Tag Archives for " volatility "
T3’s Take 3: Hillary Clinton Beats Up Biotech
The power of quantified trading… Thursday after the close, T3’s Rob Smith is hosting a special strategy session on his unique Quant Edge Trading Strategy. Learn more about it. 1) A Little Scare We have now gone 41 days without a 1% down move in the S&P 500, but the bears made some progress today. The S&P 500 finished down just -0.5%, but below the surface, the action was pretty ugly. The red hot Nasdaq Biotech ETF (IBB) was up 1.0% in early trading, but it collapsed intraday and closed down -3.4%. Presidential candidate Hillary Clinton attacked pharma company Mylan(MYL) for raising the price of its EpiPen emergency allergy treatment, which implies that the drug industry could again come under fire over pricing practices. We also saw many hot momentum stocks like Twilio (TWLO) andAcacia (ACIA) get hit hard. But only time will tell if I finally get paid on my VIX calls… 2) Oil Takes a Hit Crude oil fell nearly 3% on a very bearish inventory report from the Energy Information Administration. Traders expected an -850K decline in US crude stocks, but they actually grew by 2,501K. This 3,351K barrel miss just about erases last week’s 3,458K beat. However, keep in mind that oil has been moving on chatter about a possible OPEC production freeze, so keep an eye out for those headlines. 3) Playing in Italy This morning, I added a position in the iShares MSCI Italy ETF (EWI). Italy is one of the worst-performing and most hated markets in the world, and options traders are putting up big money in the options market to bet on further declines. Since sentiment is so incredibly negative, Italy may be washed out, so I decided to dip my toe in. I plan on treating this as a “set it and forget it” position. P.S. Don’t forget to sign up for Rob Smith’s FREE training session! Thursday’s Trading Calendar US Economics (Time Zone: EDT) 08:30 Initial Jobless Claims (8/20): exp. 265k , prior 262k 08:30 Continuing Claims (8/13): exp. 2155k , prior 2175k 08:30 Durable Goods Orders (Jul P): exp. 3.40% , prior -3.90% 08:30 Durables Ex Transportation (Jul P): exp. 0.40% , prior -0.40% 08:30 Cap Goods Orders Nondef Ex Air (Jul P): exp. 0.20% , prior 0.40% 08:30 Cap Goods Ship Nondef Ex Air (Jul P): exp. 0.30% , prior -0.20% 09:45 Markit US Services PMI (Aug P): exp. 51.8 , prior 51.4 09:45 Markit US Composite PMI (Aug P): prior 51.8 09:45 Bloomberg Consumer Comfort (8/21): prior 43.6 10:30 EIA Natural Gas Storage Change (8/19): exp. 16 , prior 22 10:30 EIA Working Natural Gas Implied Flow (8/19): exp. 16 , prior 22 11:00 Kansas City Fed Manf. Activity (Aug): exp. -2 , prior -6 18:30 Fed’s George to Meet Fed Up with Other Fed Leaders Invited Global Economics 04:00 EUR German ifo Business Climate 19:30 JPY Tokyo Core CPI y/y Earnings Before Open: 1-800-Flowers.com (FLWS) Dollar General (DG) Dollar Tree (DLTR) Sears Holdings (SHLD) Tiffany & Co (TIF) After Close: Brocade Comm. (BRCD) GameStop (GME)
Continue Reading -->The Morning Hammer: Something’s Gotta Give!
Don’t Fear Forex… Attend my buddy Kurt Capra free webinar tonight and learn why so many stock and options traders are embracing the lucrative world of forex. Click here for more info. European markets are up this morning on solid economic data. Euro area PMI rose to 53.3 in August from 53.3, which implies little impact from the Brexit. France’s was better than expected, while Germany’s was a little weaker. On the US economic calendar, we’ve got the Markit US manufacturing PMI, Richmond Fed, and New Home Sales. Best Buy (BBY) beat by a mile and is up 14%, extending what’s generally been a pretty decent earnings season for big box retailers. Meanwhile, the Bank of Montreal (BOM) beat on strong retail banking activity. SPX futures are in modestly positive territory following yesterday’s yawnfest. Biotech is indicated higher following massive outperformance on the back of the Pfizer (PFE)/Medivation (MDVN) deal. Bloomberg is reporting that Bayer and Monsanto (MON) are closer to closing their deal, which has been stuck on issues like the price and termination fee. Crude oil is down again this morning after Iraq’s Oil Minister asked foreign oil companies to increase oil production and exports. The dollar is down after making solid gains on hawkish comments from the Fed’s Fischer and other officials. Some traders may be taking their feet off the gas ahead of FOMC Chair Janet Yellen’s Jackson Hole speech this Friday. I’m not in the business of trying to game the Fed, so I’ll just point out that in June, Yellen came out dovish after a barrage of hawkish comments from Fed officials. So please, tread carefully. Otherwise, we’re back to the same old grind. The action’s been so lame that it makes the April-May lull look like a firestorm in comparison. I am long VIX calls and I’m sitting on a loss of about 8%. That’s not the end of the world, but now I’m in that no man’s land where I’m worried about getting shaken out at the worst possible moment. But I’m going to stick it out for now. Arguing with the market is for fools, but we’ve gone 31 days without a 1% move. And we’ve gone 39 days without a 1% down move. Something’s gotta give. Right? P.S. Don’t forget to sign up for Kurt Capra’s free forex trading event!
