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The Morning Hammer: Is Today the Day for a Real Move?
Quantitative Analysis is the future of trading. Rob Smith will show you why. Click here for more info. World markers are a little shaky following yesterday’s late-day selloff in the S&P 500, and hawkish comments from Fed officials. However, Japan is up after the yen took a little break, which is helping shares of exporters. UK jobless claims were better-than-expected in July, while Singapore’s exports dropped on weak orders from China, Indonesia, and the US. Crude oil is down this morning after the American Petroleum Institute reported a 1 million barrel drop in US crude inventories. This was a bigger reduction than expected, but gasoline supplies were up 2.2 million barrels, raising concerns about a glut. The EIA reports its inventory numbers at 10:30 a.m. ET so keep an eye out. Target (TGT) cut its annual guidance due to weak sales, and Lowe’s (LOW) reported a miss. This is disappointing as we’re coming off a couple days of positive retail stock news. On the deal front, Bloomberg is reporting that United Bankshares (UBSI) is in talks to acquire Cardinal Financial (CNFL). SPX and NDX futures are as flat as an ironing board, so the holding pattern continues in the early going. However, yesterday I reiterated my view that the VIX indeed hit a bottom last week, and today we could see vol continue to pick up. Aside from the important crude oil inventories at 10:30 a.m., we’ve got FOMC minutes hitting the tape at 2:00 p.m. Right now, traders are pricing in a 51% probability of a December rate hike, which means the market is split right down the middle. So there’s a chance that at least half the market comes away disappointed, which could be a catalyst for movement. The regional banks (KRE) could be especially big movers, and of course, the dollar and gold will be in play. Yesterday, NY Fed President Dudley (voting member) said a rate hike could come next month, so some folks are thinking that’s on the table. But the big problem with trying to game the Fed is that you not only have to predict the timing of policy actions, but the wording of commentary. Markets can make huge moves on the inclusion or exclusion of a few words, so you can drive yourself batty trying to make sense of it all, ESPECIALLY since the Fed always has the back door of “data dependency.”
Continue Reading -->The Morning Hammer: Famous Last Words?
Want to Start Earning Bigger, More Consistent Profits? Dave Green can show you how! Crude oil poked its head above $45 in early trading, which is giving emerging markets a pop today. China is ripping on a report saying that an exchange link between Shenzen and Hong Kong will be announced shortly, as well as takeover speculation among property developers. The DAX is up 0.4%, putting it in the green on the year for the first time. European bonds are mostly flat. SPX futures are slightly green and showing very little volatility in early action, which means today could be our 26th straight day without a 1% move in the index. And unfortunately, the economic calendar is pretty light, with the Empire Manufacturing and NAHB Housing reports coming out. Neither is likely to make a big dent in the action. However, we may finally get some action with tomorrow’s heavy calendar (CPI, industrial production, housing starts, building permits), and Wednesday’s FOMC Meeting Minutes and crude oil inventories combo. On the deal front, Mid-America Apartment Communities (MAA) is buying Post Properties (PPS) for $3.9 billion to form a REIT giant. The CBOE equity put call ratio went out at 0.55, which is right around yearly lows. The ISE Sentiment Index hit 136 Friday (136 calls for every 100 puts). This implies some near-term complacency, but we’ve had near-term complacency for quite a while now and it hasn’t mattered. It still feels like folks are waiting for “something” to happen — a news event or a good-old fashioned breakdown/breakout — to bring some life back into the market. It feels like it’s in the wings, but since so many people are thinking it, maybe we don’t get it soon. But seriously, 25 days without a 1% move? That can’t last forever. Famous last words?
Continue Reading -->The Morning Hammer: Another Day, Another Record, Another Yawn
Yesterday, the S&P, Dow, and Nasdaq all made new record highs as the most boring bull market ever just kept on chugging. The S&P has now gone 24 days without a 1% move. Bulls obviously won’t argue with the results. Bears are sweating like crazy because they’re playing the “what goes up must come down” game. But sometimes, what goes up stays up much longer than seems reasonable. It’s been an especially bad month for traders buying puts, because there’s nothing worse than a slow grind up with declining volatility — you just get eaten alive a penny at a time. Getting wiped out in a spike high is actually better because at least you know it’s over and you can move on. That said, I am long VIX calls, which means I’m speculating on a significant volatility spike. I may have gotten into this trade a little early, but I still believe the odds are on my side. Overnight, Euro-area GDP came in as expected, though Italy’s was weak. The UK also reported weaker-than-expected construction spending in June. So while economic data around the Brexit was actually generally decent relative to expectations, it’s now falling off a little bit. This lends some credence to the Bank of England’s massive reduction in its GDP forecasts. And China’s factory output, retail sales, and fixed-asset investment all missed expectations. Today, SPX futures are flat as an ironing board, and there’s not much movement elsewhere. The dollar’s flat, commodities aren’t doing anything dramatic, and European stocks and bonds are roughly flat. There’s some movement in Europe, but overall, the world is falling asleep. Sentiment is still somewhat bullish, as judging by the steep VIX curve, Investors Intelligence Survey, and CBOE equity put-call. Permabears are saying everyone’s complacent, but I wouldn’t go that far. I’d say we’re at about a 7/10 in terms of crowd bullishness. (with 10 out of 10 being psychotically bullish) On today’s calendar, we’ve got retail sales, PPI, U. of Michigan Sentiment, and the Baker Hughes Rig Count. Maybe retail sales can shake things up a little bit. JC Penney (JCP) just reported a small sales miss, which is a little disappointing after the beats from Macy’s (MC) and Kohl’s (KSS) yesterday. I’d watch the usual suspects today — oil, biotech, small caps, and high-yield. These are the key attack areas for the bears if they’re ready to rock. Good luck friends.
