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T3’s Take 3: Yellen Goes Hawk, Spikes the Dollar
1) Yellen Goes Full Hawk Today, Federal Reserve Chair Janet Yellen gave a speech at the Commonwealth Club in San Franscisco, and she swung her hawk hammer. Yellen said the Fed is close to meeting its dual mandate of full employment and price stability, and that Fed officials expect a few rate hikes this year. The US dollar immediately ripped on the news, gaining 1.7% against the yen and 0.7% against the euro. The dollar in strength put a hurting on gold, which fell -0.7%. The ever-volatile gold miners ETF(GDX) dropped -1.5%. 2) Stocks Bounce Yellen’s hawkiskhness drove a rebound in stocks, and the S&P 500 managed to squeeze up 0.2% to 2271.89. That’s not exactly exciting, but there were some signs of strength under the hood. The Russell 2000 rose 0.5%, and the Nasdaq Biotech ETF (IBB) rose 0.8%. Yellen’s hawk talk drove the S&P Financials ETF (XLF) up 0.8%, with Regional Banks (KRE) up 1.1%. Retail, energy, and US Treasuries led the decliners’ column today. After the close today, Netflix (NFLX) reported better-than-expected Q4 earnings and surged over $10. 3) Jeff Cooper on Gold This afternoon, T3 Live’s Jeff Cooper issued the following analysis of gold: Yesterday, GLD gapped up into a shelf of resistance from the spring of 2016 around 115. Today, after treading water in the early going, the bears came out to play. GLD is pulling back into the gap window from yesterday. GLD and the miners have done a lot of work and are entitled to inhale. However, GLD is doing something it hasn’t done for many moon: GLD has delivered a Golden Cross with the 50 week crossing above the 200. Click here to learn more about Jeff Cooper’s Daily Market Report.
Continue Reading -->The Morning Hammer: Those That Know Don’t Tell…
Options > Dividends Find out more at our FREE training event… ******** The pound is rallying after UK PM Theresa May said that Parliament should vote on her Brexit plan. This implies a more deliberate approach to the UK leaving the building, which could soften the Brexit blow a bit. Crude oil popped above $51 after OPEC said it has a firm commitment from Russia to participate in an output cut. However, keep in mind that the oil newsflow is all over the place, and this story is truly not over until it’s over. (you know what I mean) As an illustration of how fluid the situation is, Bloomberg is reporting that Venezuela and Iraq are disputing OPEC’s reported output data. I assume that having no consensus on where output is now makes it more difficult to decide on where output should be. Meanwhile Goldman Sachs is out saying US oil explorers will boost activity with oil in the $50 – $55 range. I don’t think the market disagrees with that, given that oil service names (OIH) have already rallied nearly 50% off February lows. Samsung cut its Q3 operating profit forecast by $2.3 billion after halting production of the Galaxy Note 7, which is prone to catch fire. The big item on today’s agenda is the release of the September Fed Minutes at 2:00 p.m. ET. Even with Friday’s mediocre jobs numbers and the Fed’s mixed message in the September rate decision, traders have been upping their bets on a December rate hike. Fed Funds futures are pricing in a 67% chance of a December rate hike, up from 62% at the September rate decision. Of course, the big question isn’t necessarily “what will the Fed do in December?” It’s “how fast is the pace thereafter?” Remember, at the September meeting, the Fed cut its own forecast for 2017 rate hikes to 2, down from 3 previously. Some very smart people think there’s a decent chance the Fed is one and done due to recession risk. I won’t hazard any guesses. I’ll just remind you of the 2 simple truths of Fed days: 1) Those who know don’t tell and those who tell don’t know 2) The first reaction isn’t always the right one… and neither is the second The hawk hammer has the dollar moving higher again this morning, while SPX futures are slightly red. Yesterday, we had a nasty down day on a confluence of bad news (huge currency volatility, AA/DOV earnings, Samsung), and there was a clear risk-off flavor to the action. The Russell 2000 and biotech (IBB) took huge lumps, and the VIX popped pretty hard. I’d key off 4 things today: 1) Apple (AAPL) Apple’s gotten a nice boost from Samsung’s Note 7 recall, which eliminates one of iPhone 7’s main competitors. Apple does a lot of heavy lifting for the indices, so I’d watch to see if there is some belated profit-taking. 2) Oil Clearly, equities like strong oil. And WTI crude looks like it wants to take out the 2016 high at $51.67. A power move through there could mean good things for the bulls. 3) Hot New Issues ACIA, TWLO, TTD, ACIU, PI, etc. are the new F.A.N.G. These names are not looking healthy. It would be a clear plus if they regained traction. 4) The Usual Risk On/Off Suspects As I said, the Russell and biotech got spanked pretty hard yesterday. I’d closely watch them, along with HYG. And remember… The Fed Minutes release means it’s an anything goes day. Good luck out there. P.S. Don’t forget to sign up for Doug Robertson’s special options training session!
