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The Morning Hammer: Time for a Break?
Global equities are down for the first time in 5 days as profit-taking sets in. We’ve had a nice central bank-driven surge over the past 2 days and markets are taking a break. Crude oil is red but off morning lows after Bloomberg reported that Saudi Arabia may have offered to cut production if Iran agreed to freeze output. This seemingly increases the probability of some type of coordinated output freeze/cut at next week’s OPEC meeting in Algiers. However, keep in mind that the OPEC news flow has been all over the place. I wouldn’t be surprised to see headlines this afternoon saying there’s no chance of a deal. I’m long oil, so this chatter is good for my portfolio, but the back and forth is getting exhausting. Today’s economic calendar is pretty light, with thee Markit US Manufacturing PMI at 9:45 a.m. and the Baker Hughes Rig Count at 1:00 p.m. We’ll also have Fed heads speaking today. Harker, Mester, and Lockhart will appear together on a panel at the Philly Fed conference at 12:00 p.m., while Kaplan will speak in Houston at 12:30 p.m. Overnight, the euro-area IHS Markit PMI fell in September due to weakness in Germany. Facebook (FB) is taking a hit this morning after it announced it over-inflated video views. Facebook insists that the issue did not impact billing to advertisers, but it certainly raises questions about platform engagement. Yahoo (YHOO) is also off on continued fallout from its security breach. Sentiment is still pretty mixed, so it’s hard to get a gauge of just how overheated (or is it underheated?) the market is. Thus far, the bears have been failing at every turn, so let’s see if they can change that today. I’d still key on biotech (IBB). It’s hard to break the market when biotech’s strong, so that’s a primary area of interest right now. IBB broke above $300 yesterday for the first time since January on a solid string of good news including mergers (both real and imagined) and positive drug data. Good luck out there.
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 -->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 -->T3’s Take 3: Stocks Hit the Snooze Button Ahead of a Very Big Wednesday
Prop Trading May Not Be Right For You… But it has incredible financial benefits for many traders. Click here to learn more… 1) Holding Pattern Ahead of a Very Big Wednesday Last week, we saw a rebound in volatility as traders put the summer snoozefest behind them. But stocks quieted back down today ahead of Wednesday’s big Federal Reserve and Bank of Japan meetings. The S&P 500 was flat 2139.12. The Nasdaq underperformed due to weakness in select large-cap tech names like Apple (AAPL) and Amazon.com (AMZN). The Russell 2000 was an outlier to the upside with a 0.6% gain, and we also saw nice gains in utilities, real estates, financials, and transports. US Treasuries, retailers, and pharmaceutical names led the decliners’ column. 2) Watch the SPX 2147-2148 Pivot This morning, T3’s Jeff Cooper highlighted key levels to watch going forward: 2147/2148 is a key level on the SPX. A) It was the August low of the long summer Slim Jim. Consequently it is the Monthly Swing Pivot—where the monthlies tuned down In September on trade below the August low. B) It ties to a 50% retrace from the 2193 all-time high to the 9/12 2118 low. Interestingly, on the Square of 9 Time & Price Calculator, 2148 also points to/aligns with September 21 and the important Gann Autumnal Equinox. Of course, this is also the date of the big Fed announcement on interest rates. You can’t make this stuff up! 3) Be Very, Very Careful Shorting Biotech This morning, Sarepta Therapeutics (SRPT) received FDA approval for Eteplirsen, a treatment for Duchenne muscular dystrophy. The stock hit a circuit breaker, reopened, and skyrocketed to finish up 74% on the day. Eteplirsen is considered to be a controversial drug, so many traders – especially shorts – were shocked by the news. Over 33% of the float was sold short, which means some folks were put out of business. So please folks, be very, very careful shorting biotech. P.S. Don’t forget to sign up for our next prop trading event! Tuesday’s Trading Calendar US Economics (Time Zone: EDT) 08:30 Housing Starts (Aug): exp. 1190k, prior 1211k 08:30 Housing Starts MoM (Aug): exp. -1.70%, prior 2.10% 08:30 Building Permits (Aug): exp. 1165k, prior 1152k 08:30 Building Permits MoM (Aug): exp. 1.80%, prior -0.10% Global Economics 12:50 CAD BOC Gov Poloz Speaks Tentative JPY Monetary Policy Statement Earnings Before Open: Carnival Corp (CCL) Lennar Corp (LEN) After Close: Adobe Systems (ADBE) Copart (CPRT) FedEx Corp (FDX) KB Home (KBH)
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: Stocks Get Stuck in First Gear