Continue Reading -->The Morning Hammer: Let’s Talk About the Royal Institution of Chartered Surveyors
Attention! This afternoon, T3 Live’s Dave Green is hosting a FREE trading webinar. Click here to learn how Dave crushes the market! We’re looking at another potential snooze-fest with US stock futures showing fractional gains. Gold, oil, and US Treasuries are basically flat. Alibaba (BABA) is up nicely on a solid earnings beat and acceleration in growth, while Shake Shack (SHAK) is getting smacked up on a revenue miss. Europe is up at a 7-week high on solid earnings from European financials. The Stoxx Europe 600 Index is now inches away from erasing all its post-Brexit losses. That’s just another example of why you should always think twice about buying into stories of ultimate doom & gloom. There are meteors flying around all across the universe, but very few will ever actually hit the Earth. However, the Royal Institution of Chartered Surveyors said the Brexit is hurting the UK housing market, which is keeping a lid on the FTSE 100. And yes, that’s how boring today is — I’m talking about the Royal Institution of Chartered Surveyors. So it’s back to the waiting game. We’ve gone 23 days without a 1% move in the S&P 500. Typically, the S&P moves 1% on about 1 of every 3 days, so during normal times, we’d have seen 7 1% moves during this time span. But what can you do? This aint normal times. It’s August, sentiment is mostly positive, and the indices need to digest big post-Brexit gains. I’m long VIX calls so I obviously have a vested interest in a big market shakeup, but I’d also like a reason to pay attention to the market! Now, one reason we may get a big move soon is the street is short volatility in a big way. The short VIX futures trade is huge right now, and as we know, when everyone leans the same way, Mr. Market likes to pull the rug out. The only question is the only question that matters in financial markets: when? I’m sitting tight… not that I have a choice. Click here to check out Dave Green’s webinar this Thursday!
Continue Reading -->The Morning Hammer: Another Day, Another Yawn
On Thursday, my buddy Dave Green is hosting a FREE trading webinar. Click here to check it out! Yesterday after the close, the American Petroleum Institute reported a 2.1 million barrel increase in crude oil inventories, which is pushing oil prices down a bit overnight. We have EIA inventories coming at 10:30 a.m. ET, with economists expecting a -1.5% million barrel drop. They also expect drops in Cushing, OK inventories and gasoline inventories. We also have JOLTS Job Openings at 10:00 a.m. The People’s Bank of China said it will promote greater international use of the yuan, though the bank didn’t promote much detail. The dollar is down as traders believe the Fed will be less hawkish… ALLEGEDLY. That’s the picture some outlets are painting, though I’m not buying it. Fed Funds futures are now pricing in a 45% chance of a December rate hike, down from 47% last week. That’s not much considering this number was 9% on June 27, just after the Brexit. The reality is that Fed expectations can turn on a dime. A few more hot economic data points and hawkish Fed head chatter, and it could go above 60-70%. And of course, it could go to 30% just as easily. Crude oil has climbed off overnight lows and that’s pushed SPX futures into the green. So we’re back in the waiting game as the August doldrums continue. Yesterday morning, I went long VIX calls, which means I’m effectively short the market in the near-term. (I also have long-term equity/HY exposure through AAPL, BGR, KYN, PHK, VIG, and UTF, none of which I would buy now, except for closed-end fund dividend reinvestments) But for now, it looks like Mr. Market is quite happy to stay in this go-nowhere range. Crude oil was saved from breaking $42, though the 10:30 a.m. inventory numbers could change that. Also keep your eyes on the other usual suspects — the Russell 2000, biotech (IBB), and high-yield (HYG). The bulls have done a great job of defending these key areas, so see if they can keep it it up.
Continue Reading -->The Morning Hammer: Weak Oil Means Nothing to This Bull
I’ve been out since last Thursday to get my eyeballs upgraded but not much has changed. When I’m not working, I make a point of not looking at the market or reading anything related to it. But I didn’t miss a thing. Crude oil is still deteriorating, yet SPX cracked yet another all-time high. The index has been consolidating in a remarkably tight range between 2160ish and 2180ish. I’ve been predicting that the market would head into a snoozefest like the one in April-May, and we’ve been getting it thus far. Futures are down slightly on weak earnings from Germany’s Commerzbank and a smaller-than-expected spending package from Japan which is sending the yen up. As you probably know, a strong yen means risk-off, though US markets have been yawning at everything including the kitchen sink. Sentiment is cooling off just a smidge. The ISE Sentimenmt Index fell to 72 yesterday and hasn’t been over 100 since July 18. That means call option demand is waning a bit, a good sign for the bulls because it means we’re still digesting and doubt is building. Pfizer (PFE) beat analysts’ expectations but is trading off slightly. We’re also seeing good numbers out of CVS (CVS), Procter & Gamble (PG), and Shire Plc. Watch closely to see how the pharma/biotech complex reacts. We’ve got some big economic data points on tap today, with Personal Income/Spending and the PCE Deflator (the Fed’s preferred inflation measure) on the way. As of late, US economic data has been generally strong relative to expectations, though Friday’s GDP report was lousy. Check out the chart below of the Citi US Economic Surprise Index: I added the UK index just for the fun of it so you can see that the Brexit impact hasn’t been that bad so far: Now, what’s interesting is that the weak GDP numbers turned traders a little more dovish. Fed Funds futures now imply a 36% probability of a December rate hike, down from 48% last week. Strong economic data this morning could flip it back. As I’ve been emphasizing, perceptions of the Fed’s forward path are EXTREMELY volatile. Remember, after the Brexit, traders priced in a 9% chance of a December rate hike. And in less than a month, that number was up to 50%. So if you’re trading bonds, golds, forex, or anything else that’s rate-sensitive, you may be in for quite a ride. Good luck friends.
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.
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