Continue Reading -->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: 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 -->Crude Oil Goes Boom… and 4 Other Thoughts on Today’s Action
Attention! This afternoon, T3 Live’s Dave Green is hosting a FREE trading webinar. Click here to learn how Dave crushes the market! 1) Crude Rips Crude oil is slamming above $43 on an International Energy Agency report saying the market will continue to rebalance as demand from refiners grow. Predictably, energy stocks (especially oil service names) are doing great work on the upside, and it’s also pulling up high-yield (HYG). The bull run off post-Brexit lows may ‘feel’ long in the tooth, but strong crude oil could help extend it. 2) If You’re a True Believer… If you think oil’s going to continue running higher, look at energy closed-end funds. They are still showing large discounts, which could close if oil prices rise. Names to watch include KMF, KYE, and GMZ. 3) ANOTHER Record High? Assuming crude oil can keep moving higher, SPX may be in for yet another record high today. A colleague commented today that since the market’s so high, it’s probably destined to crash soon. I’m technically short the market, but I fully understand the reality on the ground: what goes up must come down — but before it comes down, it may go up. A lot. 4) Still No Vol The VIX had a 13% spike from Tuesday’s low to Wednesday’s high, but it’s round-tripped most of the move. I popped in a daily chart of the VIX vs. 20-day realized volatility on the SPX: Both are at yearly lows as the sideways grind continues. Unless something drastic happens, we’re going on 24 days without a 1% move. I really should have gone on vacation this week because the action is so boring! 5) Bio-Blah Biotech is up a little but it’s still showing pretty anemic action overall. It’s partly good old-fashioned consolidation after a big run higher, but it could also be a sign of exhaustion. If IBB starts surging towards $300, I imagine it would give the bears quite a scare. Click here to check out Dave Green’s webinar today!
Continue Reading -->Crude’s Big Move… and 4 Other Thoughts on Today’s Action
Attention! On Thursday afternoon, T3 Live’s Dave Green is hosting a FREE trading webinar. Click here to learn how Dave crushes the market! 1) Crude Move Crude oil got a nice lift on this morning’s EIA inventory numbers. We saw a substantial builds in overall and Cushing, OK inventories, but massive draws in gasoline and distillate inventories. However, we’ve gotten other recent data (Saudi pumping levels, API data) that is bearish, and it’s now down a little. If crude oil can’t hold, it will embolden the bears. 2) Bio/Pharma Weakness Biotech and pharma are getting hit today on negative news from Eli Lilly (LLY) and Mylan (MYL), which is not good because health care is a key bull driver However, they’ve rocketed off post-Brexit lows so it’s fair to accept some consolidation after big, dramatic moves. A move off the lows would be encouraging, though I wouldn’t count on it. 3) Sentiment The ISE Sentiment Index is reading 100 as of 10:30 a.m. ET, which is perfectly neutral. (100 calls bought for every 100 puts) However, there is opposing action between individual names and the index/ETF sides. On the index side, traders look pretty bearish. (just 35 calls for every 100 puts) In individual names, the reading is 155 (155 calls for every 100 puts). Meanwhile, the Investors Intelligence survey was released today, showing that 54.3% of newsletter writers are bullish. This is very close to II’s 55% danger zone. 4) Large Cap Tech Sagging Big tech names like Apple (AAPL) and Facebook (FB) are looking “saggy” today, for lack of a better term. Like the health care complex, they could use a little consolidation time after posting big gains. That said, traders may get discouraged of tech loses its leadership status, since it’s played a big role in keeping equities at all-time highs. 5) Still No Vol… Volatility is still nowhere to be found. So far today, the S&P has trade in a less than 5-point range, which is threatening to put me to sleep all over again. I still think we’ll get a volatility spike soon, but there’s no sign of it yet today. Look at oil. We’ve gotten a lot of news is the past 18 hours, and it’s still barely doing anything. Click here to check out Dave Green’s webinar this Thursday!
