Scott Redler’s Morning Call Express: Rotation of Things
In today’s Morning Call Express, Scott Redler reviews the technical action in the SPX as it has moved to new all time highs. He also looks at the Nasdaq Biotech Index (IBB) as it can play catch up. Finally, Scott also looks at Intel (INTC), eBay (EBAY) and others that have reported earnings.
Continue Reading -->Jeff Cooper: Today Sets Up as a Key Day
Follow Jeff Cooper on Twitter: @JeffCooperLive Has anything really changed that justifies the extreme levels of bullish sentiment — other than stocks going up? Is the stock market discounting something favorable that bulls are chasing? I don’t think so. Rather, my sense is that after the Brexit vote, players were poised to pounce and short the Brexit Bounce — especially within the context of a tedious 18 month trading range punctuated by several sharp downdrafts. In other words, I think the way we got here was with an extraordinary level of players set to lay out shorts around a 50% retrace of the June trading range — to wit, SPX 2120 to 1992, which gives a mid-point of 2056. A funny thing happened on the way to collecting on those bets. The SPX rocketed through the 2056 like the proverbial knife through butter. In fact as the below daily SPX from June shows, the SPX closed at 2070 on day 2 off the Brexit low — above the monthly equilibrium pivot. The next session, the SPX cleared its 50 day line with authority. The bottom line: the perception that the impact of an exit vote could mean the breakup of the EU was prevalent, which caused an extraordinary level of bearish sentiment. In short, too many market participants were leaning to the short side of the ship; there was no shortage of players ready to short the Brexit Bounce which perpetuated a contrarian move. The Brexit Bounce morphed into the Brexit Bungee. Extreme bearish sentiment on the surprise vote has quickly shifted to extreme bullish sentiment. This is borne out by put/call ratios, the smart money/dumb money index and a decade high in the Greed/Fear Index. While some may chalk up this speedy shift from a selling panic to a buying panic to our modern era of twitterpated, computer driven information and hence this can only provide us with insight as to the short term, as in a few weeks, I am mindful of the market maxim that volatility precedes price. Be that as it may, assuming that the current upside spike in sentiment only speaks to a pullback over the next few weeks, I think the takeaway is that a picture perfect, pat pullback to the breakout pivot of 2110-2120 may be undercut leading to a push below the big psychological 2100 level. A decline below 2100 would raise red flags as to a failed breakout. If this plays out it would not surprise me to then see an contrarian bounce that tests current levels and perhaps nominally exceeds them. But if this scenario plays out, the damage will have been done. The damage I am referring to is the inherent structure of a blow-off. Blow-offs typically do not pullback for more than 3 days before resuming their runaway trajectory. So a meaningful pullback indicates the blow-off has culminated. Strategy. A 10 min SPX below shows a spike to 2170 on July 15 followed by a little decline to 2156. The index has been trading inside since. This morning’s the futures are indicating a push into yesterday’s gap window which if exceeded will likely satisfy our idealized 2174 level today, on the idealized July 20 turning point day. As a refresher, 2174 aligns/vibrates off this week on the Square of 9 Wheel and is opposite January 20, the primary low in 2016. So today sets up as a key day. Click here to read more about how Jeff is crushing the market with the Daily Market Report.
Continue Reading -->Scott Redler’s Morning Call Express: No Mister Softie Here!
In today’s Morning Call Express Video, Scott Redler discusses the trend in SPX, and the action in Microsoft (MSFT), which is up big after earnings yesterday. Scott also discusses Facebook (FB), gold (GLD), and JP Morgan (JPM).
Continue Reading -->T3’s Daily Recap Report: Earnings Are Blah, but This Bull Won’t Blink!
