Stocks are not making new all time highs. Somebody alert the Plunge Protection Team. #sarcasm
The above chart is a ratio of the OEX (S&P 100 - think BIG cap) divided by the VIX (cost/perception of "insurance"). Stocks have been performing very well and the VIX has been under significant pressure.
- OEX ~ 765
- VIX ~ 12.20
- Ratio=62.7
At the risk of sounding like a broken record - passive longs should be careful and consider hedges. They are cheap on many levels.
Moving on to the little picture - after a very data heavy week last week, (FOMC, ECB, BoE, Non Farm Payrolls), this week is very light.
In the Energies, Crude made another overnight run at $108 and failed. We appear to be in a range between $109 and $102. Gasoline has been struggling which is good news for consumers who saw prices at the pump ramp up quickly in July (RINS played a big role in the that move as well as the one in February). The Gasoline Crack tested the lows from late June/July and held.
Visually (September Gasoline Crack):
I might consider SELLING GASOLINE PUTS (Sept 270) on another move lower v. BUYING WTI puts to potentially capitalize on a pop in the crack.
Clients have been short Natural Gas puts and I continue to believe we're closer to a trading low than high.
The Metals have also been under pressure but remain bound by the June 28th lows and July 22nd highs. Tactical short termers might be interested in Silver around 19.50, but nothing looks overtly compelling at this point. On the Industrial side, Copper once again tested 3.20 as the People's Bank of China engaged in a reverse repo overnight (liquidity INJECTION - which if they become regular is a BIG deal).
The Royal Bank of Australia met and cut rates by 25 basis points which was anticipated, but the tenor of the statement was perceived as less dovish than prior meeting and the Aussie bounced off lows. In late August of 2010, just before Bernanke pre announced QE2 at Jackson Hole symposium, the Aussie traded with a 87 handle. Yesterday it tested 88 and bounced. IF the market believes China will continue to provide liquidity AND the RBA is less dovish, the Aussie could catch a lot of people short. Just my .02.
In other big picture news/visuals:
The above chart shows an inflection (global) in early May and bottoms at the height of "Taper" talk in late June. US markets have outperformed the rest of the world in 2013 and Emerging Markets are lagging considerably.
The "BRICs" have notably lagged in 2013 with Brazil as the worst performer and India the relative outperformer. I'll be watching to see if the China "bottom" holds......it's a big deal for a number of commodities.
In Asia, Japan has clearly led the charge as Abenomics have been supportive of the Nikkei and put considerable pressure on the Yen. Watch out if the trade war heats up in the Far East. Beggar Thy Neighbor politics can get ugly quickly. The race to debase continues in the Land of the Rising Sun.
In my experience, the S&Ps tend to struggle when they trade at a 10% premium to the 200 day moving average. We'll see if that holds this time.
Sentiment levels are at least signaling a yellow light (close to red).
Speculators remain very short the Treasury market.
Hedge funds' exposure to Commodities, according to the most recent COT report is very low...
..especially when it comes to the Agricultural complex. Exposure is VERY LOW. Outside of the Energy sector - exposure to commodities are at multi year lows.
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