Continue Reading -->More All-Time Highs, More Yawns!
1) Another Day, Another Yawn! US markets put in yet another astoundingly boring session, and I’m trying as hard as ever to put an interesting spin on these August doldrums. The S&P 500 and Nasdaq Composite notched new all-time highs shortly after the open, but the action quickly turned to yet another yawn-fest. The S&P rose +0.04% to 2181.74, which means we’ve now gone 22 days without a 1% move in the index. Year-to-date prior to this astoundingly boring stretch, the S&P moved 1% on about 1 of every 3 trading days. Crude oil gave up an early gain to sink back below $43, which had traders selling energy stocks. Meanwhile, bonds and gold picked up a little steam following their recent Fed-driven selloffs. 2) A VIX Explosion on the Way? Over the past week, I’ve written extensively that I thought the VIX was set to drop below 11. But after analysis of historical market data, I decided to take a long position in VIX calls just as the S&P 500 was making its latest all-time high this morning. This is not a low-risk trade by any stretch of the imagination since the VIX can stay low for extended periods of time. But prolonged bouts of low market volatility – like the one we’re going through now – are sometimes followed by explosions in the VIX, which could mean profits on VIX calls. Plus today, Bloomberg reported that net short positions on CBOE VIX futures are the biggest they’ve been since 2013. That means that traders are betting aggressively that the VIX will drop from here. Now may be the time to take the other side of the trade, so I stepped up and put my money where my mouth is. 3) The Importance of SPX 2174 This morning, T3 Live’s Jeff Cooper commented on the important of SPX 2174: An hourly SPX shows a breakout above a flat line that started on our key July 20 date from our key 2174 level. The index is pulling back from record highs this morning and testing its 20 period m.a., a break of which could elicit a test of 2174ish. If 2174 is lost, it could signal a Bull Trap being sprung. Follow through will be key here… in either direction now that we are in what is an important anniversary week. If it looks like we will close below 2174, I will repurchase SPXU before the bell at the market. Theoretically, it is possible that one more push below last week’s low plays out that stops in its tracks prior to a run for the roses. This resembles the analogue from 1929. If we do get a little test of last week’s lows which is followed by a momentum move above 2200, a last ditch rally could be on the table, but let’s take one move at a time as the market is not a fine Swiss watch and patterns do not have to play out with precision. The bottom line: any sell signal here, we must take, and if we get stopped out on a new high, we will know what to look for. Click here to learn about Jeff’s Daily Market Report Today’s Trading Calendar US Economics (Time Zone: EDT) 07:00 MBA Mortgage Applications (8/5): prior -3.50% 10:00 JOLTS Job Openings (Jun): exp. 5500, prior 5500 10:30 DOE U.S. Crude Oil Inventories (8/5): exp. -1500k, prior 1413k 10:30 DOE Cushing OK Crude Inventory (8/5): exp. -100k, prior -1123k 10:30 DOE U.S. Gasoline Inventories (8/5): exp. -1300k, prior -3262k 10:30 DOE U.S. Distillate Inventory (8/5): exp. 500k, prior 1152k 10:30 DOE U.S. Refinery Utilization (8/5): exp. -0.50%, prior 0.90% 10:30 DOE Crude Oil Implied Demand (8/5): prior 16996 10:30 DOE Gasoline Implied Demand (8/5): prior 10206.4 10:30 DOE Distillate Implied Demand (8/5): prior 4871.4 14:00 Monthly Budget Statement (Jul): exp. -$115.0b, prior -$149.2b Global Economics 17:00 NZD RBNZ Rate Statement 21:10 NZD RBNZ Gov Wheeler Speaks Earnings Before the Open: Michael Kors (KORS) Ralph Lauren (RL) After the Close: Shake Shack (SHAK)
Continue Reading -->Why the VIX Could Explode
Attention! On Thursday afternoon, T3 Live’s Dave Green is hosting a FREE trading webinar. Click here to learn how Dave crushes the market! I’ve been vocal about my expectation that the VIX could go under 11, and it’s now at 11.08 — just about there. After further analysis, I’m starting to suspect that it will explode. The VIX has dipped below 12 during 10 of the last 16 trading days. This is very reminicent of what we saw in July-August 2015. Between 7/15/2015 and 8/5/2015, the VIX was sub-12 on 7 of 15 trading days — a similiar low-volatility streak. That led to the 8/24/2015 mini-crash, which saw the VIX trade as high as 53.29 intraday before closing at 28. We can also go back to August-September 2014. Then, we saw the VIX go sub-12 for 15 of 25 trading days. It then broke 30 that October. So the pattern seems to be a few weeks of nothing followed by a small grind up in the VIX, and then a VIX-plosion. However, if we go back to June-July 2014, we see a very long pattern of nothing — 39 of 45 days with a sub-12 VIX. If the pattern holds (we are dealing with tiny sample sizes here so this isn’t even close to scientific), the VIX could easily be over 30 within a couple months. The only problem is, that spike could happen next week… or in 2 months. That said, I’m dipping a toe in the water to speculate on a VIX-plosion. SPX just hit a new record high at 2186.65, and I am now long VIX October 20 calls from $1.45. Downside risk is 100% if the VIX goes flat or only rises modestly, but I suspect the VIX will be over 30 within 2 months. The reason I’m putting it on now is that it feels like the absolute hardest trade, which sometimes mean it’s the best trade. Click here to check out Dave Green’s webinar this Thursday!