Continue Reading -->Is Gold About to Get Cracked?
1) US Economic Data Comeback US economic data continues to firm up following a major drop in momentum since July. In the past week, we’ve seen decent new home sales, Markit Services PMI, durable goods, Chicago PMI, GDP, jobless claims, and ISM Manufacturing numbers. Check out this chart of the Citi US Economic Surprise Index — this could be the start of a new trend following a collapse in expectations: Some reports have been some clunkers, but overall, the strength of data relative to expectations is improving into Friday’s big NFP report. However… 2) Traders Aren’t Sold on the Fed Just Yet A lot of traders believe a December rate hike is a foregone conclusion. The numbers say otherwise. Fed funds futures imply a 61% probability of a December rate increase, so the market’s not buying in whole-hog. This brings us back to this week’s NFP report, which could move the numbers one way or the other. I’d especially be watching… 3) Gold! Call me crazy, but doesn’t this Gold (GLD) $125ish level look pivotal? Gold has been making lower highs, and I’d assume that a big NFP report on Friday could mean a very ugly break of this $125ish support level. There’s been a lot of talk about a possible head & shoulders forming over the past few weeks, but this bigger-picture pattern looks more important. 4) Is Twitter Still in Play? Today, Bloomberg reported that Google (GOOGL) is considering a bid for Twitter (TWTR). Google has perennially been seen as a logical buyer for Twitter because of the latter’s strength in real-time search. But the real good news for Twitter longs is the sheer number of rumored suitors floating around — Salesforce.com (CRM), Disney (DIS), and Microsoft (MSFT) have also been mentioned. This way, if one alleged suitor leaves the picture, we’ve still got others to prevent an all-out collapse. But I’ll still only believe this deal when I see it. Mark your calendars for Twitter’s Q3 earnings report on October 25 — it’s gonna be a big one! 5) A Boom in Call Options? The ISE Sentiment Index, which is my favorite short-term sentiment indicator, is reading 189 this morning as of 10:50 a.m. ET. That’s 189 calls for every 100 puts, which means rampant bullishness, at least on an intra-day basis. Perhaps ironically, we are seeing lots of activity in GLD. NFLX, TSLA, BMY, and CAB are also active. (TSLA announced strong sales, CAB is being taken over)
Continue Reading -->T3’s Take 3: Hawks and Doves Collide on Fed Day
WEBINAR: Prop Trading May Not Be Right For You… But it has incredible financial benefits for many, many traders and could make a difference in your bottom line. Click here to learn more… 1) Bank of Japan Starts a Party The Japanese Nikkei and Topix indices had a great night after the Bank of Japan made its monetary policy announcement. The Bank did not go deeper into negative rates as had been rumored, but will instead focus on controlling rates and steepening the yield curve. A steeper yield curve means bigger profits for financial institutions, so Japanese banks and insurers staged huge rallies. The yen also rallied against major currencies. Many investors have been concerned about the impact of negative rates, so the new strategy was received favorably. The positive action in Japan flowed through to Europe, which also had a big stock rally with notable strength in financials. 2) The Fed! As expected, the Fed left interest rates unchanged. But what was really interesting was that they gave ammunition to both hawks and doves. 3 Fed officials dissented from the decision, voting to raise rates. The Fed also said that the rate hike case strengthened, which all but seals the deal for a December rate hike. That certainly seems in-line with all the hawkish commentary we’ve been hearing from Fed officials. However, the Fed now expects 2 rate increases in 2017, down from 3 in June. The Fed also cuts its GDP and interest rate forecasts, and said that inflation is still below its goals. So the overall picture is actually pretty mixed – and I’d argue that today may have been a victory for the doves. 