Skip to main content

Posts

Showing posts from December, 2012

Morning Update

Yesterday’ trading session was extremely whippy as comments and rumors out of Capital Hill pushed markets first deep into the red and then back to unchanged on the day on extremely light volumes. Some of the most interesting price action was in the VIX. The index traded to nearly 21 when stocks were at their low, and the futures went into slight backwardation. Backwardation is when the near month future is more expensive than the back month and signals extreme market anxiety. However as soon as news broke that the House would reconvene Sunday night in Washington stocks took off and the VIX sold off to close on the lows of the day. In these low volume markets it does not take much to get major market moves and reversals like we saw yesterday. Today Obama is scheduled to meet with Congressional leaders and I expect the market to hang on their every word.

Yesterday’s retails sales data was weaker than expected, which prompted a selloff in retail stocks. However one option trader was buyi…

Morning Update

This morning US s5tock futures are indicating a higher open on the back of better than expected jobless claims and a lower dollar. However, the market’s main interest will continue to be the fiscal cliff, with rumors driving the market’s direction. The broad market has shown some resilience so far in cliff negotiations while the VIX has been strongly bid. This implies traders are not rushing to sell stocks, but rather buy option protection for their positions. Geithner said yesterday that the US would “rise above” the debt ceiling on Dec. 31st though the Treasury could use emergency measures to delay this for another two months. If the tax hikes become effective January 1st though, this 2 moth cushion could last even longer. This could be why there appears to be little sense of urgency in Congress and it looks like the odds of getting a deal done by year end are minimal now.

With many traders still on vacation yesterday volumes were generally low. However one stock that caught many tr…

Morning Update

Overnight volumes have been expected light ahead of the Christmas holiday. S&P 500 futures traded down to test Friday’s lows but have since bounced and are down small from Friday’s close. This move has closely tracked trading in the Yen and Euro, with the Yen and Dollar hitting highs as the S&p hit lows. Currency markets should be a good barometer of risk sentiment this week as equities see low volume. Look for the S&P 500 to follow the EUR/USD pair and the USD/JPY pair. When markets reopen on Wednesday morning expect the focus to be on the fiscal cliff again, with Obama’s “Plan B” in the spotlight. The bill Obama is expected to try and pass will likely extend tax cuts for people making less than $250K, increasing capital gains and dividend taxes to 20% and extending unemployment spending through 2013.

On Friday markets around the world tumbled as a bout of risk aversion, driven by Speaker Boehner’s failure to get enough votes to pass “Plan B”, swept markets. One stock tha…

Morning Update

Last night Speaker Boehner scraped the House’s vote on “Plan B” because there were not enough Republican votes to pass it. This sent stocks around the world tumbling and a heavy dose of risk aversion in currency markets. S&P 500 futures lost about 50 points in a matter of minutes but has since stabilized higher and are down 22 ahead of the open. The US dollar and Yen as also stronger this morning as trader s move into safe haven assets. The VIX is the real mover on the news and the Jan future is up over 7%. Speaker Boehner is expected to speak at 10 EST and could give the market a clue as to his next move. The good news out of the Plan B failure is that everyone, especially the President, knows which Republicans will not compromise on tax increases, whether Boehner wants them or not. Boehner will have to tell Obama that if he wants a bill he will have to rally Democrats to meet the Republics that are willing to compromise half way. However, if Obama cannot get Democrats to comp…

Morning Update

Ahead of the US open global risk sentiment appears strong. Asian stock indices were up, led by the Nikkei (+2.39%) on reports that LDP and its coalition will pass a new US $119B stimulus package to spur on the Japanese economy. News out of Germany was also positive this morning, with IFO business confidence rising month/month. Housing data in the US was positive this morning, lead by strong gains in the South that made up for weakness in the northeast. The fiscal cliff will continue to have the most sway over US markets. The House is expected to pass Boehner’s “Plan B” as early as tomorrow despite Reid’s statement that it will not pass the Senate. This is seen as a way for Republicans to shift blame for going off the cliff onto the Democrats. After strong gains the past few days I would not be surprised to see some profit taking today or tomorrow unless real progress on a deal is announced.

This week the Dow has put in back to back triple digit gains, led by Bank of America. This sto…

Morning Update

Yesterday the market closed on the highs of the day in a follow through move from Friday’s reversal. The eMini S&P 500 futures punched through the technically significant 1420 level with relative ease, and it looks like momentum is on the bulls side for the near term. However, the market will continue to be driven by every word out of Washington on the fiscal cliff. The latest developments in the negotiations seem to show a deal is getting closer, but we will believe it when we see it. Boehner is due to meet with House Republicans at 9 EST and a press conference is scheduled shortly after.