Continue Reading -->21 Days of Nothing: Fun Market Stats to Chew On
We really are getting a big-time summer slowdown. Some stats to chew on: -The SPX has now gone 21 trading days without a 1% move -YTD before this 21 day span, SPX moved more than 1% on nearly 1 out of 3 trading days. -During this 21 day span, SPX has moved an average of 0.3% per day -YTD before this 21 day span, SPX moved an average of 0.7% each day The VIX is now at just 11.32, levels it hasn’t seen since summer 2014’s extended downdraft, and August 2015’s spike lows. However. the VIX is actually still trading at a premium to realized SPX volatility. The premium is currently 5.5 percentage points. According to Bloomberg data, this is higher than it’s been 76% of the time over the past 5 years. Therefore, traders are to some extent already pricing in a modest volatility expansion. It does “feel” like the VIX should go up, but also keep in mind that it can stay stuck at very low levels for extended periods of time — and “should” is a dangerous word in these boring summer months. For reference, I am popping in a daily VIX chart from 2014 since so many folks are making the comparison: As you can see, the VIX traded in the 11-14 range for 4 months from April to July, had a modest spike to 17ish in August, but didn’t break 20 until October. UPDATE: Please read my latest views on the VIX here.
Continue Reading -->For the Love of Everything That Is Holy, Can We Please Get a Real Move?
With market volatility at 20-month lows, I’m falling asleep. It’s like April-May all over again, but worse. Thankfully, we’ve got a pivotal NFP report coming today at 8:30 a.m. ET. So maybe, just maybe we’ll get some real movement today. Economists are looking for 180K on the headline number, 0.2% MoM growth in hourly earnings, and a 4.8% unemployment rate. Last month, we saw a huge 107K beat on the headline number, which just about made up for the 122k miss the month before. On the surface, it seemed like a very much hawk-supporting report, but the market’s reaction said otherwise. Gold and bonds dipped on the report, then ripped like mad. Equities followed through on the decline in rates with a big 1.5% rally in SPX. Traders assumed that the report wouldn’t necessarily make the Fed get more hawkish, and it turns out those traders were right. Based on some weak economic data (GDP, PCE Deflator) and the Bank of England’s huge forecast cut for UK growth (which implies a nasty Brexit impact), the Fed’s forward path looks pretty dovish, at least-near term. But remember, Fed expectations tend to turn on a dime. Fed funds futures are now pricing in a 37% chance of a December rate hike — but that mumbers was down to 9% post-Brexit. I’m not in the silly business of making NFP guesses. But the scenario I would like to see is a modest beat on the headline numbers — say 190k-220k — which I think could drive a rip above 2200 within a day or two on the basis that “the number’s not hot enough to move the Fed but it’s good enough to show things aren’t falling apart.” SPX futures are up fractionally this morning following modest gains in Europe. The dollar is down a tad against the euro and yen, while gold is up a hair. Gold miners are indicated up after strong performances in euro-areaminers. Cybersecurity name FireEye (FEYE) is getting hit hard on its awful quarter. It may end up in the M&A rumor column soon, so maybe put it on your radar screen. LinkedIn (LNKD) beat by a mile, which means Microsoft (MSFT) timed the deal pretty well. Well done fellas. The sideways grind means we’re working off overbought conditions, and some sentiment indicators have cooled off. The AAII survey shows that individual investors are fairly bearish, and the ISE Sentiment Index’ 10-day moving average is coming down a bit. I will admit that some others like the shape of the VIX curve (though the VIX could drop even more) and Investors Intelligence Survey indicate serious complacency. So sentiment is still bullish, but slowly moving towards being mixed. I’d rather see more outright bears, but let’s deal with what we’re given instead of what we want. Good luck friends!
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