The collision of global markets and social mood

Friday, February 24, 2017

Friday -- Since '87, Belligerence, Mood Swings & Momentum

S&P E-mini Futures:
Sharply lower though currently finding support.

Social Mood:
Bloomberg noted, "The Dow posted a 10th day of gains, its longest streak of record closes since 1987."

"Since 1987" has a nice ring to it. The market could be setting up for something similar to 1987 if it keeps rising on hopes and dreams.

This morning it seems those reflationary hopes are getting dashed. Commodities got crushed. Europe is blood red.

A UBS strategist commented that "Mnuchin's comments were less belligerently reflationary than they could have been." So that's the world we live in now.

Amazing how fast the market's mood can turn. There are ample news stories today posing as reasons. We don't need to know the "reasons," only the mood itself and when it changes.

These guys should be very careful. Markets can get belligerent, too.

Trump at Brink of His Own Bull Market as Dow Flirts With History

Mnuchin says the stock market is a report card

Pretty sure neither are prepared for an F.

FX:
CHF & JPY still showing strength. AUD & CAD stronger, bucking the commodity disappointment, while the buck itself, USD, has a new swing point to worry about: 100.40.

Treasuries:
Mega volume yesterday took prices for a moonshot.

Per Bloomberg, sellers in Europe "are now focusing on Italy where the German-Italian 10Y spread rose above 200 bps."

Energy:
WTI crude down along with heating oil and RBOB (gasoline) while NG continues its bounce.

Metals:
Most precious metals well higher, but would like to see gold put some more distance away from 1250.

Copper and iron ore got hammered yesterday and while copper is bouncing now, iron ore was still under pressure in China earlier this morning.

S&P Outlook:
Today we should see whether the juicy volume shelf at the 2343 area has any magnetic qualities. Yesterday's break of 2358.34 blew apart the wedge and opened the door to lower prices. So even though we didn't get the "sharp and convincing close below 2362," we're seeing the effects now.

VIX is already up over 6% in the pre-market.

However, the way futures are acting thus far, 2343 may be optimistic for the cash S&P. Futures are already getting support well above the equivalent area. Today's cash action will be important, especially the open, to see how much damage happens to internals.

23.6% Fib support lies at 2344.41. Feels like the market would need an ugly close below 2343 to ward off higher prices in the near-term.

The 38% level isn't until 2329.66. Even that would still keep the market in a bullish configuration.

And don't overlook the fact that the market reached a higher high yesterday on an expansion of volume. Kind of bullish.

The point is that until something "breaks" in a technical sense, momentum can continue at any time.

Mood swings go both ways.

Thursday, February 23, 2017

Thursday -- Bidding Wars Are Back, Credit Impulse Gone, More Records For The Dow

S&P E-mini Futures:
Slightly higher, about to make brand new ones.

Social Mood:
Bidding wars, lack of supply, fast markets . . . they're baaaack.


They better hurry. Looks like the rally from the 2016 lows has used up its gas.

Source: UBS

While the Dow Jones is in historic nosebleed territory.

Source: Wall Street Journal
And earlier Sugar No. 11, the consumption of which is correlated to positive mood according to Socionomics, was down over 2%.

Meanwhile the Ring Of Fire continues its own negative mood trend. If Mother Nature gets in a bad mood, we could all be in a bad mood.


FX:
Now its CHF and JPY showing strength (and possibly suggestion caution). USD red after missing its 101.75 swing point by just 35 ticks.

Bitcoin up another 2%.

Treasuries:
Whole lotta shaking going on yesterday but not a lot to show for it, just a bunch of high volume dojis. Today thus far prices are climbing with more conviction.

Energy:
WTI crude up over 2% with 55 in the crosshairs once again, and NG is joining the momo up over 3%.

Metals:
Nice turnaround in precious metals today while copper is red.

S&P Outlook:
2343 area continues to look juicy, but price hasn't broken. Therefore the buying pressure remains relentless on the bears.

The volume shelf has risen to the 2362 area. The higher Fib zone at 2373.89-2379.39 is still wide open for a test.

Price would need a sharp & convincing close below 2362 to entertain lower.

Wednesday, February 22, 2017

Wednesday -- Mood, Mode, Jay-Z VC, Eurodollar Market

S&P E-mini Futures:
Looks like another three-wave pullback from a new rally high.

