Tag Archives for " VIX "
Market Analysis: There Is No Such Thing As a Perfect Rally
If you look for perfection, you’ll never be content. -Leo Tolstoy Markets are mostly in a happy mood following Friday’s NFP-driven rally. I have serious doubts as to whether the Fed’s going to raise this year, but traders are now pricing in a 47% chance of a December rate hike, up from 9% post-Brexit. I peg the odds as more like 20-25%, though admittedly, that’s based on a feeling more than anything. The yen is down on news that Japan’s Emperor Akihito publicly hinted that he will be stepping aside. German industrial production beat expectations in June (pre-Brexit data), while Visa and Market said UK consumer spending accelerated in July from June, thouhg it was Q1 numbers. France’s central bank said its economy will rise 0.3% in Q3. Economists expected a 0.2% increase. This data implies that perhaps the UK really kitchen-sinked its growth forecast, creating low expectations it can beat. As you can see in these charts of the Citi UK and EU economic surprise indexes, European economic data remains pretty solid relative to Wall Street forecasts: UK: EU: The hot bio/pharma complex may get a lift today on solid numbers from Allergan (AGN) and Horizon Pharma (HZNP). Crude oil is still on the upswing with a move over $42 this morning. OPEC’s president predicted the current dip in oil will be short-lived, and that OPEC members are in “constant deliberations” on stabilizing the market. The group will hold talks in Algiers in September. Gold is selling off as the aforementioned rate hike expectations get ratcheted up. However, bonds are pretty flat — there’s no big rush to sell. On the deal front, TIAA said it is acquiring Everbank (EVER) for $19.50/ share in cash. Everbank has been rumored to be in play for a while and just surged big-time, which explains the small premium over Friday’s $18.64 close. Sentiment is still leaning bullish, as based on the shape of the VIX curve, ISE Sentiment Index, and the Investors Intelligence Survey. The AAII survey shows that individual investors are bearish, but overall, the bulls are still quite giddy. This is why it’s important to respect price above all else. A lot of folks were declaring the market as overheated at 2100, then 2150. And today, with futures up a few points, the S&P looks like it will open at all-time highs around 2190. As far as game planning goes, I wouldn’t think too hard. Watch small caps, biotech, oil, and high-yield. When they’re moving in the right direction, it’s hard to stop the bull. I’m really zoning in on oil right now. Its ascent off the $26 February low was a major factor in the bull’s revival this year. But when it broke down from $51 to $39, the bulls didn’t skip a beat. We could be a situation where the bulls ignore oil when it goes down, and they get encouraged when oil goes back up. I hear a lot of folks complaining that the Russell 2000 hasn’t confirmed the SPX record highs, but remember: there is no such thing as a perfect rally. In almost every rally in the past few years, there’s been one type of problem or another — lousy earnings, lousy economic data, low volume, narrow leadership, etc. Good enough can be good enough. Good luck friends.
Continue Reading -->T3’s Take 3: SPX Makes Record High on Huge Jobs Report
1) Jobs Report Delivers, and Then Some! For the second month in a row, the monthly nonfarm payrolls report blew away expectations. The US economy added 255,000 jobs in July, easily smashing the 180,000 consensus. Plus, June and May’s numbers were revised higher, and average hourly earnings beat forecasts with a 0.3% gain. With two strong months in the bag, the awful May jobs report now looks like a statistical anomaly, and traders are also quickly forgetting last Friday’s weak GDP report. The market’s conclusion reaction was clear… 2) The Fed Is Gonna Hike. Really? In the aftermath of the report, investors see a higher probability of a Fed rate hike this year. Fed Funds futures now imply a 47% chance of a December rate hike, up from 37% yesterday, and just 9% post-Brexit on June 27. Plus, all the usual hawkish trades quickly fell into place today: The US dollar ripped Gold took a major hit US Treasuries fell Now as far as whether this report actually moves the Fed, I have my doubts. The Fed’s been sitting still for so long that I doubt a couple data points makes a huge difference at this point. The Brexit is also still an issue. The Bank of England made a huge downgrade to its growth forecasts, and European commercial/investment banks are doing the same, which implies a good degree of