Apple, the world’s most valuable company, has seen some huge intraday ranges the last few days. This has sent historical, or realized, 20-day volatility near its 2012 highs and implied volatility near levels typically only seen just before an earnings announcement. This, combined with expectations of light trading through the holiday season, has many option traders selling out of the money AAPL …

Morning Update

This week all eyes will again be on the fiscal cliff negotiations in Washington, with comments from Congress driving the market. Over the weekend The Hill reported that Boehner offered to increase the debt limit for one year though Boehner said shortly after “Any increase in the debt limit will require a greater amount in spending cuts” which seems to negate any progress that had been made and puts the negotiations back at square one. Last Thursday and Friday the spot VIX index rose, and the Dec. contract, which expires Wednesday, rose in lockstep with it. However, the Jan. contract actually traded down on Friday, which suggests the market is only fearful in the near term and predicts the VIX to fall into Jan. expiration. The below average amount of contango between the Dec. and Jan. contracts is somewhat of a bearish sign for this week, and could mean the market sell off if comments out of Washington continue to disappoint.

As the fiscal cliff nears the market is beginning to wonder…

Morning Update

Overnight risk sentiment in Asia and Europe was buoyed by a strong PMI out of China. Japanese data was weaker than expected, confirming an accelerating recession in the country. Then Yen has been strong though after hitting major support levels against the Australian and US dollars and ahead of Japanese elections this weekend. This morning the US CPI posted its biggest decline in 6 months but industrial production topped even the highest estimates. With congress at home for the weekend Fiscal Cliff headlines, which control the market right now, are likely to be muted today, leaving only the market technical to fuel trading. The S&P 500 futures are currently at their 50 day moving average, which should provide some support.If Fiscal Cliff fears to surface, I would expect to see the Jan. VIX contract, which has been under performing the Dec contact, catch a bid.

Yesterday MetLife issued a warning to investors that next year’s earnings could come in less than analysts are expecting …

Morning Update

Yesterday’s Fed meeting fell largely in line with market expectations with the announcement that the Fed would make up for the end of Operation Twist with $45B in outright asset purchases on the long end of the curve. The biggest surprise was that the Fed said they will keep the Fed Funds rate at current levels until unemployment is at 6.5%. During the preconference Bernanke elaborated that this is not a hard and fast target, but more of a guideline. Stocks gave up their gains on this news to finish in the red along with bonds on the day. The big mover overnight has been gold, which is down 1.25% at the moment despite the bullish fundamentals from the Fed. The sell-off began at the open of Asian trading and was likely profit taking after the metal’s run up into the announcement. We remain long term bullish on gold and expect the metal to appreciate in lock step with the size of the Fed’s expanding balance sheet.

Yesterday the market got its first look at what RIM’s BB10 is likely to …

Morning Update

Yesterday’s Fed meeting fell largely in line with market expectations with the announcement that the Fed would make up for the end of Operation Twist with $45B in outright asset purchases on the long end of the curve. The biggest surprise was that the Fed said they will keep the Fed Funds rate at current levels until unemployment is at 6.5%. During the preconference Bernanke elaborated that this is not a hard and fast target, but more of a guideline. Stocks gave up their gains on this news to finish in the red along with bonds on the day. The big mover overnight has been gold, which is down 1.25% at the moment despite the bullish fundamentals from the Fed. The sell-off began at the open of Asian trading and was likely profit taking after the metal’s run up into the announcement. We remain long term bullish on gold and expect the metal to appreciate in lock step with the size of the Fed’s expanding balance sheet.

Yesterday the market got its first look at what RIM’s BB10 is likely to …

Morning Update

Yesterday the market closed near the highs of the day with the VIX futures at the lows. When Senator Reid came on TV to say that he did not expect to see a fiscal cliff deal before Christmas the S&P sold off slow and steady, but VIX did not catch a bid. The market then recovered into the close, which suggests traders do not believe Reid and are not worried. Today trader’s attentions will be on the FOMC meeting, which is expected to result in the announcement of additional asset purchases to make up for the end of Operation Twist. Gold is higher this morning and the dollar weaker ahead of the meeting.

AIG has had a busy week in the news, first announcing the sale of most of its International Lease Finance Corporation (ILFC) to the New China Trust Co., and then the government’s announcement that they will sell their remaining stake AIG. This has sent shares up 3.3% on the week and 5.7% yesterday. The headlines also created a flurry of option activity on the stock as traders try to p…

Morning Update

Yesterday was a relatively quiet US trading session that ended with stocks up and the VIX up. However, the December future was unchanged and the Jan. future was down 0.20, which brought the December future in line with the spot VIX. The January future is the one to watch for fiscal cliff fears, and the selloff suggests a lack of fear in the market. This morning the S&P futures are up with the VIX futures down, mostly on positive news out of the Eurozone overnight. The S&P 500 futures are currently above the 1420 level which has been a resistance level. I would expect a test of the level in the regular trading hours and will be looking to see if it is able to hold as support. Risk sentiment has been fueled by stronger than expected Spanish and Italian t-bill auctions, and the German ZEW survey posted its strongest reading since May 2012. This has the Euro higher against major currencies,a nd dollar weakness will be supportive today. The Swiss Franc is notably weak this morning…