Social Mood:
From now on this section is not news anymore, it's mood.

Mood is the driver of markets, not news.

Mood is the how and why behind how markets move.

Mood is mode.

News might well cause momentary action, but doesn't affect trends.

Mood IS the trend.

So . . .

Q: What mode might we be in when a wildly successful rapper launches a venture capital fund?


This mode:

Source: Marketwatch.com
Party mode.

Maybe it's time to cover all your bases and protect your portfolio.

You might want to check out this cool interview with options great Tony Saliba on my friend Sean McLaughlin's new podcast Gimme Some Options. It's great.


I hope these guys can get together for a beer in Chicago sometime. Sounds like they would make great partners in the trading business.

Moodwise, just like the markets started rallying before the election, perhaps the ominous spread widening between France and Germany is not simply about Marine Le Pen's political gains.

With spreads on the move yet again this morning (even as equities rallied on French & German PMI readings which showed further expansion), and given some of the undercurrents going on in the Eurodollar market, we should avoid the temptation to try to assign a news item to what might clearly be bank stress.

Dealers (banks) have left the Eurodollar market, which has left behind very low liquidity. That could be a big problem.

Fed minutes at 2pm.

FX:
Much the same as yesterday, but JPY stronger, so caution might be creeping in.

Treasuries:
Prices reaching higher once again, but not yet seeing the degree of liftoff one would expect.

Energy:
WTI crude backing away from 55.

NG got blown out yesterday, -10%. When it was noted that the 2.546 swing point was in the crosshairs, who knew it would be in one day?

2.546 was broken overnight. NG has since bounced.

Metals:
Gold might be short-term bullish now that it broke above 1240.20, but needs to blast through 1250 on major volume. The rest are red.

S&P Outlook:
One of the last tweets of the day was "If below $SPX 2360 area, 2343 looks juicy." So there's that potential as of the open.

Or, there's still the potential for the higher Fib zone at 2373.89-2379.39 to get tested.

Either way, it doesn't fee like the bull run is over. It may just be getting more complicated.

Have shifted to a mix of SPY puts and scalping SSO against them, scaling in and out. Trying to take money from both sides while keeping risk small.

Tuesday, February 21, 2017

Tuesday -- Bloomberg's New Startup Barometer Vs Ring Of Fire & VIX

S&P E-mini Futures:
Another overnight high. Another choppy pullback from it.

News:
Love it. Bloomberg created a "U.S. Startups Barometer."

The very fact that they felt compelled to create it is a social mood indicator itself, in an ironic way, and could also suggest the easy-money, venture-driven startup trend may be close to ending.

However, like most financial news, Bloomberg's barometer doesn't peak until after market tops. So while it's corrected quite a bit from its 2015 highs, one might expect its due for a good rally.

All that social mood ebullience has to be reflected somewhere.

In their own words: "Few business communities swing from boom to bust as reliably as Silicon Valley."

Boom, bust, greed, fear . . . social mood at its best.

Check it out. It's pretty cool.


Maybe there should be a Ring Of Fire Barometer too. Something's up.

Source: USGS

Something's up here too but it's not the VIX.

Source: Marketwatch.com
This is the latest installment of contradiction, from "curiously low" to its "biggest two-day jump since Trump's election." Yey Dow 30,000.

It's most likely still registering rampant complacency, and no, it's probably not over.

Nor are the latest political jitters from the shift from globalism to populism, which widened French-German spreads to an extreme not seen since 2012 Monday before calming down, as Marine Le Pen continued to show strength in the French polls.

And the latest Fed speak was credited with putting a bid under the dollar, but it hasn't yet broken its 101.75 swing point resistance.

FX:
USD strength having a remarkable effect across all the major currency pairs . . . except for Bitcoin, which is up over 2%, possibly on concern over China's rising credit imbalances.

Treasuries:
Prices so far snapping a strong two-day run.

Energy:
WTI crude looking like it wants to break out of its high level consolidation and test its recent 55.24 high.

NG looking the opposite way -- down well over 4%. 2.546 swing point in the crosshairs.

Metals:
Copper looks set on resuming its rally while the precious metals linger in the red thus far.

