. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 34, up slightly from 30 last week. F&G operates on a 1-100 scale, and a reading of 34 means traders are bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 30.2% of individual investors are bullish, down from 35.3% last week. This is well below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.64 yesterday with a 3-day moving average is 0.67. This is indicates that traders are slightly bearish. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at 83 (83 calls bought for every 100). The 10 day moving average is just 90. This indicates that demand for put options continues to outstrip that for calls. However, I am strongly considering dumping ISE Sentiment from this weekly update simply because it’s almost always reading bearish no matter what happens in the market. I may replace it with the CBOE Skew Index, which measures how much traders are paying for protection against tail risk. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 4 bearish 0 neutral This shows even more bearishness than last week. So while the bears are pushing an age-old theme — everyone’s complacent — I’m getting the feeling that traders are waiting for another shoe to drop, even though we’ve seen improvement in the action below the surface. Yesterday, the Nasdaq and Russell showed relative strength, and on Tuesday, we saw great upward action in the banks. So while some of the so-called “Trump Trade” has unwound itself, the bears’ growing isn’t adding up to much. But there’s an important question to ask here: how can sentiment be bearish if the SPX is 2% from all-time highs? We’ve seen this over and over throughout the bull market — markets hovering near record highs, but sentiment reading negative. My guess is that there’s inherent distrust in the market, and traders are eager to turn bearish on even small declines. And those that are buying often appear to be doing so reluctantly. It’s more of a “I might as well buy” attitude than “I’m buying because we’re going straight to SPX 3000.” And that’s a big difference from the last two bull markets.
Continue Reading -->Did Tim Cook and Elon Musk Pull a Trump on Trump?
The Business of America Is Business -Calvin Coolidge Donald Trump has made a fortune by selling his name. According to the Washington Post, Trump companies have made at least $59 million in revenue. Here’s one of the Washington Post’s examples: In Indonesia, Trump has licensed his name to two projects — a luxury resort and a golf course — for which he earned between $1 million and $5 million each project, each year. Now Apple (AAPL) CEO Tim Cook and Tesla (TSLA) CEO Elon Musk may be running the same game on Trump — selling their names in the name of business. The Washington Post reported that Trump is about to announce “The White House Office of American Innovation,” which is aimed at bringing fresh business-like thinking to Washington. Supposedly the office is already working with Cook, Musk, and Salesforce (CRM) CEO Mark Benioff. After the failure of the healthcare bill on Friday, Trump needs more credibility. Association with tech leaders like Cook and Musk gives him that. Dropping those names when introducing new legislation would be a huge selling point. And odds are, there will be some payback, especially since Trump seems to love everyone that sits down with him. Remember his January 31 meeting with pharma CEO’s? The talk about price controls seemed to dissipate pretty quickly. So what could Cook and Musk get out of Trump? Well, there’s a lot of chatter that having a big personal connection in the White House could help Apple make even more headway in the education market. But I think the real story is the potential repatriation of overseas cash. Apple’s sitting on $246 billion in cash, but $230 billion of it is sitting overseas doing nothing. Cook has said that he’s optimistic about some kind of tax reform including repatration this year, and buddying up with Trump can only help that process. As for Musk, I imagine that Trump could keep government subsidies flowing for electric cars. There’s also potential for some of Tesla’s non-car initiatives, like its energy story solutions, to make their way into Trump’s infrastructure package. And then there’s Solar City (SCTY), Musk’s solar panel company. I can’t imagine that company would hurt by ties to Trump. So Cook and Musk may have struck great deals. They’re selling their names to help Trump build credibility for business-related legislation. And their companies will probably collect big-time cash on the back end.
Continue Reading -->Weekly Sentiment Update: The Bears Are Done Hibernating… and They’re Hungry
Permbulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, sentiment went neutral for the second straight week. The big news this week is today’s healthcare vote (well, let’s hope we get it over with it), so let’s see if traders 1) VIX Spread – Bullish The 3-month VIX spread is at +2.6 which indicates that traders are moderately bullish. However, this number has been sliding steadily as traders slowly price in more volatility. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 30, down from 53 last week. F&G operates on a 1-100 scale, and a reading of 30 means traders are bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 35.3% of individual investors are bullish, which is just below the long-term average of 38.5%. It’s close enough to the middle to cal 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.67 yesterday with a 3-day moving average is 0.73. This is indicates that traders are bearish. 5) ISE Sentiment – Neutral The ISE Sentiment Index is at 101 (101 calls bought for every 100). So there are a ton of post-Fed call buyers. , which is a bullish reading. The 10 day moving average is just 89.7, up from 83 last week.This indicates strong demand for put options, but the ISE has been extraordinarly low forever, and 89.7 is pretty high compared to recent readings. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 3 bearish 1 neutral So in the past 4 weeks we’ve gone from 2 weeks of bullishness to 2 weeks of neutrality. Markets have been in a slow motion grind lower since the spike high on Trump’s speech, and the sluggishness is impacting traders’ moods.