1) Earnings Season Rages On We walked into some big earnings reports today, and unfortunately, they were mostly bear-friendly: –Netflix (NFLX) issued very weak guidance, driving a -13.1% drop in this high-profile momentum name. -IBM (IBM) and Goldman Sachs (GS) beat expectations, but still couldn’t rally. –Rio Tinto (RIO) sank on weak demand for iron ore. –Johnson & Johnson (JNJ) and UnitedHealth (UNH) surpassed analysts’ estimates and staged modest rallies, but finished off morning highs. Coming into this earnings season, expectations were remarkably low, with analysts expecting the fifth straight year-over-year decline in earnings. And as it stands now, S&P 500 companies are not doing a very good job of vaulting over those lowered expectations. FactSet data shows that companies are reporting an earnings decline that’s basically in-line with the -5.5% consensus. So even though the bar is low, we’re not getting over it. 2) And the Reaction Many traders have been arguing that the investing public is very complacent. That was not true 2 weeks ago, but it certainly looks true today. CBOE put-call ratios, the ISE Sentiment Index, and various sentiment surveys all point to widespread bullish sentiment. Typically, markets top out when sentiment is very positive. However, let’s give this market some respect. The S&P 500 has barely budged in the face of geopolitical tensions, stretched charts, and the aforementioned weak earnings season. And with today’s -0.1% decline to 2163.78, it’s still within 0.2% of the all-time 2069.05 high set Friday! How could this be? Well, there are two elements at play. First, the Brexit is likely driving some buying of US equities, which are perceived as less risky. And second, US economic data has actually been quite strong over the past few months. This is a chart of the Citi US Economic Surprise Index, which measures economic data reports relative to expectations: The yellow line represents the S&P 500, and as you can see, it has been tracking economic data surprises pretty closely all year. 3) An Intel Options Idea Intel (INTC) is reporting earnings after the close tomorrow, and implied volatility on weekly options is incredibly high. This creates a good opportunity for a calendar spread, where you short expensive near-term options and go long cheaper long-term ones. Here’s a trade I’d look at: -Sell $36 call (this Friday’s expiration) for 30 cents (IV of 44%) -Buy $36 call (August 19 expiration) for 44 cents (IV of 20%) Debit of 14 cents per lot (give or take 2 cents). This is an extremely cheap way to play a flat or up reaction in Intel shares, and it could profit even if the stock drops modestly into earnings. The best case scenario is Intel closing at $35.99 on Friday. That would put the short call at 0, and the long call worth around 58 cents, assuming a drop in IV to 17%. That would be a 314% profit. Worst case is Intel drops big, which would wipe out the entire 13 cent debit.
Continue Reading -->Morning Call Express: Stay or Go!
In today’s Morning Call Express, Scott Redler talks about some key levels of support in the SPX and what it would mean if these levels break. He also talks about the poor earnings from Netflix (NFLX) and will be watching to see if the weakness is contained to just NFLX or permeates into other names.
Continue Reading -->T3’s Daily Recap Report: Mr. Market Is Still Flirting With Record Highs
1) Bears Get Grinded Out… Again! US markets managed to score a small victory today in the face of shaky European markets and geopolitical troubles in Turkey and other areas. The S&P 500 hit an intraday high of 2168.35, putting it less than one point away from making its sixth record high in as many days. The index rose just 0.2% on the day, though there were several signs of positivity below the surface, with traders taking what I’d call “selective risk-on” posture. We saw notable outperformance in biotechnology (XBI) and large-cap technology stocks, with Apple (AAPL) managing to crack the $100 mark for the first time since June 6. High-yield (HYG) was also strong despite a drop in oil prices. In recent months, high-yield and oil have been tightly correlated because of oil’s affect on high-yield energy bonds. Semiconductor stocks were also very strong after Softbank announced it would acquire chip designer Arm Holdings (ARMH) for $32 billion. However, with Netflix (NFLX) down huge this afternoon on its disappointing ugidance, we may see a turnaround in tech tomorrow. 2) A Step Back With the market well past the Brexit and flirting with all-time highs, let’s take a step back and look at how far we’ve come. So far in 2016, we’ve seen a major flip-flop. In 2015, the big winners were biotechnology (IBB) and select large-cap tech stocks, most notably the F.A.N.G. (FB, AMZN, NFLX, GOOGL) names, which rose an average of 77.5% last year. This year, the leaders have been what I call the G.U.T.S. complex — Gold (GLD), Utilities (XLU),Treasuries (TLT), and Silver (SLV). The G.U.T.S. trade is up 26.2% this year after falling -8.9% last year. Why the change? Simple — the Fed got dovish, other central banks are stimulus crazy, and fears of a global slowdown are everywhere. That’s given instruments that benefit from low rates a big boost. Taking a look at the broader indices, the S&P is up 6.1%, while the Nasdaq is lagging, primarily due to a huge drop in biotechnology. However, all US indices are significantly outperforming Europe. The Euro Stoxx 50 Index is down -9.7%, though to be fair, it’s nearly recovered its post-Brexit losses! 3) A Warning in the Russell 2000? This morning, Jeff Cooper of the Daily Market Report discussed the lagging action in the Russell 2000, which may be a hint of trouble to come: This morning’s report walks through another V Bottom by virtue of a Central Bank Slingshot following the Brexit Break, propelling a blow-off in the SPX and DJIA. However secondary, indices such as the RUT suggests risk is hiding out in the larger cap SPX. The same picture that has played out before past significant downdrafts. Moreover, a big SPX time/price square-out is on the table going into a potentially important low to high to high cycle with this week also being an important anniversary. Click here to learn more about Jeff’s Daily Market Report.
