What 3 Days Of Strong NASDAQ Breadth Suggests For Today

By Rob Hanna

Not only did we see gains for the 3rd day in a row on Monday, but the NASDAQ put in some strong breadth numbers. This triggered a study that looked at times Nasdaq advancers outnumbered decliners by more than 3:2 for 3 days in a row. It suggested such persistent lopsided breadth was about enough, and it was often followed by a down day. Updated results can be seen below.

2018-07-10-1

The numbers imply a downside edge. I also included the equity curve (which I normally only do in the subscriber letter).

Continue reading What 3 Days Of Strong NASDAQ Breadth Suggests For Today

Most Shorted Stocks vs. the S&P 500

By Callum Thomas

This chart draws inspiration from some of the charts and themes I shared in last week’s S&P500 #ChartStorm, it shows the Thomson Reuters “Most Shorted Stocks” index vs the S&P500 (as well as the performance ratio between the two).  When you see the “most shorted stocks index” materially outperforming vs the broader index you can draw one key conclusion: shorts are getting squeezed.  Basically what happens in a short squeeze is you get a rush to cover short positions as bears get caught wrong-footed.  So you can basically say that much of the recent rally was driven by short-covering.  However, as I’ve noted elsewhere there are a few macro undercurrents that are preventing the S&P500 itself from heading unrestrainedly higher, and this is creating a series of winners (e.g. US small caps) and losers (e.g. emerging markets).

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Weak Week After June Opex

By Rob Hanna

I noted a few years ago here on the blog that the week after June options expiration has done especially poorly in recent years. The table below is updated and shows all such weeks dating back to 1999.

2018-06-18

Those are some pretty weak numbers. Below is a 5-day profit curve.

2018-06-18-2

As you can see, it has been quite a streak of bearishness. Twelve out of the last fourteen years have closed down. So it would seem we may be entering a week seasonal period.

I will note that this week has not always exhibited such bearishness. Between 1979 – 1989 this week posted gains every year. (But S&P options, and hence opex week, did not exist until 1984.) Overall, I am viewing it as a mild bearish headwind for the time being.

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Or better yet, subscribe to NFTRH Premium for an in-depth weekly market report, interim updates and NFTRH+ chart and trade ideas to get even more bang for your buck. You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar. Or follow via Twitter @BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.

The Strength Of Two Unfilled Up Gaps & A 50-Day High

By Rob Hanna

One interesting study that I discussed in last night’s subscriber letter considered the fact that SPY left an unfilled upside gap for the 2nd day in a row while closing at a 50-day high. The results table I shared can be found below.

2018-06-05

The size of the follow-through isn’t terribly large, but it has been quite consistent that some follow through was achieved in the next few days. The market is certainly overbought here. But overbought does not always mean an immediate reversal. While evidence is mixed, (for instance, an expected substantial SOMA decline this week is creating a bearish headwind this study suggests the kind of strength we have seen over the last couple of days is often followed by more strength. And it can serve as a nice little piece of evidence for traders to consider as they establish their market bias.

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Subscribe to NFTRH Premium for an in-depth weekly market report, interim updates and NFTRH+ chart and trade ideas. You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar. Or follow via Twitter @BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.

The Bullish Tendency of the Thursday after Memorial Day

By Rob Hanna

Thursday after Memorial Day has been a day that has exhibited a bullish bias for many years. I last showed this on the blog last year. The chart below shows updated results.

2018-05-30

Single-day seasonality can certainly be overrun by other forces, but the Thursday after Memorial Day has been a good one for many years. That may be something that traders want to keep in mind for Thursday.

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Slow Boiling Bull Frogs

By NFTRH

The following is part of the Market Sentiment segment of this week’s edition of Notes From the Rabbit Hole, NFTRH 498. I’ve given it a funny name that would be less funny for a lot of people if the scenario actually plays out.

Slow Boiling Bull Frogs

Last week we reviewed Commercial Hedgers data that was bullish for the stock market and other sentiment data points that were not. The picture was mixed and our view was that a bounce (to short into, if you are bearish) was likely.

Refining that a bit, we reintroduce the ‘M’ retest possibility. It’s not a call or even a favored outcome since the stock market is still generally below markers like the SMA 50 and a series of declining highs. But as Apple showed us last week, this pig can scream higher at any time that animal spirits get unleashed.

One problem for longer-term bulls is that unlike the big, ultimately bullish event in 2015-2016 today’s SPX has not seen a corresponding rise in the VIX as the market has declined. The off-the-cuff interpretation of that is complacency that is out of whack with the flat to negative price action over the last several weeks.

spx, vix Continue reading Slow Boiling Bull Frogs

What the EPS? S&P500 Earnings Outlook

By Callum Thomas

Here’s the second installment of the new “What the EPS?” series, where I look at earnings trends across sectors, countries, regions…. taking my usual top-down approach.  This week we look at earnings trends for the S&P500, specifically the path of forward earnings (up sharply), trailing earnings (up slowly), and estimates of long term future earnings growth (up sensationally*).