Continue Reading -->T3’s Take 3: Mr. Market Is Still Telling the Most Boring Story on Earth
1) What a Boring Market Stocks are still in sleep mode, with the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite showing next-to-none movement. The Russell 2000 fell -0.5% to 1384.09, and in today’s low volatility environment, that actually counts as major movement. Traders are still debating just how hawkish the Fed is following its statement last week. That’s driving continued profit-taking in the US dollar, which helped gold catch a bid. Regional banks, which have been key in the post-election rally, are still dropping, while US Treasuries perked up again. 2) Wait and See? We’ve been falling asleep for the past month as day-to-day movement has gone to basically nothing. The word on the street is that traders are waiting on Thursday’s healthcare vote before putting their chips down. However, throughout the year, we’ve seen plenty of big events — Trump’s inauguration, then his first address, jobs numbers, the ECB, Fed statements, etc. — and none have driven real volatility for more than a few hours. So my big concern is that we’ll see some fireworks on the healthcare vote, and then head right back into this low-volatility snoozefest. 3) But There’s This… This morning, Bloomberg News reported that the CBOE SKEW Index rose for 5 straight days, the longest streak since June 2016. This indicates that traders are paying up for out-of-the-money options, which only pay off in the face of a huge market move. According to Bloomberg, the last time the SKEW Index was so high relative to the VIX, the VIX surged 65%. However, before throwing your money at VIX calls, consider that we’re dealing with a sample size of 1 — that’s far from reliable.
Continue Reading -->Snap’s Earnings Date Is an Awfully Valuable Piece of Insider Info…
UPDATE: Snap finally announced May 10 as its earnings date. Click here for more info. Snap Inc. (SNAP) (a.k.a. Snapchat) options have been trading for about a week, so let’s take a deep dive to see what the story is. First things first: Snap options are fairly liquid. The spreads on most contracts are pretty reasonable. As with all new issues (especially volatile high-beta tech names), the options are expensive, with implied volatility readings in the 47% – 60% range, depending upon the strikes/expiration. It looks like traders expect earnings to be reported the week of May 19. We know this because that week’s series has the highest implied volatility readings. So do you know what is an EXTREMELY valuable piece of insider info? Snap’s exact first earnings date. Why? Because for the options expiring on the week of earning, implied volatility (and thus option prices) will skyrocket. I’d be shocked if they didn’t go over 100% for the week of earnings. For example, the $20 calls expiring May 19 are going for about $1.95, with implied volatility of 60%. Let’s imagine a hypothetical scenario where Snap says today that earnings would be announced on May 18. If implied volatility went up to 100% from 60%, all things being equal, the price of that $20 call would go up to $3.18! (Number calculated with CBOE’s options pricing calculator. Please note: this only holds true for today, since options prices are heavily impacted by time to expiration and other factors) So keep your eyes peeled for the announcement — there could be money to be made if you are very, very fast. (as in able to place orders in seconds) One thing that really surprises me is that there isn’t an especially large put skew in Snap options. A large put skew means the put options are very expensive compared to the calls. Typically, hot new issues that are heavily shorted (which describes Snap to a T) have very high put skews. This is because when stock is hard to borrow (common with heavily-shorted stocks), demand for puts goes way up because traders are desperate to get in. Now, there is a put skew in Snap options, but it’s just a few percentage points here and there — not nearly as big as what we’ve seen with stocks like TWLO, FIT, and GPRO.