Continue Reading -->6th SPX Record High in a Row?
The market really feels like it’s out of gas, but lo and behold, the SPX is within a few point of hitting a new all-time high for the 6th day in a row. So let’s take a deep dive into the action and see if the bears are ready to take the lead. The action is a bit mixed below the surface, but the bulls appear to have a slight edge. Here’s where they’re winning: -The Nasdaq and Russell 2000 are outperforming. –Apple (AAPL) just cracked through $100 for the first time since late May. –Bank of America (BAC) is having a beautiful little grind up post-earnings. –HYG/JNK are green. -The VIX dropped back down. -XBI is RIPPING off morning lows which should scare the bears. -The yen is dropping again. But on the bear side: –Regional banks (KRE) can’t catch a bid. -Gilead (GILD) is getting no love despite a positive story in Barron’s -Crude oil is trading horribly, though the stocks aren’t doing as bad as you’d think. I’m really surprised HYG is green. -The CBOE equity put-call ratio is 0.72, indicating that traders are somewhat complacent.* -The ISE Sentiment Index is at 146, again indicating that traders are somewhat complacent.* *I use the “somewhat complacent” monicker because these measures are extremely volatile day-to-day. So the big 2 questions today are: 1) Will we get that elusive 6th straight all-time high in a row? 2) If we do get it, do we hold up? We’re less than 2 points away from going 6 for 6, so a big buy of Apple shares could put us over the top. And the yen weakness and biotech rebound are helping sentiment in a big way. But that’s where it gets tricky. The consensus thinking seems to be that we have to pull back since things feel so overheated, and sometimes, that means the move’s going to go on a little longer. Remember Mr. Market’s 2 rules: 1) Frustrate as many traders at any given time as possible. 2) Let trends run much further than most people think seems reasonable. So if the crowd thinks we go down, maybe we’ll just keep on going. I’m still watching biotech for confirmation of this move. And right now, XBI is saying we get that new record high. As for the aftermath, see if the biotechs hold or fold. Keep an eye out on the oil complex too. It’s not uncommon for oil to lead equity moves, and traders may start paying attention to crude’s big dip today. I think we go flat to slightly down within the next week. I’m thinking we get stuck in the the 2140-2180 range, and then maybe the lower end of the range pushes down to 2100 for some bounce-around action in the 2100-2180 area.
Continue Reading -->Morning Call Express: Earnings Season Is Here!
In today’s Morning Call Express, Scott Redler discusses the weekend news, the technical setup into earnings season, and the action in bank stocks like JP Morgan (JPM) and Bank of America (BAC). Scott also talks about the setups in Netflix (NFLX), Facebook (FB), and biotech (IBB).
Continue Reading -->Morning Preview: Is the Sideways Grind Beginning?
