T3’s Take 3: Hillary Clinton Derails Pokémon Go Hype Train
Want to Boost Your Trading Skills? Click here to sign up for one of our FREE trading webinars ******** By Michael Comeau 1) US Dollar Kills Commodities The US dollar extended its rally today as traders are once again pricing in US rate hikes this year. Just after the Brexit, Fed Funds futures implied a mere 9% chance of a December rate hike. Those odds are now back up to 48%. At the same time, traders believe the Bank of Japan and European Central Bank will add more stimulus, which would push major currencies down against the dollar. The dollar’s rise sent oil, gold, and silver lower. The drop in oil drove some equity market profit-taking, and the S&P 500 fell -0.3% to 2168.48, though the Nasdaq and Russell 2000 did slightly better. Biotechnology was strong ahead of Gilead’s (GILD) after earnings report, even though some analysts warned Gilead could miss expectations. And after a week of going nowhere, the VIX rose 8%, implying that traders are starting to price in some actual potential downside. 2) Will the Gold Trap Continue? T3 Live’s Jeff Cooper seems to think so. This is what he told Daily Market Report subscribers this morning: It’s a Monday and another golden hammer. Last Wednesday, gold and miners had a breakaway gap to the downside followed by a sharp rebound on Thursday when GDXJ backtested its overhead 20 day. Today’s gap down looks like the second cheese will get the mouse for those looking for a more pronounced pullback. See daily GDXJ here from June with 20 day. 3) The Nintendo Hype Train Gets Derailed Nintendo shares doubled in less than 2 weeks after the release of its incredible popular Pokémon Go game. However, Nintendo collapsed 17% today after the company admitted that the game would not produce meaningful revenues, even though the game is so popular that some tech experts believe it is impacting the use of social media apps like Twitter (TWTR). On July 15, I mused that Democratic Presidential candidate Hillary Clinton’s awkward Pokémon Go joke was a sign that the craze was getting out of hand. Incidentally, Nintendo shares topped out the next day, and it’s all been downhill from there: With the benefit of 20/20 hindsight, that looks like a perfect fad stock top!
Continue Reading -->State of the Markets: This Bull Is Strong
I mentioned last week that we are still stuck in high-level range and to me, that means we stick with a bullish bias until that lower part of the range breaks. Pulling back the zoom a little bit, let’s check the markets on a larger time frame and via sectors. The S&P 500 (via SPY) is hovering above the old breakout zone and is well above the intermediate trend line. Still a bullish bias in my view. Banks (KBE)- broke their uptrend and have been going sideways to down since. This is the most concerning thing that I have seen. I prefer them to lead, so this divergence could be a harbinger of things to come, but nothing yet. Retail (XRT) – broke its recent down trend, then checked back into it from above. A good sign and a clear positive trend change. Bullish here. Transports (XTN) – They were stuck in a downward channel, but broke through to the upside and have consolidated there for a while. Bullish again. The bull still seems strong here, and I don’t see the need to play for the downside until we break the lower end of this range. BP
Continue Reading -->Scott Redler’s Morning Call Express Video: Earnings Blitz!
In today’s Morning Call Express video, T3 Live Chief Strategic Officer Scott Redler discusses the technical picture as we head into earnings season.