Learn Dave Green’s Trading Secrets Click here to start speculating the SMART way… 1) Stuck in First Gear Stocks were stuck in first gear today following a downturn in Europe overnight. European banks fell hard after Deutsche Bank (DB) said the Department of Justice is seeking $14 billion to settle a legal case related to mortgage-backed securities. Bloomberg Intelligence had estimated the settlement would be in the range of $4 – $8 billion. The S&P 500 fell as low as 2131.20, but recovered some of its losses into the close and finished at 2139.09, down -0.4%. The Nasdaq outperformed due to strength in large-cap biotech names, notably Celgene (CELG), which reported positive study data. Crude oil declined again, sending energy shares down, with notable weakness in oil service. This morning, Intel (INTC) raised its third-quarter revenue and gross margin guidance on rebounding demand for PC’s. Intel shares rose 3.0%, but failed to significantly lift the broader semiconductor universe. 2) CPI Surprise! US economic data has been deteriorating since the July 29 Q2 GDP report, which had some traders losing faith in the Fed’s ability to hike rates this year. But the hawks got a small boost today with the better-than-expected August Consumer Price Index report, the last major economic data release before Tuesday’s Federal Reserve rate decision. The CPI rose 1.1% year-over-year, beating the 1.0% consensus, while the core CPI, which excludes volatile food and energy prices, rose 2.3%. The report had traders upping their rate hike bets, and Fed funds futures now imply a 55% chance of a December rate hike, up from 50% earlier today. 3) Traders Sell the Apple News Apple’s (AAPL) iPhone 7 went on sale today after a week of positive news, though they were not easy to find. In fact, demand is so strong that some iPhone models will not be delivered until November. Earlier this week, T-Mobile (TMUS) and Sprint (S) both said that iPhone pre-orders grew substantially from last year. iPhone 7 reviews have been very positive, and meanwhile, the Samsung Galaxy Note 7 – a key iPhone 7 competitor — has been recalled due to exploding batteries. That certainly tipped the iPhone vs. Galaxy debate in Apple’s favor. However, Apple shares saw a “sell the news” reaction to the actual release today as traders locked in profits after 4 days of strong gains. Monday’s Trading Calendar US Economics (Time Zone: EDT) 10:00 NAHB Housing Market Index (Sep): exp. 60 , prior 60 Global Economics 21:30 AUD Monetary Policy Meeting Minutes Earnings Before Open: None of Significance After Close: None of Significance
Continue Reading -->The Morning Hammer: Is Today a Big Day?
I thought yesterday would be a big down day for the market with yet another string of economic data misses, and I was wrong. Equities were pretty strong yesterday, with nice action in biotech and large cap tech. This morning is another story. Deutsche Bank (DB) said the US Department of Justice is seeking $14 billion to settle its MBS probe. DB is not willing to pay that much and the stock is taking a bit hit. That’s helping push European banks down -2.4% in the early going, while the broader Euro Stoxx 50 is off -1.4%. In analyst-land, Nicholas Smith of CLSA said he is “absolutely certain” that the Bank of Japan will stop buying Nikkei 225-based ETFs to boost equities. However, said the bank will not stop buying — they will simply shift their purchases to the Topix and JPX-400. SPX futures are taking a -0.4% dip this morning, following Europe down. Apple (AAPL) is up premarket as iPhone 7 goes on sale. Canaccord also raised its target price to $140 from $120. However, the big news today is the CPI report which hits at 8:30 a.m. ET. The market is split right down the middle on rate hikes. Fed funds futures imply a 50% chance of a December rate hike, down from 60% last week. Economic data has been slipping hard since the July 29 GDP report, and it seems like traders just started paying attention to this important trend. This CPI report will be the last major economic data release before the September 21 rate decision, so there’s a chance we end the week with a bang. The only problem is we can’t figure out what kind of bang. Yesterday, we got a huge batch of dove-supporting bad data and gold and US Treasuries still fell. And equities seem to be reacting randomly to Fed chatter and data too. So even if you gave me the numbers now, it still wouldn’t be easy to trade this CPI report. Near-term, I’d keep a very close eye on Apple (AAPL) and biotech because they’ve been holding up the market. Apple’s got a chance of a sell-the-news reaction today as we see 10 million news reports about iPhone sellouts. Biotech’s still a wild card because the whole sector is moving on takeover chatter surrounding individual companies. Today is also quad-witching options expiration, so get ready to hear everyone’s cockamamie theories on what it means for the action. (I think it’s completely random) I’d also keep an eye on oil. Good luck out there!
