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The Morning Hammer: Round 2 for the Bears!
Friday was the first -1% down day in the SPX since June 27 — and it was an ugly one. The SPX and Nasdaq each fell -2.5% while the Russell 2000 dropped -3.1%. And the VIX spiked an incredible 40% to 17.56. Many traders blamed the initial weakness on hawkish comments from Boston Fed President Eric Rosengren, who is a voting member of the Federal Open Market Committee. That obviously impacted the lousy action in US Treasuries and gold, but didn’t seem to fully explain the broader downturn in the market. Crude was slumping and the ECB disappointed, but to me the real factor was time. Volatility is mean-reverting and after an extended period of failures, the bears were due for a victory. The news is the justification after the drop — not the cause of the drop itself. As my friend Jeff Cooper says, “the news breaks with the cycles.” We’re seeing some follow-through this morning. European and Asia markets are off. WTI crude is down -2.4% to $44.80, breaking its 50 day moving average. The yen is soaring. German bunds and US Treasuries are falling. Gold is getting hit. SPX futures are down -0.7%, which doesn’t exactly spell disaster, but it’s clear that traders are feeling very, very spooked about what’s to come this week. SPX sliced through the key 2147 level Friday, and it’s below the 20/50 day moving averages. The 200 day is below at 2057. The 2090-2120 range looks key short-term. I really wonder what happens at the open: I wonder if traders will dump in the hopes of avoiding a catastrophe. Full disclosure: I have a position in VIX calls and that makes chaos my friend. Traders seem to be worried about Democratic Presidential candidate Hillary Clinton’s pneumonia scare, which could presumably help Donald Trump’s chances. In fact, the Mexican peso, which has been tracking Donald Trump’s perceived odds of winning, is down on this news today! BofAML actually issued a note today saying the market is not paying sufficient attention to Trump, who has been moving up in battleground states. The market is largely assuming a Clinton victory (which partially explains the weakness in biotech). I believe Trump has a better chance of winning than most people assume, and I would not count him out until the votes are tallied.
Continue Reading -->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!
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