The S&P 500 is coming off 5 all-time highs in 5 days, but we may be in for a sideways grind. On Friday, I wrote that the market was ‘feeling’ stretched but sentiment was mixed, which is typically a recipe for a whole lotta nothing in terms of action. I would not be surpised to see the market stay range-bound, similar to what we saw in the April-May snoozefest. Earnings are giving traders an excuse to take profits. We started off Q2 earnings season on high notes from Alcoa (AA) and JP Morgan, but we ended the week with unimpressive earnings numbers from names like Wells Fargo (WFC), Citigroup (C), and Swatch. I’d watch to see how Bank of America (BAC) gets treated this morning. It beat EPS estimates, but it’s up only fractionally in the early going. We also saw a miss an earnings this morning from transportation name JB Hunt (JBHT). European markets are down slightly today following the failed coup attempt in Turkey, though safety assets like gold, the yen, and US Treasuries are selling off. On the deal front, SoftBank of buying ARM Holdings (ARMH) for $32 billion, or a ARM is a chip designer that licenses its IP portfolio to virtually all mobile device makers. The SMH ETF is up about 1.4% in premarket trading. ARMH comprises 4.7% of SMH. ARMH is up 43% this morning, which is going to burn all the bears that sent its short interest to 6-year highs. SPX futures are modestly positive this morning, but well off pre-market highs. Again, how Bank of America gets treated will probably be a tell. We don’t have any market-moving economic data reports on tap. Now, even though I think the market’s likely to go sideways for a bit, I suspect we’re going to see a strong increase in the VIX within the next week or two. Remember what the VIX is — the market’s expectations of 30-day volatility, as measured by SPX options. And right now, the VIX curve is extremely steep and trading at a massive discount to realized volatility. These imply that traders are pricing in no movement. At the first bump in the road, even if the market ends up going nowhere, I suspect the VIX will rise sharply as traders reprice options more in-line with historical norms. This also means that options are cheap now — so if you’ve got a serious long or short directional bias, take a look at options instead of stocks. The game plan remains the same: watch biotech (IBB), oil, and high-yield (HYG) to measure risk appetites as they tend to be the tells. Good luck out there.
Continue Reading -->T3’s Take 3: Bulls go 5 for 5 in All-Time Highs, but the Picture Gets Muddy
1) 5 Days, 5 All-Time Highs For the fifth day in a row, the S&P 500 managed to make a new all-time high, something that hasn’t happened since 1998. The index hit a peak of 2169.05 just after the open before selling off to 2155.79, and closing down 0.1% at 2161.74. Earnings were a culprit. Traders were disappointed with Wells Fargo’s (WFC) numbers, which were held down from exposure to bad oil and gas loans. Fellow bank Citigroup (C) also lowered its margin growth forecasts. And European watch/luxury play Swatch reported a major decline in profit, extending the long streak of disappointing earnings numbers from consumer stocks. But from a bigger-picture perspective, the action feels like necessary digestion after the huge post-Brexit rally. 2) Kurt Capra on SPY This afternoon, my colleague Kurt provided the following analysis of SPY on the Virtual Trading Floor: Below is an hourly chart of SPY: Today it’s down, but right into support. If you look, the 60-minute trend has been the general of this move higher. There has not been a single break of key support throughout this move up. Today, the SPY is right into the gap fill area. So while the SPY is beginning to move down, we may see an attempt to move higher first and then form a lower high. The other possibility is that the SPY will gap under this support level and that will get price moving lower more quickly. 3) Nintendo Power! Shares of Nintendo Nintendo are up 93% in a week following the release of its blockbuster Pokemon Go app. It’s so big that Presidential candidates Donald Trump and Hillary Clinton are both using it as part of their campaign platforms. Ad agencies are racing to use it as a marketing platform. And it hasn’t even had a complete global launch yet! It’s generally not good practice to short parabolic moves, but the masochist in me wonders if Hillary Clinton’s particularly awkward Pokemon joke is a sign that this whole thing is getting out of hand. This is a chart of Nintendo (Japan shares): And here I show the chart of Nintendo ADRs (NTDOY): They went from trading less than 50K shares a day to millions/day in the past 4 days! Generally speaking, fads and crazes tend to go a little further than seems reasonable, so it’s usually better to short AFTER the trend breaks — not before.
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