fallout. This could give the Fed another reason to hold off. But either way, the numbers had equity traders in a great mood today… 3) New Record Highs! After the numbers hit, I said I would not count out a strong rally in stocks today. I thought it would take an upward reversal in bonds to make that happen, but that was wrong. Unlike in last month’s post-NFP rally, bonds stayed down, as did gold. The S&P 500 hit a new all-time record high at 2182.87, led by a big move in bank stocks, which benefit from higher interest rates. The index rose 0.9% to close right on the highs. Regional banks were especially strong with the KRE ETF powering 3.5% higher. Small caps and transports also posted strong gains. The decliners’ column was led by the G.U.T.S complex that has dominated the action in 2016: Gold, Utilities, Treasuries, and Silver, all instruments that suffer from higher rates. Crude oil was down for most of the day on the dollar’s rise, but nearly squeezed into the green by day’s end. Monday’s Trading Calendar US Economics (Time Zone: EDT) 10:00 Labor Market Conditions Index Change (Jul): prior -1.9 Mortgage Delinquencies (2Q): prior 4.77% MBA Mortgage Foreclosures (2Q): prior 1.74% Global Economics 08:30 CAD Building Permits 21:30 AUD NAB Business Confidence 21:30 CNY CPI y/y 21:30 CNY PPI y/y Earnings Before the Open: Allergan (AGN) Dean Foods (DF) Horizon Pharma (HZNP) After the Close: Arena Pharma (ARNA) Ctrip.com (CTRP) Hertz Global (HTZ) Nuance Comm. (NUAN)
Continue Reading -->The Morning Hammer: Why the VIX Could Collapse, and 4 Other Thoughts on Today’s Market Action
5) Tesla Destroys Options Traders Yesterday, I opined that Tesla (TSLA) options were probably not as cheap as they looked. It turns out they were way oveprriced. As of yesterday morning, they were pricing in a $12.84 move. Tesla is down only $1.30, which is absolutely murdering holders of puts and calls. Weekly at-the-money $225 calls are down -67% while the $225 puts are down -55%. Meanwhile, sellers of the weekly $225 straddle are up an amazing 61% in one day — I wish I was in that crowd! 4) Watch Dem Bios! For the past 2 days, the SPX has looked pretty sleepy. However, relative strength in biotech (IBB,XBI) and the Russell 2000 implied more bullishness under the surface. Today, both IBB and XBI are in the red, but making little moves off the lows, even with sector heavyweight Biogen Idec (BIIB) sinking another -1.7% as takeover rumors extinguish themselves. If I was a bear, I would most definitely not want to see biotech turn green and lead again, especially since the Russell is outperforming SPX by about 30 bps. 3) Sentiment Update Sentiment is still getting more bearish. The CBOE Equity Put/Call is at 0.94 this morning, which is right in-line with the YTD average, but well off the early July lows. However, the ISE Sentiment Index is at 66 this morning (66 calls for every 100 puts). That’s a of aggressive hedging in the early going. Plus, the AAII survey shows 29.8% bulls — well below the long-term 38.6% average. Overall, it looks like traders are looking a little more skittish ahead of a pivotal NFP report tomorrow. 2) Oil Crude oil is still hugging the $40-handle pretty tightly. I’m still a bit puzzled as to how well both equities and high-yield are ignoring oil’s 20%+ drop off the highs. Take a look at this chart of crude oil vs. HYG year-to-date: Energy stocks have been slipping, but overall, the market’s basically yawning at oil weakness. Maybe folks are just rotating into metals? GLD is up 28% YTD while SLV is up 46%. Meanwhile, the miners (GDX) are up 127%! 1) Why the VIX Could Collapse Lots of traders are out saying the VIX is low, but I believe it could drop to the 10-11 range. Remember what the VIX is — a representation of volatility expectations, as measured by 30-day SPX options. With the recent lack of movement, 20-day realized SPX volatility has collapsed to 5.4. So the 12.6 VIX is actually trading at a massive premium to actual market volatility. This means it’s already pricing in an expansion in volatility. If the market continues to go flat (which I expect for the next month) — or if it climbs slowly — the VIX could easily drop below 11 as traders reprice options to reflect persistently low actual market volatility. Now with a wild move, all bets are off (we do have NFP tomorrow) — buyers of puts or call could make a lot of money. But if the markets go flat as I expect, folks buying what look like “cheap” options will find out that they overpaid. P.S. If you’re into this fancy options stuff, check out today’s FREE webinar with my buddy Doug Robertson.