Morning Update

Overnight Japan reported weaker than expected GDP, which means that the country is officially in recession. The contraction is due to, in part, slowing exports to China, which confirms a slowdown there as well. In Europe Italian PM Mario Monti lost support of former PM Berlisconi’s party in parliament. Monti is likely to quit before the end of 2013, which has European shares down and Italian bond yields trading at their widest spread to German Bunds in 4 months. Last week a weak Spanish bond auction sent Spanish bond yields higher as well, showing waning investor enthusiasm for Europe’s weakest links despite the actions of the ECB. In the US Obama and Boehner met in person, though there are no reports of what was discussed. In this case I see no news as good news. As long as they are not publicly complaining about a lack of bi-partisan cooperation I believe they are making progress. Reports also surfaced that republicans would be likely to support higher taxes on the wealthiest Ameri…

Morning Update

This morning the NFP report for November came in well above expectations at +146K jobs which brought the unemployment rate down to 7.7%. This is the lowest unemployment rate seen in 4 years and is the result of 350,000 people leaving the labor force. The BLS said that there were no discernible impacts from Hurricane Sandy, contrary to expectations. Overall this appears to be a bullish report and contracts the poor ISM manufacturing, PPI, and durable goods orders for the month. The market is higher on the news but we expect traders to remain cautious about getting overly long before a fiscal cliff deal is announced.

Yesterday Nokia saw some of the highest call option trading volume of the whole market. The biggest trade of the day was the purchase of 22,260 January 7 calls for $0.38 with the stock at 3.69. This is a bullish bet that the stock will be above 7.38, a 100% gain, over the next 42 days.

Nokia’s stock has been beaten down in 2012 as the company continues to lose market share…

Morning Update

This morning jobless claims were reported at 370K, which beat consensus expectations of 380K. This is the third straight week of declines in claims since the spike caused by Hurricane Sandy and suggests the effects of the storm are wearing off. In Europe strong manufacturing data out of Germany and strong risk sentiment in Asia sent European shares higher in early trading, but the major indices are since well off their highs. The Euro is lower and the Yen higher, suggesting traders are positioning themselves into risk-off positions. Spanish and Italian debt has had a rough day, with Spanish 2yr spreads 38bps wider on the week. Swiss 2yr rates hit 3 month lows this morning, also confirming the risk off sentiment. Today I would not expect to see too much action in US equity markets as traders sit tight ahead of tomorrow’s jobs numbers. The market is looking for payrolls to increase by 80,000 versus 171,000 last month, and for the unemployment rate to increase 0.1% to 8.0%.

One of the be…

Unusual Options Activity

Yesterday Netflix shares jumped 14% on news that Disney has struck a deal with the company to stream Disney, Pixar, and Marvel movies beginning in 2016. This is the first time a major Hollywood film studio has chosen web streaming over premium cable channels, and represents a major step forward for the Netflix business model. The stock saw above average option trading volume on the news, with most of the volume concentrated in call trading. One trader bought 400 weekly 90 calls for $1.39 with NFLX at 86.45. This is a bullish bet that will profit if NFLX is above 91.39 or 5.7% higher, at the close on Friday.

This trade is a speculative bet that near term momentum will continue to drive the stock upwards over the coming days. The market is eagerly awaiting disclosure of the financial terms of the deal, which could send Netflix shares sharply up or down depending on the news. Analysts believe Disney’s current deal with Starz is worth about $250 million per year and that Netflix could be…

Morning Update

Yesterday markets sold off on an exceptionally poor ISM manufacturing number which was reported at 49.5. Readings below 50 indicate contracting business activity. This comes on the back of poor durables goods orders and PPI last week, all of which suggest the US is headed for a recession. However, at the moment traders are preoccupied with budget negotiations going on in DC. On Friday traders will be watching the November unemployment report, though the reading could be distorted by Hurricane Sandy. Next month’s ISM manufacturing, unemployment, PPI, and durable goods orders will be extremely important because they will either confirm or deny the slowdown seen in the most recent data.

Yesterday fiscal cliff worries were at the forefront of traders’ minds, which sent the S&P 500 down 0.5% on the day. Should the US go off the cliff, there is a high probability of a recession in the near future. This has option traders playing defense ahead of the New Year by selling out of the money…

Morning Update

On Friday the Brazilian statistics agency, IBGE, reported that their economy expanded just 0.6% in the third quarter, which was well below expectations. This sent Brazilian stocks tumbling, Petroleo Brasileiro among them. PBR has had a rough 2012: the stock is down 27.7% year to date and currently trading near its 52-week low. However, now the stock is getting cheap enough to entice Brazilian bulls to take a shot on the stock. On Friday one trader bought 8500 April 20 calls for $0.72 with the stock at 18.05. This is a bullish bet that will profit if PBR is above 20.72, or 15% higher, at expiration.

Brazilian growth is highly dependent on growth in China, is one of their largest trade partners. Brazilian stocks have been sold for the past few weeks as data out of China showed a slowing economy and analysts downgraded Brazilian GDP expectations for 2012 and 2013. However, this morning data out of China was upbeat; the HSBC’s Purchasing Manager’s Index rose to 50.5 from 49.5 in October. …