Continue Reading -->FREE Preview: Redler All-Access
Welcome to your FREE preview of T3 Live’s Redler All-Access newsletter. Redler All-Access gives you a complete trading plan from T3 Live Chief Strategic Officer Scott Redler, whose technical analysis expertise is frequently sought by CNBC, Fox Business, Bloomberg and more. Below, you’ll read a complete edition of the Redler All-Access Morning Note, which gives thousands of traders from across the globe their daily game plan. You’ll also view Scott’s extended Morning Call video. Today’s 23-minute edition, spanning 23 minutes, includes actionable analysis of 20+ charts including SPX, SPY, FAS, GS, JPM, FB, AAPL, NVDA, and NTES. But first, please click the video screen to get a quick introduction to Scott’s approach to the market: Health CheckMarch 20, 2017 Morning Call Video (click the screen to watch) Please Note: this video is NOT the same as the free Morning Call Express video Scott publishes daily. The Morning Call Express is a brief 5-7 minute look at the action. The Morning Call included with Redler All-Access is over 20 minutes long, with much more extensive analysis of stocks and ETF’s primed to move. By Scott RedlerWe have mixed markets to start the week with a bit of a cautious tone.In Europe, the DAX and CAC are -0.3% with the FTSE -0.2%.In Asia, the Nikkei is on holiday. The Shanghai is +0.4% and the Hang Seng is +0.8%.The G20 meeting had a protectionist tone.Last week was an interesting one as the Fed raised rates. There was a bit of a debate on whether Fed Chair Janet Yellen was dovish or hawish.The markets tried to resume the rally but didn’t have much power.SPX ignited above the 2373 area to make a lower high and it’s right back there. If we get a hard break below that pivot, the bears could point to a double top with a “train tracks”-type breakout failure. But we’ll see what happens.On Friday, I was away at a wedding and all my tight upper-level stops got hit. So I will see if we get better entries, or if things turn to more of a waiting game. Let’s stay light on our toes.Tech still holds up best. Small caps are trying to hold the 50 day. Energy is already back below the 200 day. The banks and bios did show a little relative weakness late last week.The biggest event this week is Thursday’s House floor vote on Ryan’s healthcare bill.If this doesn’t pass, questions will be raised about GOP tax reforms. Things could be quiet until then. SPY went ex-dividend so pricing is a bit odd. We’ll use SPX for better levels. Friday’s SPY low is $237.03. 2377 is the SPX low. If that doesn’t get reclaimed, 2370-2373 (the 8 & 21 day) is the next important intermediate support spot.Small caps held up a bit better late last week. We’ll see if that continues. IWM’s 50 day support is $136.60. Use that if you’re trying to be long. If it breaks it, be careful because it could be time to flip short. Friday’s low is $137.31.Bios lost some momentum as AMGN got hit very hard on bad news. IBB needs to prove it can hold above $293.57. Like a lot of traders, I got stopped out last Thursday. It’s now below the 8/21day. If this breaks and closes below Friday’s lows, it could fade back into the base with the 50 day down near $286.Banks didn’t rally on Wednesday when markets reacted positively to the Fed. Then on Friday, many names dragged the indices lower. I would love to see these names touch the 50 day for test longs after getting stopped out last week.FAS has the 50 day at $49.90. Friday’s low is $47.18.JPM has the 50day at $88.29, Friday’s low is $90.65.GS has the 50 day at $243. Friday’s low is $243.86.BAC has the 50 day at $23.84. Friday’s low is $24.83.We’ll see if they hit these levels and stay below, or reclaim Friday’s lows. JPM is a good indicator to watch.GS had a ugly candle Friday. Tech still acts best. QQQ is still above the 8 day. We need to see if that continues. The 8 day is $131.62. The 21 day is $130.80. If tech starts to weaken, perhaps markets weaken a bit. If these upper moving averages hold, it will be hard for the bears to growl too loudly. NFLX finally woke up again. It cleared $142 and hit a high of $146.50. Now it needs to hold $143.40 to build again for another potential new high.AMZN is very tight and out of play but it’s holding right under breakout levels. Some are long vs. $247. It would need a high-volume breakout above $857, then $860 to wake up.GOOGL made new all-time highs last week. It’s been grinding along the 8 day without much power. Now see if it holds $864 to clear $874.42 again.FB broke above our $140 target. It’s been riding the 8 day higher since January when it reclaimed all moving averages. Now the 8 day is $139.14 with the all-time high at $140.34.TSLA was a nice new trade for us from last week. It ignited above the $248 lower pivot area and hit $265.75 Thursday. Now see if it holds $259ish to form a new flag for more upside. I Tweeted to Redler All-Access that I turned some of the calls into a spread.Some Chinese names act well:BABA has been very choppy but hit a high of $106.50 Friday before pulling in a bit. Now, if it holds the $104 area, it can stay in the game to grind towards $110+. Some are long vs. the earnings gap.NTES has been consolidating its post-earnings move and came back to test the gap. We can be long vs. $278. See if it clears and holds $292 to get back towards all-time highs.MOMO cleared its base on big earnings. It held above $30 and is back towards the highs. Now see if it holds $34.01 to keep upper momentum.Other tech:AAPL has been rising above the 8 day all of 2017. It had an ugly candle
Continue Reading -->T3’s Take 3: The Go-Nowhere Market Is Still Going Nowhere
1) Another Day, Another Yawn I was really hoping that the Fed rate announcement and Dutch elections this week would spur some actual, real-life, lasting volatility. But following Wednesday’s post-Fed power rally, the market went right back into snooze mode. The S&P 500 fell -0.1% to 2378.25, with the Nasdaq flat. The Russell 2000 showed a little relative strength, which was nice to see. We also saw key large-cap tech stocks like Apple (AAPL) and nVidia (NVDA) rally intraday to finish near the highs of the day. Regional banks (KRE), which have been key in the post-election rally, also made a nice move off its morning low. 2) Levels to Watch in SPX This morning, T3 Live Chief Strategic Officer Scott Redler issued analysis of the S&P, saying the following: “Watch 2370-2377. We need to hold above that. Otherwise, more choppy downside can happen.” The S&P actually bottomed today at 2377.74, just missing Scott’s key range that would indicate trouble is ahead. So the bulls remain out of reach of the frustrated bears. 3) Quick Sentiment Update In yesterday’s Weekly Sentiment Update, I pointed out that the ISE Sentiment Index showed a huge surge in call options buying. But call buyers backed off quickly today. The ISE Sentiment Index fell to the low 70’s, indicating that traders went right back to buying up puts in anticipation of downside.. Increased put buying is actually good for the bulls, because it indicates that traders are still somewhat nervous. It’s very rare for traders to be skittish at the top.