Continue Reading -->Wells Fargo May Be Buyable Soon… and 4 Other Thoughts on Today’s Market
1) Wells Fargo’s Trip Wells Fargo (WFC) is coming under a ton of heat for its fake credit card account scandal, and it looks like it’s about to form a triple bottom with its February and June Brexit lows. I’m putting it on my long radar. I’m sure the company will pay a penalty, beef up employee oversight, and get a stern talking to from the powers that be. The optics are awful, but this scandal will eventually pass. If British Petroleum (BP) came back from its oil spill, Wells Fargo can recover from this. 2) Buy the Bad News? Today’s economic data was mostly lousy, yet the hawk trade — dollar up, banks up, gold down — is still going. So it looks like traders just weren’t surprised because the data has been so lousy lately. Fed funds futures barely budged. They’re pricing in a 50% chance of a December rate hike, essentially unchanged today. Or maybe folks just want to see CPI tomorrow before pressing dovish bets. 3) The Apple Market As I write this, the DJIA is up 58 points. Apple (AAPL) accounts for 23 of those points. I thought the stock was peaking near-term yesterday, but it’s above $115 for the first time since December 2014. 4) Donald’s Health Donald Trump released lab test results for the first time today, showing normal cholesterol, blood pressure, liver function, and thyroid function. Now I try to steer clear of politics, but people are increasingly focused on the health of the candidates. Anything that’s good for Donald tends to be good for biotech (IBB) — even though like Hillary, Donald has called for negotiating Medicare drug prices. 5) Sentiment Update AAII sentiment is 27.9% bullish, well below the 38.5% long-term average. The ISE Sentiment Index is at 76 this morning, indicating moderate bearishness. Yesterday’s Investors Intelligence survey showed that 49% of traders are bullish, slightly down but still fairly high. So sentiment remains very mixed. Traders are spooked a little, but not freaked out.
Continue Reading -->T3’s Take 3: Apple Shines in Mixed Markets
Interested in a Prop Trading Career? Click here to take our short quiz. 1) Mixed Markets After 3 days of big ups and downs, the S&P 500 stayed stuck in first gear today by falling just -0.1% to 2125.77. However, there was plenty of action below the surface. For example, the Nasdaq Biotech ETF (IBB) rose 1.2% on Allergan’s (AGN) acquisition of Vitae (VTAE). Meanwhile, energy stocks got slammed on a decline in crude oil. We also saw weakness in banks ahead of tomorrow’s big batch of economic numbers. US economic data has been deteriorating since late July, and if the streak continues tomorrow, traders will continue backing off their rate hike bets. Fed Funds futures now imply a 53% chance of a December rate hike, down from 60% last week. 2) Options Traders Go Gaga for Apple Despite the middling broader action, Apple (AAPL) rallied another 3.5% today on continued optimism regarding iPhone 7 sales. However, the big action was was in Apple options. Over 1.4 million Apple call options traded today — over 4 times the 10-day average. And typically, 1.5 Apple calls trade for each put. Today, 2.5 Apple calls traded for each put. It’s safe to say that traders are feeling incredibly optimistic about Apple’s prospects, but beware: the danger of a sell-the-news reaction is growing. 3) Jeff Cooper on HES Just before the close, T3’s Jeff Cooper initiated a short of Hess Corp. (HES), saying the following: We should already be short as HES triggered a Rule of 4 Sell last week. It backtested its 200 day and looks like it’s in a runaway downside move. We are going short here at the market using a 1.50 stop. P.S. Don’t forget to take our prop trading quiz. Thursday’s Trading Calendar US Economics (Time Zone: EDT) 08:30 Empire Manufacturing (Sep): exp. -1, prior -4.21 08:30 Current Account Balance (2Q): exp. -$121.0b, prior -$124.7b 08:30 Retail Sales Advance MoM (Aug): exp. -0.10%, prior 0.00% 08:30 Retail Sales Ex Auto MoM (Aug): exp. 0.20%, prior -0.30% 08:30 Retail Sales Ex Auto and Gas (Aug): exp. 0.30%, prior -0.10% 08:30 Retail Sales Control Group (Aug): exp. 0.40%, prior 0.00% 08:30 Initial Jobless Claims (9/10): exp. 265k, prior 259k 08:30 Continuing Claims (9/3): exp. 2150k, prior 2144k 08:30 PPI Final Demand MoM (Aug): exp. 0.10%, prior -0.40% 08:30 PPI Ex Food and Energy MoM (Aug): exp. 0.10%, prior -0.30% 08:30 PPI Ex Food, Energy, Trade MoM (Aug): exp. 0.10%, prior 0.00% 08:30 PPI Final Demand YoY (Aug): exp. 0.10%, prior -0.20% 08:30 PPI Ex Food and Energy YoY (Aug): exp. 1.00%, prior 0.70% 08:30 PPI Ex Food, Energy, Trade YoY (Aug): prior 0.80% 08:30 Philadelphia Fed Business Outlook (Sep): exp. 1, prior 2 09:15 Industrial Production MoM (Aug): exp. -0.20%, prior 0.70% 09:15 Capacity Utilization (Aug): exp. 75.70%, prior 75.90% 09:15 Manufacturing (SIC) Production (Aug): exp. -0.30%, prior 0.50% 09:45 Bloomberg Consumer Comfort (9/11): prior 44 10:00 Business Inventories (Jul): exp. 0.10%, prior 0.20% 10:30 EIA Natural Gas Storage Change (Sep 9): exp. 55, prior 36 10:30 EIA Working Natural Gas Implied Flow (Sep 9): exp. 55, prior 36 Global Economics 03:30 CHF Libor Rate 04:30 GBP Retail Sales m/m 07:00 GBP Official Bank Rate Earnings Before Open: None of Significance After Close: Oracle Corp (ORCL)
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