5 Signs the French Election Sparked a Relief Rally in Stocks

With the uncertainty surrounding the French election temporarily removed, stocks are soaring

Apr 24, 2017 at 12:08 PM
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The stock market is soaring today, with the major U.S. benchmarks trading up at least 1% so far. Stocks are reacting to Sunday's first round of voting in the French presidential election, with centrist Emmanuel Macron and far-right candidate Marine Le Pen advancing to the May 7 run-off round. However, there were numerous signs that fear was growing in the lead up to yesterday's results, suggesting today's price action could be a relief rally.

Large Specs Increase Long Exposure to Gold

The latest Commitments of Traders (CoT) report shows large speculators have increased their net long positions on gold -- often seen as a "safe-haven asset." These positions are now perched at their highest level since the week of the U.S. presidential election last November. What's more, gold futures settled last week up 3% month-to-date. Today, however, June-dated gold futures have tumbled 1.2% to trade at $1,274.10 per ounce.

cot large specs on gold futures

Optimism Among AAII Respondents Hits a Pre-Election Low

The most recent American Association of Investors Intelligence (AAII) survey showed 25.7% of its respondents chimed in last week with bullish expectations for the stock market over the six months. This is the lowest reading on bullish sentiment since Nov. 2. Conversely, the number of bearish and neutral respondents accounted for 74.3% of AAII members -- the highest reading since last November.

AAII bulls with SPX

Options Traders Increase Bearish Exposure to European ETFs

Several exchange-traded funds (ETF) with exposure to the eurozone have seen an uptick in put activity recently. The Vanguard FTSE Europe ETF (VGK), which tracks major European markets, saw a 15,000-contract block of May 47 puts bought to open last Friday for $450,000 (number of contracts * $0.30 premium paid * 100 shares per contract). VGK had been stalling beneath $51 in recent weeks, but was last seen trading up 3.4% at $53.20, and was fresh off an annual high of $53.24.

Echoing this defensive stance taken by options traders, the SPDR Euro Stoxx 50 ETF (FEZ) and the iShares MSCI EAFE ETF (EFA) have put open interest docked near the top of their respective annual ranges. Put open interest on the iShares MSCI France ETF (EWQ), meanwhile, is at the top of its 52-week range, though the ETF just wrapped up its best trading day on a percentage basis since August 2012.

Long Put Options Gain in Popularity

Elsewhere, Schaeffer's Quantitative Analyst Chris Prybal noted that the 10-day equity-only put/call volume ratio is beginning to move higher, indicating long put options are growing in popularity. The ratio is currently docked at 0.97, which is the highest reading since Nov. 16.

stock only put_call volume ratio with spx

VIX Options Volume Flashes a Signal Not Seen Since Before Brexit

The CBOE Volatility Index (VIX) saw a rush toward calls last week, after April VIX options expired. In fact, VIX call volume toppled 1 million contracts for two straight days -- something that hasn't happened since before last June's Brexit vote. VIX calls now outweigh puts by a more than 2-to-1 margin, with open interest docked 5 percentage points from a 52-week peak. With stocks surging today as the uncertainty of surrounding the French election temporarily subsides, VIX was last seen down 22.2% at 11.34 -- its lowest level since early April.

What This Election Year Means for Stocks

Ipad with I voted sticker

  


 
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