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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 -->What’s Happening: It’s the Final Countdown to the Fed Mystery
We’re one day away from a very big Wednesday featuring FOMC and Bank of Japan rate decisions. Right now it looks like the BoJ is a bigger deal, since most traders think a Fed rate hikes is off the table tomorrow. Fed Funds futures imply a mere 20% probability of a rate hike. Bloomberg ran an interesting story this morning about how Barclays and BNP Paribas think the Fed moves tomorrow: Two of the Fed’s 23 preferred bond-trading partners — Barclays Plc and BNP Paribas SA — are betting against their peers and the bond market by forecasting officials will raise rates Wednesday. It’s the first time more than one dealer has gone against the consensus during the week of a policy meeting since last September, data compiled by Bloomberg show. Economists at both banks say traders have too steeply discounted officials’ intent to hike after the Fed has remained on hold for longer than expected. It’s a tricky situation to say the least. Remember, the rate decision itself is not everything. The signaling for the future pace of hikes is just as important. There is a very real possibility that the Fed hikes but signals an extremely slow pace of future hikes. But no one really knows, so be very careful when placing your bets. SPX futures are up fractionally this morning despite a -1.1% drop in oil. Yesterday, we saw large-cap tech leaders sell off into the close, pushing the index to finish roughly flat, though we saw nice outperformance in small caps and biotech. It still feels like traders are happy to stay in a holding pattern until the BoJ and FOMC news hits tomorrow, so it’s going ot be hard to make much sense of the action. In the energy patch, Brazilian giant Petrobas (PBR) cut its 5-year investment plan by 25% to $74.1 billion. Wells Fargo (WFC) caught an upgrade from Morgan Stanley — maybe I should have jumped on it, but I’ll reassess post-Fed. Tessera (TSRA) is buying DTS (DTSI) for $850 million. Bloomber is reporting that Bayer may drop the Monsanto (MON) name if their merger ever gets done — seems like a smart idea. The economic calendar’s pretty light — just housing starts and building permits. But don’t worry — we SHOULD get some excitement tomorrow… though it’s easy to forget that SHOULD is the most dangerous word in financial markets. Good luck out there!
Continue Reading -->The Morning Hammer: The Comeback
Crude oil is up fractionally this morning despite a smaller-than-expected drop in crude oil inventories, as reported by the API yesterday after the close. EIA inventory numbers are due at 10:30 a.m. ET. Bloomberg is also reporting that China is boosting crude oil imports due to declining domestic output. It looks like oil traders are cautious heading into the OPEC meeting. It’s clear that chatter about production freezes/cuts has helped oil climb off the lows, but we are seeing lots of conflicting headlines about OPEC’s strategies and there’s no telling what’s going to actually happen. SPX futures are in positively territory after the second big decline in the past three days. The bears definitely drew some blood, and It definitely feels like volatility is back after 51 trading days without a -1% down day. Sentiment is mixed but leaning negative. The CBOE equity put-call ratio was 0.75 yesterday, which isn’t overly bearish. The ISE Sentiment Index was 60 though (60 calls for every 100 puts), which is a sign of tension. The 10 day moving average has moved down to 82.6 which is a sign of growing bearishness. Apple (AAPL) is up this morning on chatter that iPhone 7 chip orders are higher than expected. This is no surprise given that T-Mobile (TMUS) and Sprint (S) both reported strong iPhone 7 pre-orders yesterday. The WSJ issued a negative article on Tesla (TSLA), saying the Model 3 will be hurt by competition from the Chevy Bolt. And yesterday, noted hedge fund manager and short seller called Tesla/Solar City (SCTY) a “walking insolvency.” But yesteday, Schaeffer’s Research reported that Tesla’s 10-day put/call ratio is at an annual, implying that a lot of traders are betting hard against Tesla. That kind of negativity can actually form a cushion because it implies that negativity is priced in. As was rumored yesterday, Bayer agreed to buy Monsanto (MON) for $128/share in cash, up slightly from the last offer of $127.50. Overnight, UK unemployment remained at an 11-year low in July. France’s CPI was in-line with expectations. Thailand left rates unchanged, as expecteed. China’s aggregate financing was 1.47 trillion yuan in August, blowing away the 949 billion consensus. I’d continue to keep it simple. Watch oil, biotech (IBB), and the Russell 2000 for clues. That’s the stuff the bears can use to generate a real scare, so see if they build higher. Good luck out there.
