One week ago, Dennis Gartman said that a "bear market" was beginning. Stocks are up 5 percent since then. So what went wrong with his prediction?» Read More
Even as stocks are sliding hard, the biggest options traders have been making bullish wagers on stock indexes—which could indicate that the big money senses a buying opportunity in the market.
The S&P 500 fell to a nearly two-month low on Thursday, and at one point looked primed to have the first four-day losing streak of the year. But on Wednesday and Thursday, some of the day's biggest trades have been sales of put options on the S&P 500 and the Nasdaq 100, as well as sales of call options on the VIX.
Since the VIX tends to rise as stocks fall and traders become fearful, these institutional-sized trades on the CBOE Volatility Index indicate that major options players think the worst may be over.
"What we've seen in the last day or so is people starting to unload their insurance, take that protection off," said Brian Stutland of Equity Armor Investments. "To me, when we get the market down and yet people are taking insurance off, it tells me that the smart players out there are trying to buy into this market—remove the insurance, and play to the upside in stocks."
Stutland says that with so much money behind them, these trades should carry some weight in investors' minds.
"When you talk about volatility, these are the smart traders out there in the world," he said.
Crude oil has gotten crushed this week, with West Texas Indermediate futures falling below $90 per barrel on Thursday for the first time in more than a year. And though oil has staged a mild comeback over the course of the session, crude oil futures are still 15 percent below the high set in June.
At this point, traders say bearish fundamentals and an awful-looking chart could point to more downside ahead for oil.
The main cause for the crude decline comes out of the Middle East, where Saudi Arabia surprised the market by opting not to cut production even in the face of declining prices. And according to trader Brian Stutland, "the Saudis are just starting to feel the heat. U.S. production has really put some pressure on them."
Yet even as supply will be higher than expected, Stutland noted on Thursday's "Futures Now" that the European economy continues to be in major trouble "which is weakening demand global, so it's not just a supply thing—it's a demand thing overseas."
Stocks have run into a bit of trouble lately, as the S&P 500 is down 2.5 percent from the record high it hit on Sept. 19, and the CBOE Volatility Index (better known as the VIX) has gotten as high as 17. But Scott Clemons, chief investment strategist at Brown Brothers Harriman Private Bank, predicts that it will get much worse for stocks between now and the end of the year.
"I'm nervous," Clemons said Tuesday on CNBC's "Futures Now." "I think investors have had a holiday from volatility for almost two years, and that vacation's about over."
Because the markets have been so sanguine for so long, when the market does crack, the reaction could be swift and painful, he said.
"The complacency in the market, to me, is one of the things that creates a fragility that could lead to an enhanced or exaggerated negative market reaction, on even a modest piece of negative news."
On a wretched day for stocks, the CBOE Volatility Index (or the VIX) jumped 22 percent on Thursday, which likely indicates that investors are growing increasingly concerned about the market's next move. And if fears on Wall Street are correct, then stocks may suffer through an especially difficult few weeks.
"After a long and low period of implied volatility across the board, you are seeing some realization that maybe it is time to buy volatility and maybe get more conscious on risk assets like stocks," said Nicholas Colas, chief market strategist at ConvergEx, on CNBC's "Futures Now." "Clearly there has been a rising level of concern among institutional investors about the market feeling toppy. We've heard that from our clients, and we've seen it from the action on our trading and options desks."
He said that seasonal trends point strongly to a spooky October.
"Right now the VIX high for the year was in February: 21.44 on February 3. If you go back 25 years to the beginning of the VIX, it's never topped out in February. October is typically a very high volatility month," Colas said on Thursday.
"I do expect that we get a pullback that rolls through the first half of October. It's seasonally right. We've had a lot of complacency. There are enough headlines to concern people. And let's face it—stocks may not be expensive, but they're not cheap either," he continued.
Gold bulls breathed a sigh of relief on Tuesday, as the metal rose on the session, and managed to avoid hitting a fresh eight-month low (which has become a common occurrence for gold over the past week). But according to commodities expert Andy Hecht, gold is set to head much lower in the weeks ahead.
"Right now, my best trade is just being short gold," said Hecht, a longtime veteran of the Phillip Brothers trading desk, and the author of "How to Make Money with Commodities." "I think that we're going to go through the $1,185 support which was the low on December 31st of 2013, and I think we're going to head to four-year lows, which will bring gold to around $1,045" per troy ounce.
Hecht points out that many precious metals are already trading at four-year lows, including gold's "little sister," silver, which lost as much as 6.5 percent in two sessions on Friday and Monday before staging a mild recovery. In fact, Hecht looks to the ratio between the price of gold and the price of silver in predicting that gold is set to slide further.
"Gold has been moving lower, but it's been getting more expensive when it's moving lower," Hecht said Tuesday on CNBC's "Futures Now." "And that reason for that is the gold/silver ratio. It's at four-year highs at 68.7-to-1. The median level that I like to look at in that relationship is 55-to-1. That's kind of where it is over the last 35 years, where it's mean-reverted."
Now that the ratio is so far above its historical average, "that tells me that silver is either cheap, or gold is expensive. And given the fact that silver broke down through the $18 to $18.50 support on Friday, it's telling me that gold is just too expensive here relative to silver."
CNBC's "Futures Now" team is very sad to report that Rich Ilczyszyn died Saturday at age 46.
Rich was a valued contributor to "Futures Now," where his wit, energy and intelligence made him an integral part of the team. More importantly, Rich was a truly kind and decent individual, and a family man through and through.