3) The Market Reaction For the third day in a row, the S&P 500 hit an early morning high before ticking lower. However, the Fed statement ignited a very solid stock rally into the close, with the S&P rising 1.1% to 2162.87. The Russell 2000 powered up 1.4% to 1245.02. And since the Fed wasn’t as hawkish as many traders expected, we saw rallies in bonds and commodities after the announcement hit. Meanwhile, the dollar fell sharply on Japan’s lack of action and the Fed’s mixed statement. WTI Crude oil rose 3.5% after the American Petroleum Institute and Energy Information Administration reported large drops in US crude inventories. That had energy stocks in the winners’ column. But the biggest hot mover today was the junior gold miners ETF (GDXJ), which rose a whopping 8.0% on the post-Fed pop in gold. Thursday’s Trading Calendar US Economics (Time Zone: EDT) 08:30 Chicago Fed Nat Activity Index (Aug): exp. 0.15, prior 0.27 08:30 Initial Jobless Claims (9/17): exp. 261k, prior 260k 08:30 Continuing Claims (9/10): exp. 2141k, prior 2143k 09:00 FHFA House Price Index MoM (Jul): exp. 0.30%, prior 0.20% 09:45 Bloomberg Economic Expectations (Sep): prior 44.5 09:45 Bloomberg Consumer Comfort (9/18): prior 42.2 10:00 Existing Home Sales (Aug): exp. 5.45m, prior 5.39m 10:00 Existing Home Sales MoM (Aug): exp. 1.10%, prior -3.20% 10:00 Leading Index (Aug): exp. 0.00%, prior 0.40% 10:30 EIA Natural Gas Storage Change (9/16): exp. 54, prior 62 10:30 EIA Working Natural Gas Implied Flow (9/16): exp. 54, prior 62 11:00 Kansas City Fed Manf. Activity (Sep): exp. -3, prior -4 13:00 Fed’s Lockhart Gives Introductory Remarks on Labor Market Global Economics 09:00 EUR ECB Pres. Draghi Speaks 13:00 GBP BOE Gov. Carney Speaks Earnings Before Open: Autozone (AZO) Rite Aid Corp (RAD) After Close: None of Significance
Continue Reading -->The Morning Hammer: Japan Gets Us All Warmed Up for the Fed
The Japanese Nikkei and Topix indices had a great night after the Bank of Japan made its monetary policy announcement. The Bank did not go deeper into negative rates as had been rumored, but will instead focus on controlling rates and steepening the yield curve. A steeper yield curve means bigger profits for financial institutions, so Japanese banks and insurers are ripping. The yen is also rallying against major currencies. The Bank said it will focus on buying ETF’s that track the Topix rather than the Nikkei, which some traders expected. Europe also woke up on the BoJ news, with a huge rally in financials. The positivity is extending to the US, with SPX futures in positive territory. Today could be a big day for us with the Fed rate decision (2:00 p.m.) and press conference (2:30 p.m.). You can read my thoughts on the Fed here. Markets appear to be braced for no rate change and a hawkish statement. The anarchist in me actually hopes Barclays and BNP Paribas are correct in predicting the Fed will raise rates today, just to shake things up a bit and give us some more of the volatility we saw last week. The permabear in me thinks there’s a good chance the Fed doesn’t hike and actually backs down its hawkish chatter a bit. But I’m not going to roll the dice. I’m going to sit tight and wait for the dust to settle before committing to a view. We have crude oil inventories at 10:30 a.m. ET. The American Petroleum reported a large -7.5 million drop in US inventories overnight. Keep in mind that oil sold off hard after the past 2 weekly inventory reports, even though both were very bullish. It looks like traders are selling the rips ahead of the big OPEC meeting in Algiers. JP Morgan increased its Apple (AAPL) iPhone production estimates based on channel checks. That’s helping Apple a little bit. Credit Suisse is out saying European bank are cheap based on dividend yields and relative valuation. Fed day is obviously an anything goes day — especially with the BoJ in the mix — but I’d keep watching the usual suspects like the Russell 2000 and biotech (IBB). Biotech has been a big upside outlier the past couple days on a very positive news flow (drug approvals, takeovers), and it’s hard to break this market when biotech is doing well.