Continue Reading -->The Morning Hammer: Panic Is NOT Here
Throughout August, the market loved hawkish comments from Fed members. But by last Friday, traders had enough. The sold the market hard on Rosengren’s hawkish commentary. And of course on Monday, they bought the market hard on Brainard’s dovish vibes. Not that this is anything new, but the market truly is bizarro-land. Now, traders are pretty much taking a September rate hike off the table. Fed funds futures indicate a 22% implied probability of a September rate increase (down from 30%), while December is basically unchanged at 57%. Crude oil is down this morning after the IEA said oversupply will persist well into 2017. Remember that we have US crude inventory data coming from the API today after the close and from the EIA tomorrow morning. SPX futures are down -0.7% in the early going, which means volatility may really be back. Friday was the first 1% SPX down day since June 27, and Monday was the first 1% up day since July 8. And compared to the July-August snoozefest, a -0.7% move qualifies as real action! Bonds are firming up a little bit, with 10YR bund yields inching back down towards the zero mark. Treasuries are also up a tad. Gold is up as dovish vibes come back, though the volatile gold miners (GDX) are red pre-market. If gold stays strong in the early going, maybe those miners snap back up. Now the real fight begins. The bears failed at every turn for 2 months, but they’re starting to take the lead. And sentiment is still somewhat mixed, which for the bears is good because it implies the market is not braced for serious downside. The CBOE Equity put-call is 1.03, which is bearish but not extremely so. The 3-month VIX spread is +1.98, which is neutral. And the 10-day moving average of the ISE Sentiment Index is 87.4, which is modestly bearish. (87.4 calls for every 100 puts) So traders are spooked, but not freaked out. On a scale of 1-10, with 1 being max bearish and 10 being max bullish, I’d say we’re at a 3. Panic is not here… yet.
Continue Reading -->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 -->The Morning Hammer: Let’s Go Super Mario!
Crude oil is up 1.7% this morning after the American Petroleum Institute reported a massive 12 million barrel drop in crude stocks. I’d have thought oil would be up even more on that massive numbers, but there are likely 2 factors at play: 1) The E.I.A. numbers hit at 10:30 a.m. ET, and traders may want confirmation. (consensus here is +905K, but the huge API drop would imply that traders expect the E.I.A. numbers to also show a drop. 2) The question of whether OPEC will freeze or cut output at the big meeting in Algiers is a mystery. Iran said it’s too early to discuss a freeze, while Iraq said it coudl support one. Good luck sorting out the confusing and contradictory news flow, which is very reminiscent of what we saw in the lead-up to the June OPEC meeting, which ended with no change in policy. So let’s lump OPEC in with the Fed — there is just no telling what’s next! SPX futures are flat as an ironing board, which is no surprise given that we haven’t had a 1% move in the index since July 8. Traders are complacent… or they’re falling asleep. So far, it looks like we have 1 chance for excitement today — Mario Draghi’s press conference at 8:30 a.m. ET this morning. The ECB rate decision hits at 7:45 a.m. ET, and odds are nothing changes there. Twitter (TWTR) is off a little after CNBC reported that there are “no bids on the table.” Twitter is starting to remind me of the old Research In Motion (RIMM) (now known as BBRY) — I can’t go 10 minutes without hearing a made-up takeover rumors. Supermarket chain Supervalue (SVU) lowered guidance due to competition and deflation — exactly what we heard from Sprouts Farmers Market (SFM) yesterday. Wells Fargo (WFC) downgraded Apple (AAPL) following yesterday’s product launch event, saying the positives are priced in and shares are likely to remain range-bound. Apple is quickly recovering pre-market losses though and is nearly back to flat. Citi is recommending overweighting Russian stocks, saying dividends may increase — though Russia just seems like part of the oil trade. Yesterday afternoon, Reuters reported that GW Pharma (GWPH) hired advisers after being approached by potential buyers. Cantor is out saying it could be worth $165/share. It’s off a few bucks in premarket trading. The GWPH chatter pushed biotech up hard into the close yesterday — I wonder if there’s any follow-through today. Good luck out there!
Continue Reading -->The Morning Hammer: Maybe the Fed Went Too Far
One key trend we’ve been pointing out here again and again has been the degrading trend in US economic data, culminating in yesterday’s trio of misses. Now all of a sudden, the market’s thinking that maybe the Fed went too far in pushing its rate hike case because we’ve seen such lousy data as of late. Traders are now pricing in a 52% chance of a December rate hike, down from 60% last week. September odds are down to 24% from 34% last week. Gold has been on a rampage while the dollar’s taking heat. Equities of course, are still going nowhere. SPX volatility is at a near 2-year low. We haven’t had a 1% SPX move since July 8, and we haven’t had a 1% down down day since June 27. I’m long VIX calls, so I have good reason to be bitter. But I’m also just plain bored out of my mind. Individual stocks are moving around nicely, but I’d love to see a little excitement in the broader indices. Chipotle (CMG) is up this morning on news that Bill Ackman’s Pershing Square took a 9.9% position. Ackman’s going after the board to shake things up. Grovery chain Sprouts Farmers Market (SFM) cut its earnings outlook on competitive pressures and ongoings deflation. Whole Foods (WFM) is down in sympathy with it, The economic calendar is pretty light with no market-moving reports, so it looks like we’ll be in a holding pattern today ahead of tomorrow morning’s ECB rate decision. Good luck… staying awake, that is.