As executive producer of "Futures Now," I take enormous pride not only in having worked with him, but also in being able to have called him a friend.
The family said the apparent cause of death was a pulmonary embolism, Rich's colleague at iiTrader Bill Baruch said on Tuesday.
He is survived by his wife, Kelly, daughters Sydney and Hannah, and son Logan.
Are companies beating earnings expectations? Well, yes and no.
All eyes are on earnings this week, as investors eagerly await to find out how well American companies did in the first quarter of 2014. So far, fewer than 20 percent of S&P 500 companies have reported. But already, a few disturbing trends are emerging.
Of the 85 S&P companies that have already reported their first-quarter earnings, 67 percent have beaten analyst estimates on the earnings side, and 51 percent have beaten on the revenue side, according to FactSet. That sounds pretty good—until one considers that over the past four years, 73 percent of companies have tended to beat earnings estimates, and 58 percent have tended to beat revenue estimates.
It's not just the number of companies beating—the aggregate amount of earnings has been similarly light. Companies have reported earnings 2.0 percent above expectations, which is well shy of the 5.8 percent "surprise percentage" that companies have tended to report over the last four years.
The overall sales numbers have also been soft, with companies reporting revenue 0.3 percent below expectations in aggregate.
At this point, S&P 500 companies look to report a year-over-year earnings decline for the first time since the third quarter of 2012. By combining the earnings that have already been reported with the analyst estimates of the S&P 500 earnings we have not yet seen, FactSet senior earnings analyst John Butters arrives at a "blended" earnings decline estimate of 1.3 percent.
Is the economy actually picking up steam? Investors will get another indication this week, when cyclical giants like Caterpillar and Ford report earnings
"I'm looking at CAT, I'm looking at Ford, I'm looking at Microsoft. And I'm taking them all together and kind of putting them in the category of an economic datapoint from a macroeconomic standpoint," said Jim Iuorio of TJM Institutional Services.
He expects that the reports will give investors another reason to be optimistic.
"I think that it's going to be good, based on the fact that most of the numbers we've seen over the last couple of weeks have been pretty good," Iuorio said.
So far, earnings season has brought decent news. 65 percent of the S&P 500 companies that have reported have beaten earning per share estimates — which just slightly below the 71 percent average. On the revenue side, 51 percent of reporting companies have beaten.
Not only is long-term economic stagnation possible, but current conditions in the United States could lead to this nightmare scenario. That's the shocking conclusion presented by Brown University economists Gauti Eggertsson and Neil Mehrotra, whose recent paper, "A Model of Secular Stagnation," explains how secular stagnation could come about.
This flies in the face of the popular theory that long-term economic stagnation is not possible. After all, economic agents are expected to adjust to whatever the current economic conditions are, and once they do, the framework for growth should be laid anew.
But by adjusting economic models to allow for the fact that different groups have different needs, the two economists bring a new truth to light.
"In models in which there is some heterogeneity in borrowing and lending, it remains the case that there is a representative saver whose discount factor pins down a positive steady interest rate. But moving away from a representative saver framework to one in which people transition from being borrowers to becoming savers over time due to lifecycle dynamics will have a major effect on the steady state interest rate and can open up the possibility of a secular stagnation," Eggertsson and Mehrotra write.
Using complex models, the paper goes on to show why a "deleveraging shock," a "drop in population growth," or "an increase in income inequality" could all increase savings. And with a short-term nominal interest rate permanently at zero, the central bank will be "unable to generate a sufficient monetary stimulus because the nominal interest rate cannot be negative." Instead, the result is a "permanent drop in output."
Gold suffered its worst day of the year on Tuesday, as bullion fell 2 percent. And when it comes to where gold is going next, Peter Schiff and Paul Krake have completely opposite perspectives.
Krake, of View from the Peak, has a target on gold of $1,000, roughly $300 below current levels. But Schiff, CEO of Euro Pacific Capital, says gold is heading above $5,000.
Schiff's bullish case is premised on the idea that central bank actions will create inflation, which will lead to much higher gold prices.
"Central banks are creating too much money, there's too much inflation, interest rates are too low, and so I want to store my purchasing power in something that central banks can't print," Schiff said on Tuesday's episode of "Futures Now." "I think we're headed much higher because they are not going to stop the presses. They are going to run them into overdrive."
One obvious problem with this thesis is that the Federal Reserve has been reducing, not increasing, the size of its bond-buying program. But Schiff says that quantitative easing will never end.
"If the Fed continues with their taper and ends QE, we will be back in a recession. The stock market will be in a bear market. The real estate market will be in a bear market. And then what is the Fed going to do to respond to that? The only thing it can do is print more money and restart the presses and do more QE," Schiff said.
Read More China's gold fever to cool in 2014
But Krake pointed out that even if Schiff is right, more QE will not necessarily send gold higher.
"Peter, how do justify the following: Last year you had the greatest balance sheet expansion across global central banks in history, yet gold had its worst performance in 30-odd years?" Krake asked.
"Did you ever trade anything? Buy the rumor, sell the fact? Gold rallied for over a decade in anticipation of that," Schiff responded. "We shook out some of the weaker players. Meanwhile, gold is outperforming all other assets in 2014."
That counterargument flabbergasted Krake.
"To make the argument that 'buy the rumor, sell the fact' justifies the greatest move in 30 years versus the greatest balance sheet expansion in central banking history? That is a bit of a lame argument, I'm sorry," Krake said.
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