Continue Reading -->5 Keys to Understanding Tomorrow’s Big Fed Day
1) The Hawk Setup Traders are now pricing in a 22% probability of a rate hike tomorrow and a 58% probability for December. For the past month-and-a-half, Fed heads including FOMC Chair Yellen have been spinning a hawkish tale, seemingly to get markets prepared for a rate hike. Now, I have to wonder: if the Fed’s selling rate hikes so hard, why isn’t the market really buying in yet? 2) Is It the Economy? Clearly, US economic data strength has been deteriorating since late July, as you can see in this chart of the Citi US Economic Surprise Index: We’ve seen misses on GDP, NFP, ISM Services, Personal Income, PCE Deflator, Retail Sales, PPI, etc., though last week’s CPI beat was a nice win. The Fed always makes clear that it doesn’t obsess over any one data point, but I wonder if the trend is weak enough to warrant attention. The alternate explanation for people not really buying into rate hikes just yet is probably because of the Fed’s history of misdirection. No one wants to get caught playing the sucker. 3) How Are Traders Feeling? Sentiment is mixed headed into tomorrow. The ISE Sentiment Index is at just 55 this morning — indicating heavy put options demand. CBOE equity put-call is at 1.25 — again, indicating heavy put demand. So it does appear that equity traders are hedging and/or betting on more downside. This is GREAT news for the bulls — the worst setup would be heavy call options demand ahead of an event with so many moving parts. Remember… 4) Rate Hikes Are Not the Sole Point The market reaction won’t solely be determined by the rate decision. What’s really important is signaling of how many rate hikes there will be, and over what time frame. Odds are the Fed will be somewhat vague, but I’m sure there will be some juicy nuggets scattered about — most likely in the form of language removals/additions. But the most important thing is this… 5) Don’t Make a Rush to Judgement Markets do bizarre things on Fed days. And the media is always in a rush to explain it all, which makes no sense because between 2:00 and 4:00 p.m. ET, you can see 3+ different major moves, at least 1 of them based on algos trading within milliseconds of the statement hitting the tape. The market will tell us what matters… but not until 3:30 p.m. at least.