The key points on the S&P500 earnings outlook are:

-Forward earnings growth is running hot (thanks to a spike in upward revisions driven by the tax cuts).

-Trailing earnings are plodding along, following a recovery from the 2015/16 earnings recession.

-Long term growth estimates ave spiked to the highest levels seen since the dot com boom.

1. Forward vs Trailing Earnings Growth:  This is an important chart for anyone who cares about the S&P500.  It shows the pace of growth in forward earnings (consensus estimates of the next 12 months earnings) vs trailing earnings (actual earnings over the last 12 months). The obvious standout is the surge in forward earnings (thanks to tax cuts), the less obvious standout is the earnings recession in 2015/16, and relatively lackluster pace of earnings growth thereafter – no signs of overheating there! (yet)

Continue reading What the EPS? S&P500 Earnings Outlook

Peak S&P 500 P/E Multiple?

By Kevin Muir 

Let’s talk earnings for a bit. Specifically, how the 2017 tax cut affected S&P 500 earnings.

We all know the story. America’s corporate tax rate was uncompetitive and created distortions in the economy that prevented companies from investing in the U.S. The Tax Cuts and Jobs Act of 2017 was designed to level the playing field and in the process, create all sorts of high-paying jobs. The Federal corporate tax rate was slashed from 35% to 21%.

There can be no doubt the effects were immediately felt in the corporate sector.

One-year forward earnings-per-share estimates for the S&P 500 jumped from 145 to 160 almost overnight. Investors applauded Trump’s policies with gusto.

Stock market traders especially fell all over themselves with jubilation about the tax cuts. No one wanted to write any pink tickets before year-end. And even when the calendar year turned over, the wall of buying just kept coming. January turned into an absurd food fight as investors chased stocks higher and higher. Earnings had just been given a huge adrenaline shot in the arm and the rush to buy stocks overwhelmed any sense of caution.

Continue reading Peak S&P 500 P/E Multiple?

Weekly S&P 500 #ChartStorm

By Callum Thomas

Those that follow my personal account on Twitter will be familiar with my weekly S&P 500 #ChartStorm in which I pick out 10 charts on the S&P 500 to tweet. Typically I’ll pick a couple of themes and hammer them home with the charts, but sometimes it’s just a selection of charts that will add to your perspective and help inform your own view – whether its bearish, bullish, or something else!

The purpose of this note is to add some extra context beyond the 140 characters of Twitter. It’s worth noting that the aim of the #ChartStorm isn’t necessarily to arrive at a certain view but to highlight charts and themes worth paying attention to.

So here’s the another S&P 500 #ChartStorm write-up!

1. VIX Futures Curve Indicator: First up is a look at the VXV vs VIX (i.e. 3-month VIX futures price vs the spot VIX).  The reason this is a useful and interesting indicator is that when it undertakes extreme movements to the downside i.e. the VIX spikes beyond the futures price, it can present a kind of oversold or buying signal.  This is because it basically implies that options traders are bidding up implied volatility i.e. they are more fearful vs futures traders. Of course with the benefit of hindsight, fear is sometimes rational and sometimes irrational.

Bottom line: The VXV vs VIX indicator remains in fear/oversold mode.

Continue reading Weekly S&P 500 #ChartStorm

The Warning Shots of 2007

By Steve Saville

For a market analyst there is an irresistible temptation to seek out one or more historical parallels to the current situation. The idea is that clues about what’s going to happen in the future can be found by looking at what happened following similar price action in the past. Sometimes this method works, sometimes it doesn’t.

Assuming that the decline from the January-2018 peak is a short-term correction that will run its course before the end March (my assumption since the correction’s beginning in late-January), the recent price action probably is akin to what happened in February-March of 2007. In late-February of 2007 the SPX had been grinding its way upward in relentless fashion for many months. The VIX was near an all-time low and there was no sign in the price action that anything untoward was about to happen, even though some cracks had begun to appear in the mortgage-financing and real-estate bubbles. Then, out of the blue, there was a 5% plunge in the SPX. On the following daily chart this plunge is labeled “Warning shot 1″.

Continue reading The Warning Shots of 2007

The Negative Impact of Friday’s Low Volume

By Rob Hanna

I mentioned in a Tweet on Friday that the low volume on Friday’s rally was a bit concerning. The study below is one I featured in the subscriber letter this weekend. It examined other times substantial rallies occurred during uptrends on very light volume.

2018-02-25

Stats here suggest a downside edge. Perhaps not a huge edge, but in my view one that appears strong enough to warrant some consideration when establishing my short-term bias. So traders may want to keep this in mind as we begin a new week. I will also note that I ran the same test, but switched the volume requirement to “NOT the lightest in 20 days”. Of course there were many more instances. With volume not coming in extremely low, the average trade flipped to moderately positive across the board. This suggests the low volume is a factor.

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