S&P Outlook:
Regarding the VIX, these are 6-standard deviation Keltner channels plotted against it:


Notice they just barely contained the sharp drop in 2015. Complacency could continue until the Keltners meet the horizontal lines drawn on the chart. Then the VIX might be ready for another epic squeeze higher.

Friday's options expiration was probably a big relief for those off-balance premium sellers that made the news, but otherwise it was a pretty uneventful day.

Prices rose on inverted A/Ds.

This rally feels long in the tooth and any new high today will probably have me in SPY 235 puts should internals continue to show weakness.

Friday, February 17, 2017

Friday -- Options Expiration

S&P E-mini Futures:
Falling, along with Europe.

News:
Political front-runner Marine Le Pen continues to shake up the French establishment and its bond market, along with European equities, even in the face of her left-wing opponents joining forces against. Cool.


High-stakes Dutch and French elections could also cause the renewed debt troubles in Greece to be put on the back burner until the last minute (like July, just before it runs out of money again). So Europe could be pretty exciting (and pretty volatile) until then.

Otherwise, it's options expiration today. Probably should keep focused on that instead.

FX:
JPY continues to flash red, and USD is messing with AUD & CAD. EUR & GBP weaker.

Bitcoin up 1%.

Treasuries:
Big up day yesterday was notable for flying in the face of the status quo, specifically the 83% jump in the Phily Fed. Either the bond market didn't believe it, shrugged it off, or maybe these lopsided short positions are starting to be unwound. Whatever, if there was a case for still higher prices that was it. Strong follow through this morning, too.

Do I think it jeopardizes the potential ABC formation yet? No way.

Regarding interest rates and how entrenched the bond market narrative is, I just heard a NJ trader say that the housing market is slow at his price point and that he thinks the recent rise in rates is bullish for the stock market because real estate is counter-cyclical to stocks.

Where was this guy in 2006?

Energy:
WTI crude while lower hasn't budged from its high level consolidation. NG bouncing after its long rout.

Metals:
Gold is not showing as much escape velocity from its recent recovery as one might expect. 1245 seems to be a hurdle. Hearing a ton of bulls lately as well.

Silver has been more forceful, but it too looks like it needs a breather at the 18 area.

Platinum looks the weakest since its 2016 lows, and is resting currently as well, while palladium looks the fiercest since its lows.

Copper is down nearly 1% at the moment and looking as if China is ready to begin teetering again and the Chilean mining strike might soon be resolved.

S&P Outlook:
E-mini futures look like they're forming a falling wedge or perhaps a zig-zag. Both patterns would suggest still lower prices. ES 2332.75 possible.

Until the cash S&P opens, however, it remains to be seen how true price will act in light of current e-mini weakness reflecting a weird day in Europe and the end of a long week for short vol funds with too much negative gamma exposure.

As prices fell yesterday volume increased. A/Ds rolled over yet not remarkably so. Still anything below 2343 could see a test of the 2315-2325 area. The 38% retracement level is 2326.12.

The decline lacks an impulsive look thus far, so it is likely a smaller degree fourth wave correction leading to yet higher prices. Will be watching to see if it retains its corrective look today.

Unless 2338.87 breaks, a triangle is possible leading to higher prices before more of a correction. Would add SPY calls if that appeared to be the case.

Thursday, February 16, 2017

Thursday -- Short Vol Fund On Wrong Side, Bernard Baruch Moment, Ring Of Fire, Got Patience

S&P E-mini Futures:
Down in choppy overnight trade.

News:
For anyone who wondered just how the VIX could be up a stunning 9% yesterday as equities surged, the most interesting thing I've read in the past 24 hours was from Charlie McElligott, Head of US Cross-Asset Strategy at RBC Capital Markets in New York, via Zero Hedge.

Here Is The "Catalyst" For The Market's Inexplicable Surge: A $17 Billion Trade Gone Wrong

Sounds like a "hedged futures" fund that specialized in selling volatility premium on the S&P ended up decidedly unhedged (zero hedged?) to the tune of $17 billion coming into this Friday's options expiration.

So what we saw this week was most likely forced buying rather than natural buying, which could explain the weak internals, and which means it can unwind in an instant.

But probably not until after expiration, however.

There is a time & place for big short premium bets, and now isn't it.

Selling premium is best done in periods of high implied volatility (over 45%), and definitely not when the VIX is pushing single digits.

SPX IV is 15%.