Continue Reading -->The Morning Hammer: Ahead of the Fed, Markets Show Fear
Global markets are rallying this morning as commodities rebound and the dollar retraces ahead of Wednesday’s big FOMC rate policy announcement. Traders are pricing in a mere 20% probability of a hike this Wednesday, so traders will mostly be looking for clues to see if the Fed moves in December. Europe is up nicely despite continued weakess in Deutsche Bank (DB) which is facing liquidity concerns due to the DoJ’s demand for a $14 billion payment to settle an MBS dispute. In Asia, the overnight interbank yuan rate skyrocketed amid speculation that China’s central bank is intervening to boost its currency. Traders are also shaking off terror concerns in New York City. Over the weekend, explosive devices were set off in New York City and Seaside Park, NJ. Another devices was found in Elizabeth, NY. Venezuelan President Maduro said OPEC members are close to reaching an agreement on stabilizing the market. However, such an announcement is likely not forthcoming at the September meeting next week. OPEC’s Secretary General said September is a “meeting of consultation and not of decision-making.” SPX futures are modestly positive this morning, much to the chagrin of the bears. Sentiment is leaning modestly bearish right now. As always, the bears say everyone’s bullish and the bulls say everyone’s bearish, but the numbers (which too many people ignore) are all over the place. The 10-day moving average of the ISE Sentiment Index is 91, which points to modest bearishness. The CBOE equity put-call is 0.65, which is about in-line with the 6-month average. The AAII sentiment survey shows that 27.9% of investors are bullish vs. a long-term average of 38.5%. The only data that really shows traders being complacent is the Investors Intelligence Survey, which shows that 49% of newsletter writers are bullish. So even though markets are just -2.5% off the highs, traders very quickly rushed to price in some downside. Volatility has returned to the market after 2 months of nothing, though we could end up in a holding pattern until Wednesday, which is not only has the Fed, but a Bank of Japan rate decision. There has already been chatter that the BoJ will go even further into negative rate territory. I’d love to get some excitement ahead of then, but I’m not counting on it.
Continue Reading -->T3’s Take 3: Biotech, Fed Chatter Rescues Crying Bulls
1) Bulls Fight Back The S&P 500 fell -0.4% to 2119.12 in the early going, which had traders worrying that we’d see a repeat of Friday’s horrendous action. We also saw early weakness in overseas equities, crude oil, bonds, and gold. However, traders very quickly bought the dip, and the S&P finished up 1.5% at 2159.04. This was the first 1% up day in the S&P 500 since July 8. And since Friday was the first -1% down day since June 27, perhaps we are seeing a real return to volatility after 2 months of near-zero movement. 2) Biotech Saves the Day The first clue that the bull was ready to fight back was the early rebound in biotech (IBB), which was supported by 3 pieces of favorable news. First, Horizon Pharma (HZNP) announced it is buying Raptor Pharmaceutical (RPTP) for $800 million. Gilead (GILD) CEO John Milligan also said at an investment conference that the company planned on making regular acquisitions. And finally, Presidential candidate Hillary Clinton fell ill at a 9/11 Memorial Service in New York. Since she is viewed as anti-biotech, anything that hurts her chances of becoming President helps the sector. The Nasdaq Biotech Index (IBB) rose 3.0% to $287.11 today. 3) Fed Schmed This afternoon, Lael Brainard, a voting member of the Federal Open Market Market Committee, gave a highly-anticipated speech in Chicago. Brainard’s speech leaned dovish, making a case for leaving rates as-is. Considering that Brainard is considered to be one of more dovish members of the Fed, this was not a major surprise. However, her speech had a big impact on markets: the US dollar fell, while gold and stocks ripped higher. Traders are also now pricing in a mere 22% of a September rate hike, down from 32% a week ago. Throughout August, traders loved hawkish Fed chatter. It looks like that’s flipped around now. Tuesday’s Trading Calendar US Economics (Time Zone: EDT) 06:00 NFIB Small Business Optimism (Aug): exp. 94.8 , prior 94.6 14:00 Monthly Budget Statement (Aug): exp. -$107.0b , prior -$64.4b Global Economics 03:15 CHF PPI m/m 04:30 GBP CPI y/y 05:00 EUR ECB Pres. Draghi Speaks 05:00 EUR German ZEW Economic Sentiment 18:45 NZD Current Account Earnings Before Open: None of Significance After Close: None of Significance
Continue Reading -->Why the Fed Is a Total Mystery Right Now
As US economic data has generally slumped as of late, traders have pulled back on their rate hike expectations relative to last week. You can see the trend in this chart plotting implied Fed rate hike odds for each of the next 5 FOMC rate decisions: Traders are now pricing in a 48.8% chance of a December rate hike, down from about 60% last week. That means we’re right back to being split down the middle. Some traders were also thinking the September 21 meeting was “live.” Now it looks like that’s off the table, as a mere 20% probability is being priced in. Unfortunately, we may not get much clarity soon. This week’s US economic calendar is pretty much empty. The next big releases are the August retail sales report next Thursday 9/15 (plus industrial production that day), and August CPI on Friday 9/16. And there isn’t much else between those reports and the next FOMC rate decision on September 21. So what else do we have to look at? Well, we have Fed officials Rosengren, Kaplan, Lockhart, and Kashkari out chattering over the next week. But only Rosengren is a current voting member of the FOMC. And besides, it’s getting harder and harder to reconcile all the hawkish chatter with the concurrent decline in US economic data. Check out this chart of the Citi US Economic Surprise Index, which measures economic data relative to expectations. The trend turned down hard with the weak Q2 GDP report on July 29, and it’s looking pretty sorry.