Continue Reading -->Morning Hammer: 40 Days and 40 Nights
Join This Week’s Training Sessions! They’re FREE! Tuesday 9/6: Day and Swing Trading Signals You Need to Know Thursday 9/8: How to Start Trading Forex Like a Pro ********* Labor Day was not a cure for the summer snoozefest. SPX futures are flat as an ironing board as we come off 40 trading days without a 1% move in the S&P 500. And it’s been 48 days since the last 1% down day, which happened on June 27 after the Brexit. Overnight, German factory orders missed, while Swiss GDP and euro-area exports strengthened. Australia’s central bank held steady on interest rates as expected. Europe is slightly green, though it may remain in a holding pattern until the ECB rate decision on Thursday. Crude oil popped yesterday on news that Saudi Arabia would make a “significant” statement on the oil market. However, they did not announce any changes to output. Iran said it will support efforts to stabilize markets, but will not necessarily participate in a coordinated production freeze. Saudi Arabia’s energy minister also said there is no need to freeze output just yet. Gold is extending Friday’s gains on the slightly weaker-than-expected NFP report. Market perception of Fed rate hikes haven’t changed as much — this looks more like a relief rally after a hard decline. Traders are pricing in a 59% chance of a December rate hike, which isn’t much of a chance from Friday’s 60%-ish levels. In deal news, pipeline/storage giant Enbride (ENB) is buying Spectra Energy (SE) in a $28 billion transaction, creating the largest MLP in North America. On today’s economic calendar, we have the Labor Market Conditions Index and ISM Services numbers on tap. The Fed’s Williams (non-voter) will be speaking at 9:15 p.m. ET. Things don’t really pick up until next week, when we have retail sales and CPI. One trend worth watching is the degradation of US economic data starting with the weak GDP report in late July. Check out this chart of the Citi US Economic Surprise Index, which measures economic data strength relative to market expectations: It’s clearly sliding lower. The Fed always calls itself “data dependent,” which gives them a convenient back door. If the data continues to slip, maybe folks will start pricing in a smaller chance of a rate hike, or at least become convinced that the Fed is one and done. P.S. Check out our FREE webinars and learn from our top traders!
Continue Reading -->The Morning Hammer: Happy Jobs Day!
It’s been about a decade since the market’s made a real move, but maybe we’ll get some excitement with this morning’s August NFP report, which hits the wires at 8:30 a.m. ET. Traders are looking for 180K on the headline number with a 4.8% unemployment rate and 0.2% month-over-month growth in average hourly earnings. With the way the dollar’s been acting, it seems like the market is expecting a beat, which would help clear the way for the Fed to raise rates. The Fed heads have been out in force as of late preparing the market for coming rate hikes, but the market itself may need a little more convincing. Fed funds futures are currently pricing in a 60% chance of a December rate hike. That’s up from just 9% post-Brexit, but still — it doesn’t exactly scream total certainty. So maybe if we get big numbers today (headline number above 220K and 0.3% growth average hourly earnings), those odds push higher. On the flip side, if we get an in-line report or a miss, I’d expect the gold bugs to have a big party while equities pull back. I’d especially watch for a selloff in regional banks (KRE). But no one really knows. SPX futures are doing nothing this morning, which should come as no surprise since they’ve been doing nothing for 2 months. As I’ve said about 10 million times, the SPX hasn’t had a 1% down day since June 27. But with jobs numbers hitting, I guess today’s as good a day as any to break this miserable streak. Crude oil is up this morning, giving us a break from the downtrend. Russian President Vladimir Putin said he’s like OPEC and Russia to reach a deal to freeze supply. Nigerian exports also fell in August. So for now, it’s steady as she goes, though I’m hoping that changes when the big jobs report hits.
Continue Reading -->The Morning Hammer: More of the Same Yawns…
Crude oil is dipping below $46 on the American Petroleum Institute’s inventory report, which said US crude stocks rose 942K barrels last week. Remember, we get EIA data today at 10:30 a.m. ET. Traders are looking for a 1300K build. It should be interesting. Two weeks ago, we saw a massive beat, but last week was a huge miss. We’ve also got the ADP Employment Change, Chicago PMI, and Pending Home Sales on the calendar, but folks are really waiting for Friday’s big jobs report. SPX futures are flat, which shouldn’t be a surprise to anyone given the past 2 months of basically no volatility. The dollar is up as the hawk trade is still raging, though gold is down only fractionally. The miners got destroyed yesterday and I’m curious to see if there are any dip buyers there. In deal news, cloud software name Interactive Intelligence (ININ) is being acquired by Genesys for $60.50 a share, or $1.4 billion. ININ had been rumored to be exploring a sale. Overnight, European markets are mostly positive. EU inflation beat expectations in August, which extends the streak of better-than-expected post-Brexit economic data. German and Italian unemployment, and UK house prices were also solid. Irish airline Ryanair warned that it may reduce earnings guidance if ticket prices continue to drop. Looking out today, crude oil is obviously important, but I’m closely watching biotech. The major indices are holding up well, but IBB has been deteriorating over the past week or so, implying profit taking. I’d also watch the hot new issues like Acacia (ACIA), Twilio (TWLO), and Line Corp (LN). They’re all over the place as a group, but if they start declining in concert, that could be a sign of trouble. But for now, the bull is holding things together pretty well. Maybe Friday’s jobs report will be a catalyst for volatility, but that feels like wishful thinking after a horribly boring August.
Continue Reading -->