This trade-gone-wrong is great example why short gamma  -- the speed of the delta -- too close to expiry is like throwing gasoline on a fire.

Right on time, whether he realizes it or not, Tastytrade's Tom Sosnoff had a Bernard Baruch moment recently. While going through TSA airport security the other day, he was pulled aside for a "search." As soon as they were out of earshot of the others, the TSA guy said, "We killed it with NVDA yesterday." Fist pump.

Feels like there is an enormous new group of premium sellers out there that have never faced unlimited risk during a flash crash, a historic correction, or a "large, adverse shock" that Janet Yellen is so fond of mentioning over and over.

If they want to play with fire, maybe the Ring Of Fire (below) has a message for them.

Elsewhere, housing permits rose, housing starts dropped, and the Phily Fed index soared 83% from 23.6 to 43.3. That's hot.

FX:
CHF & JPY are the big movers thus far, and they're bid.

Bitcoin up over 1%.

Treasuries:
Volume blew out along with falling prices two days in a row. Let's see what kind of rally can ensue.

Energy:
WTI crude still hanging tough. NG still banging lows.

Metals:
Everything shiny has perked up thus far, while copper is flashing red.

S&P Outlook:
Risky Business:

Careful, Mr. President.

Somehow the Ring Of Fire is staring to feel like a metaphor for "something's coming."

Source: USGS

Maybe this week was a wrong-sided short vol fund instead of a loco market. Maybe not.

All I care about now is that the S&P stopped in the middle of a Fib zone cited yesterday on Twitter: 2348.03-2352.77.

Areas below to test might be 2335, and I still like 2315-2325. Higher up there is a 1:1 Fib extension taken from the 2009 lows that targets 2363.11.

Above that is 2373.89-2379.39.

Sounds like that fund is still in trouble and the market could inflict further pain until Friday. But plenty of pain could be inflicted lower too, should the market choose. Still prefer to wait for something to break first before placing a big bet against it.

Got some SDS. Got some SSO. Got a lot of patience.

Wednesday, February 15, 2017

Wednesday -- Hawkish Yellen, Hot CPI, Apple Vs Deere, Crazy Train

S&P E-mini Futures:
Backing off from a new overnight high, more so after hot CPI numbers.

News:
An odd takeaways from Yellen's hawkish testimony yesterday: a strategist from Geneva, Switzerland said: “It’s risk-on again, thanks to Yellen.”

Could it be that someone actually believed Yellen when she hastily added at one point that a faster pace of rate hikes would mean that the economy was doing better?

Rather, the Fed sounds like it is trying to convince anyone who will listen that rates are going higher because the Fed healed the economy, not because the credit cycle has turned.


CPI was just released and, careful, it's hot. CPI surged the most in four years. And it gives Yellen plenty of hawkish cover. Maybe she'll be a dove today.

Last quarter's 13-Fs came out. Most interesting was that Warren Buffett dumped John Deere (DE) for Apple (AAPL). Sounds like a weird bet against America and all-in on Foxconn.

Twitter CEO Jack Dorsey bought 426K shares of his company. At least he's bullish.

FX:
CHF & JPY agree with Risk On, but AUD & CAD see higher rates hurting commodities.

USD ripping on CPI.

Treasuries:
Another red day thus far after Yellen's hawkish testimony and especially the hot CPI.

Energy:
WTI crude still hanging at highs. Maybe gathering steam to fill 56.50 gap.

NG trying to rally, but looks like it could retest the 2.60s.

Metals:
Gold, silver, platinum and palladium don't seem to believe it's really inflation. Nor does copper.

S&P Outlook:
A weak correction reversed yesterday even though Yellen openly discussed rake hikes and Fed balance sheet reductions. A great example how markets do what they want to do when they want to do it.

SPY put/call ratio was 1.49, so a lot more put buying yesterday, not capitulation. So far they're right, though.

As noted yesterday, calls are cheap. Well, so are puts. Volatility is non existent.

For me, I still want to see something break before I stand in front of the locomotive. Key word: loco.

Crowds of crazy people are capable of anything. And until the market stops acting like it's in a third wave higher, by giving us a fourth wave correction possibly into the 2320 area, I'm still looking for places to use cheap calls to ride the crazy train.

Only a break of 2300.99 at this juncture would sober up the party, although a close below 2320 would be a clear warning shot.