Continue Reading -->Weekly Sentiment Update: The Crowd Is Neutral but Options Traders Are Running Wild
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, we saw sentiment fall to neutral territory after two weeks of strong bullishness. (see here and here) So with the Fed out of the way, let’s see if anything’s changed using our 5 primary sentiment indicators: 1) VIX Spread – Bullish The 3-month VIX spread is at +3.01 which indicates that traders are moderately bullish. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 53, down from 66 last week. F&G operates on a 1-100 scale, and 53 is basically neutral. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 31.2% of individual investors are bullish, which is well below the long-term average of 38.5%. Bullish AAII Sentiment has been below the long-term average for 7 of the past 8 weeks. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.61 yesterday with a 3-day moving average is 0.68. This is slightly bearish. 5) ISE Sentiment – Bullish This is where things get really interesting. The ISE Sentiment Index is at an insane 304 this morning. That means 304 calls purchased for every 100 puts. We very rarely see reading this high, even in a hard rally. So there are a ton of post-Fed call buyers. , which is a bullish reading. The 10 day moving average is just 83, but I’ll call this bullish becasue of today’s extraordinary surge. Conclusion Out of 5 sentiment indicators, we have: -2 bullish -2 bearish -1 neutral So we’re still stuck in neutral territory, though the insane call buying indicated by the ISE Sentiment Index implies that traders are extremely optimistic near-term. With stocks creeping lower intraday, we’re about to see if those call buyers marked the top.
Continue Reading -->How to Define an Uptrend on a Stock Chart
In technical analysis, one of the biggest mistakes you can make is to not have clear criteria for the patterns you’re looking at. What do we mean by that? Quite often, you’ll hear traders use terms like head & shoulders and support and resistance. But you never hear But you never hear about the criteria they use to actually define these terms. In our T3 Technical Strategies and Trading the Pristine Method Programs, we pride ourselves on giving traders, particularly beginners, clearly defined criteria for the patterns we use. Let’s start with one of the most important — the good old uptrend. What is an uptrend? A trendline that points up… right? Well yes, but that’s not enough. Why? Because without clear criteria to define our uptrend, we’ll never know when the trend breaks! Here are our 5 criteria for an uptrend on a daily chart: 1) Higher Highs: stock is making new highs (see letters on chart below) 2) Higher Lows: stock is not breaking below prior lows (see numbers on chart below) 3) Rising 20 Day Moving Average: indicates an improved short-term trend 4) A Rising 40 Day Moving Average: indicates an improved intermediate-term trend 5) Even Space Between the 20 and 40 DMA (a.k.a. railroad tracks) Here’s a chart showing what an uptrend looks like: Next Steps We recommend that you pick out 10 stocks, and see how each of them fits our uptrend criteria. By completing this exercise, you’ll learn to quickly spot the REAL uptrends.
Continue Reading -->The Trouble With Crude Oil
The action in crude oil has been hideous as of late, as you can see in this weekly chart: To be fair, it doubled in a year, so some profit-taking may be in order. However, let’s hope it can resume the uptrend, or at least hold the uptrend in the $46-$47 area. The oil rebound off the $26.05 February 2016 low played a huge role in last year’s rebound. There’s been no volatility in 2017 but oil is certainly a candidate for messing up the party. Remember, oil affects a lot more than energy stocks. Many regional banks have large energy loan books, and weak oil means more defaults. There are also an awful lot of high-yield energy bonds that would suffer. And historically, weak high-yield markets means trouble for the broader equities market. For now, the bulls remain in firm control, but oil could inspire the bears to finally step up after getting destroyed in the post-election rally.
Continue Reading -->