Continue Reading -->T3’s Take 3: Did the Fed Go Too Far?
Join This Week’s Training Sessions! They’re FREE! STARTING NOW!: Day and Swing Trading Signals You Need to Know Thursday 9/8: How to Start Trading Forex Like a Pro ******** 1) Did the Fed Go Too Far? If you’ve been following financial markets in any serious way, than you know that Fed officials, including FOMC Chair Janet Yellen, have been out in force getting the market ready for rate hikes. I now wonder if they went too far. Today, we saw disappointing Labor Market Conditions, ISM Services, and IBD/Tipp Economic Optimism. These were just the latest in a string of disappointing US economic data. Here is a chart of the Citi US Economic Surprise Index, which measures the strength of economic data relative to market expectations: As you can see, the trend turned decisively down in late July, when a disappointing second-quarter GDP report was released. Now, traders are pricing in a 51% chance of a December rate hike, down from 60% on Friday. 2) Gold Screams! With traders losing faith in the Fed’s willingness to raise rates, precious metals put in a repeat performance of Friday’s post-NFP rip. Gold rose 2.0% to $1353.90/oz, while the gold miners ETF (GDX) rose 4.4% to $28.56. Meanwhile, the US dollar fell hard against the yen and euro, and my colleague Kurt Capra is making the case that the dollar weakness could continue. I’d also consider reading Jeff Cooper’s recent work on gold. 3) Stocks: More of the Same The S&P 500 hasn’t made a 1% move since July 8, and today was more of the same. We still see pockets of volatility in areas like precious metals, biotechnology, and energy, but the broader markets are still going nowhere. The S&P rose 0.2% to 2173.81, with the Nasdaq doing slightly better due to strong action in biotech. Perhaps we’ll see some movement on Thursday, which has both the European Central Bank rate decision and US crude oil inventories. But with volatility at 2-year lows, I’m not holding my breath! Wednesday’s Trading Calendar US Economics (Time Zone: EDT) 07:00 MBA Mortgage Applications (9/2): 2.80% 10:00 Fed’s Lacker and George Appear before House Financial Panel 10:00 JOLTS Job Openings (Jul): 5625 5624 12:00 DOE Short-Term Crude Outlook (Sep): 51.58 12:00 DOE Short-Term Mogas Outlook (Sep): 2.26 12:00 DOE Short-Term Diesel Outlook (Sep): 2.7 12:00 DOE Short-Term Ht Oil Outlook (Sep): 2.6 12:00 DOE Short-Term NatGas Outlook (Sep): 10.66 14:00 U.S. Federal Reserve Releases Beige Book Global Economics 03:00 CHF Foreign Currency Reserves 03:30 GBP Halifax HPI m/m 04:30 GBP Manufacturing Production m/m 09:15 GBP Inflation Report Hearings 10:00 CAD BOC Rate Statement 19:50 JPY Final GDP q/q 21:30 AUD Trade Balance Earnings Before Open: None of Significance After Close: FuelCell Energy (FCEL)
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