Continue Reading -->Maybe the Brexit Didn’t Kill Planet Earth After All…
European stocks are up this morning after German’s Ifo’s business confidence reading came in better-than-expected, implying once again that Brexit-related fears have gone too far. As we’ve been noting on the Virtual Trading Floor again and again, global economic data has actually outperformed expectations since the Brexit. Below, you can see 2 charts showing the Citi economic surprise indices for Europe (first chart) and the US (second chart): In both cases, the trend is UP, not down. Plus this morning, Irish airline Ryanair kept its 2017 profit forecast in place even though presumably, the Brexit and recent string of terrorists attacks could impact air travel volume. And in fact, traders are once again pricing in Fed rate hikes this year. Fed funds futures now show a 45% implied probability of a rate hike this year, up from 9% after the Brexit. So faith in the economy is returning… whether that marks a near-term top remains to be seen. We’ve got some deal activity this morning. Yahoo (YHOO) is selling its main web properties to Verizon (VZ) for $4.8 billion. Yahoo will operate as a publicly-traded investment company with holdings in Alibaba (BABA) and Yahoo Japan. CEO Marissa Mayer says she will stay with Yahoo. AMC Entertainment (AMC) raised its bid for Carmike Cinemas (CKEC) by about 10% to $1.2 billion. SPX futures are as flat as an ironing board this morning. We are seeing minor profit-taking in commodiites, with oil, gold, and silver all off as US Treasury and Euro bond yields rise. The 10-year German bund is still negative though. Sentiment measures including CBOE equity put/call, VIX spreads, and the II survey still show that traders are in a pretty bullish mood, so the best past forward may be a little break that lets moving averages catch up, and lets the bears reload. I still think we’re heading for a summer stalemate that looks like the amazingly boring April-May stretched, and that’s ultimate a good scenario for the bulls. My main worry now is that crude oil just trades horribly. Crude was a major catalyst for equities off the February 11 low, and with oversupplly worries coming back to the forefront, it could just as easily serve as a downward catalyst. It would also be nice to see the Nasdaq and Russell 2000 confirm the SPX all-time high. But it’s very rare that markets behave cooperatively across the board, so keep your eyes on the important stuff. As long as biotech (IBB), high-yield (HYG), and the Russell don’t break down, equities will likely keep it together. And oh yeah — the Pokemon-driven Nintendo hype train just got derailed. The stock is down 18% today after investors that Nintendo’s clearly not going to make enough money from Pokemon to justify a doubling in the stock price.
Continue Reading -->All-Time Highs on the Table?
Happy Friday! We’re less than a day away from a much-needed weekend, so let’s try to go out strong… though I’ll settle for making it out alive. I’m picking Runaway Child, Running Wild by the Temptations as my morning pick-me-up since coffee wasn’t enough. Asian markets are slipping and Europe is slightly green following yesterday’s down day in the US. Japan is down on Governor Kuroda’s stated opposition to “helicopter money.” Markit’s euro area PMI hit an 18-month low at 52.7, while its UK PMI showed what they’re calling a “dramatic deterioration” in business activity. This is disappointing because UK economic data has actually been fairly strong relative to low expectations recently. On the plus side, Germany’s PMI was strong, though interestingly, the DAX is the worst performing major market this morning. Crude oil is off the lows but still down for the week as traders remain concerned about seasonably high gasoline inventory levels. In earnings, GE (GE) beat expectations despite a sluggish global macro picture, though fellow industrial Honeywell (HON) is off on light guidance. SPX futures are up fractionally on the boost from GE, so we could see the 7th new all-time high in the past 10 days. Sentiment continues to lean positive, which is probably best illustrated by the low VIX and steep VIX curve. However, bulls are not quite leaning “all in.” The ISE Sentiment Index has read bearish in 2 of the past 3 days and the AAII survey showed neutral sentiment. On my own personal back-of-the-envelope sentiment meter, I’d say that on a 1-10 scale, we’re at about a 7 out of 10 in terms of sentiment. (with 10 being ecstatically bullish) Near-term, the best course forward for the bulls seems to be a sideways grind like we saw in April-May. That horrendously boring lull tricked the bears into wasting all their money on put options, which ultimate provided the fuel for this recent streak of record highs. The economic calendar is more or less empty today — we’ve got just the Markit US Manufacturing PMI and Baker Hughes Rig Count, so odds are the news flow will be pretty light. I try to stear clear of politics here, but there is chatter that Democratic candidate Hillary Clinton will appoint a running mate today. If she happens to appoint Massachusetts Senator Elizabeth Warren (I see a less than 25% chance of this myself), the banks could get hit short-term. I wouldn’t mind seeing a modest down day today to digest gains Good luck out there friends.
Continue Reading -->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.
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