Continue Reading -->The Morning Hammer: 5 Thoughts on Today’s Market Action
Make sure you check out Doug Robertson’s options webinar, which is scheduled for Thursday after the close. Click here for more details. 1) Biotech Looks Great The SPX and NASDAQ are basically flat, but the Nasdaq Biotech ETF (IBB) is up 0.4%. That’s pretty impressive given that Biogen Idec (BIIB) is off -3.6% today as cold water was thrown on yesterday’s takeover rumors. BIIB is 7.8% of IBB, so biotech really is doing well on this shaky dayy. The S&P Biotech ETF (XBI), which is muct more diversified, giving a better view of biotech overall, is up 0.7%. 2) Crude Oil Too Strong? I’d rather see crude oil down into today’s inventory number at 10:30 a.m. ET. Oil has acted horribly and I’d rather just see an all-out collapse of expectations ahead of the data release. Economists are pricing in a -1.75 million barrely draw. We’re about to find out if that hurdle is low enough to clear. 3) Sentiment Weakening Just a Tiny Bit The VIX is flat today, but other indicators show that traders are getting a tiny bit spooked. The CBOE equity put-call ratio is still above the YTD average and the ISE Sentiment Index shows increased demand for put options. But one thing I don’t like is that the Investors Intelligence Survey has barely budged. 52.9% of newsletter writers are bullish, down just 1% from last week. That’s still within range of II’s danger zone. On balance, I’d say that traders are still pretty complacent — just not extremely so. 4) Tesla on Tap Tesla (TSLA) reports earnings today after the close, and a few options guys are chattering that Tesla options look cheap into earnings. Tesla options are pricing in a $12.84 move, which is actually small relative to some of its recent post-earnings report reactions. But I’m not so sure the options are cheap. Tesla has recently announced a boatload of news, including a capital raise, launch of Model 3 reservations, and the SolarCity (SCTY) deal. So Tesla may not have many big ‘shockers’ left to move the stock. And when you buy options into earnings, you want a big move in your direction. So tread carefully. (by the way, if you’re into options, make sure you sign up for Doug Robertson’s webinar) 5) Respect Price As of late, we’ve seen a lot of market commentators making “what goes up must come down”-type arguments against the market. Yes, we’ve come a long way since the Brexit bottom. But that’s been for good reason. Earnings season has not been as bad as expected, and economic data has generally been pretty decent. You must always remember the biggest lesson Mr. Market likes to teach — that price trends tend to last a lot longer and go further than may seem reasonable. So always respect price… even when it seems crazy. Remember, the most important question in markets is now who, what, why, or how. It’s WHEN. A great thesis means zero without equally great timing. So avoid a rush to judgement when it comes to price.
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!
Continue Reading -->Morning Preview: Is the Sideways Grind Beginning?
The S&P 500 is coming off 5 all-time highs in 5 days, but we may be in for a sideways grind. On Friday, I wrote that the market was ‘feeling’ stretched but sentiment was mixed, which is typically a recipe for a whole lotta nothing in terms of action. I would not be surpised to see the market stay range-bound, similar to what we saw in the April-May snoozefest. Earnings are giving traders an excuse to take profits. We started off Q2 earnings season on high notes from Alcoa (AA) and JP Morgan, but we ended the week with unimpressive earnings numbers from names like Wells Fargo (WFC), Citigroup (C), and Swatch. I’d watch to see how Bank of America (BAC) gets treated this morning. It beat EPS estimates, but it’s up only fractionally in the early going. We also saw a miss an earnings this morning from transportation name JB Hunt (JBHT). European markets are down slightly today following the failed coup attempt in Turkey, though safety assets like gold, the yen, and US Treasuries are selling off. On the deal front, SoftBank of buying ARM Holdings (ARMH) for $32 billion, or a ARM is a chip designer that licenses its IP portfolio to virtually all mobile device makers. The SMH ETF is up about 1.4% in premarket trading. ARMH comprises 4.7% of SMH. ARMH is up 43% this morning, which is going to burn all the bears that sent its short interest to 6-year highs. SPX futures are modestly positive this morning, but well off pre-market highs. Again, how Bank of America gets treated will probably be a tell. We don’t have any market-moving economic data reports on tap. Now, even though I think the market’s likely to go sideways for a bit, I suspect we’re going to see a strong increase in the VIX within the next week or two. Remember what the VIX is — the market’s expectations of 30-day volatility, as measured by SPX options. And right now, the VIX curve is extremely steep and trading at a massive discount to realized volatility. These imply that traders are pricing in no movement. At the first bump in the road, even if the market ends up going nowhere, I suspect the VIX will rise sharply as traders reprice options more in-line with historical norms. This also means that options are cheap now — so if you’ve got a serious long or short directional bias, take a look at options instead of stocks. The game plan remains the same: watch biotech (IBB), oil, and high-yield (HYG) to measure risk appetites as they tend to be the tells. Good luck out there.
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