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Stocks

Shorts Continue Targeting Retailers


Investors have seen this movie plenty of times already this year. The SPDR S&P Retail ETF XRT 0.15%, previously seen as the benchmark among exchange-traded funds tracking retail stocks, is getting punished as markets take traditional brick and mortar retailers to task.

Even with all of its struggles, and there are plenty, XRT has traded higher over the past week and month and is down just 7.4 percent year to date. That speaks to some of the advantages of XRT's equal-weight methodology, which helps limit single stock risk.

However, with XRT down just 7.4 percent this year, that is not enough for bearish traders to say the easy money has already been made. In fact, short sellers continue targeting XRT and some of its holdings, along with other retail stocks.

The Data Say...

Data confirm the bearish cloud hovering over XRT and some of its components.

“S&P 500 short sellers, already disproportionally active in retailers, are gearing up for more disappointment from the sector this earnings season,” said Markit in a note out Wednesday. “The sector’s very evident struggle against online rivals has already caused its shares to trail the wider S&P by 20% year to date. Efforts to head off this competition by aggressively closing down stores and investing heavily in omnichannel distribution has so far left shorts unconvinced; demand to borrow the sector’s shares continues to climb ever higher. This relentless buildup of shorting activity means that the average short demand for the sector now stands at 5.2% of shares outstanding, the highest level in over two years.” 

On a related note, XRT is currently one of the most shorted US-listed ETFs, a dubious distinction held by the ETF for a good portion of 2017.

As Markit points out, short sellers have been active in department store names, such as Kohl's Inc. KSS 0.26% and Nordstrom, Inc. JWN 0.06%. XRT allocates 7.6 percent of its weight to department store stocks.

It's Better Online

Not all retailers are flailing. E-commerce firms, and that includes more than just Amazon.com Inc. AMZN 4.09%, are thriving. Just look at the Amplify Online Retail ETF IBUY 0.61%. IBUY is up 36.1 percent year-to-date and is regularly hitting new highs while XRT flails.

“The negative sentiment expressed by short sellers is mirrored by ETF investors, who have continued to cash out of retail focused funds over the last four months. These investors were initially willing to give the retail sector the benefit of the doubt, because retail ETFs experienced their first quarterly inflow in two years over the first quarter,” according to Markit.

In the third quarter, investors have yanked $90.5 million from XRT while allocating $16.2 million to IBUY.

Benzinga is a fast-growing financial media outlet that empowers investors with market-moving content. The site also manages Benzinga Pro, a streaming platform with real-time headlines, data and actionable alerts. Sign up for a free trial and profit with faster news now.

This article is from Benzinga and is being posted with Benzinga's permission. The views expressed in this article are solely those of the author and/or Benzinga and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Stocks

Amazon Looks Undervalued


Despite several busy weeks highlighted by the proposed acquisition of  Whole Foods (WFM), plans for a more aggressive push into apparel/Amazon Wardrobe, and an expanded portfolio of Amazon products,  Amazon's(AMZN) second-quarter update had a familiar feel. Fulfillment, marketing, and technology/content expenses continue to run at a higher clip than a year ago, which would be a concern if there wasn't evidence that the network effect supporting Amazon's ecosystem remains strong. We see this in the acceleration in third-party seller revenue (up 37.5%, suggesting Amazon is becoming an indispensable channel for third-party sellers), paid units (accelerating to 27%), and subscription revenue (up 51%, signaling consumers are becoming more engaged on the Amazon platform).

The more important takeaway for investors is that we see signs that the building blocks of longer-term free cash flow growth assumptions may be evolving and becoming more durable, lending further credence to our wide moat rating. Our medium-term operating margin assumption of 7%-8% has long been a function of Prime memberships, third-party sales, and Amazon Web Services, with advertising and Internet of Things/licensed technology offering upside. We believe these pillars are intact--supported by 130 basis points in gross margin expansion--but also becoming more dynamic. For instance, Whole Foods will give Amazon various ways to engage with Prime members (and drive higher membership fees), while adding brands like  Nike (NKE) to the platform could encourage greater adoption of Fulfillment by Amazon and other services among other third-party sellers.

We plan to adjust our 2017 operating margin outlook to 2%-3% (versus 3.1% a year ago) and raise our top-line forecast to around 25%. Over the next five years, we expect average annual revenue growth of 22% and still see operating margins of 6%-7% operating margins as achievable. As such, we don't plan to change our $1,200 fair value estimate and view shares as undervalued.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

R.J. Hottovy, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.

Morningstar provides a constant source for investment ideas with our comprehensive analyst reports on equities, ETFs, and credit ratings from more than 100 analysts. U.S. Interactive Brokers clients can sign up for a free trial of these reports in Account Management.

This article is from Morningstar and is being posted with Morningstar's permission. The information provided in this article is from Morningstar and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Stocks

Market Pressured by Amazon Weakness (and Tiredness)


The stock market is going to open lower today and one doesn't have to dig too deep to understand why.  Amazon.com (AMZN) fell shy of some very lofty second quarter earnings expectations and its stock is trading 3.4% lower following the report.

With Amazon, though, it is difficult to determine if the drop in its stock price is a reflection of genuine disappointment or simply a case of selling the news after a huge run in the stock.  To wit, AMZN is up 39% year-to-date, and at its high on Thursday, it was up 14% from its close on July 3.   With those huge moves, we suspect AMZN would be down a lot more than 3.4% if its investor base was truly disappointed in its report and outlook.

Nevertheless, the weakness in this favorite momentum stock is weighing on the broader market along with the weaker than expected results from ExxonMobil (XOM) and the disappointing guidance from Starbucks (SBUX).

The expected weakness at the start of trading, however, could be about more than what meets today's headline eye.

The sharp reversal in the Nasdaq yesterday on no news, and the beating the Dow Jones Transportation Average took (-3.1%), likely has a number of participants thinking that this latest leg up to new record highs for the major indices has run its course.  

That thinking could apply more to the Nasdaq Composite, which led the race, rallying 3.9% this month on the coattails of its biggest components, versus a 2.2% run for the S&P 500 and a 2.1% gain for the Dow Jones Industrial Average.

At the moment, the Nasdaq 100 futures are down 27 points and are trading 0.6% below fair value.  The S&P futures are down six points and are trading 0.3% below fair value while the Dow Jones Industrial Average futures are down 32 points and are trading 0.2% below fair value.

Like the response to Amazon's report, the advance estimate for Q2 GDP was less than thrilling.  Real GDP was estimated to have increased at a seasonally adjusted annual rate of 2.6% (Briefing.com consensus 2.8%) following a downwardly revised 1.2% increase (from 1.4%) for the first quarter.  Real final sales, which exclude the change in private inventories, were also up 2.6%.

The GDP Price Deflator was up 1.0% (Briefing.com consensus 1.3%) following an upwardly revised 2.0% (from 1.9%) for the first quarter.

The largest contributors to the increase in Q2 GDP were personal consumption expenditures (1.93 percentage points), gross private domestic investment (+0.34 percentage points), and net exports (+0.18 percentage points). 

In conjunction with the Q2 GDP report, the BEA released annual benchmark revisions for 2014 through the first quarter of 2017.  With the revisions, it was said that real GDP from 2013 to 2016 increased at an average annual rate of 2.3% versus 2.2% with the previously published estimates.  From the fourth quarter of 2013 to the first quarter of 2017, real GDP increased at an average annual rate of 2.1%, which was unchanged from previously published estimates.

The key takeaway from the Q2 GDP report, then, is that the average for the first half of 2017 was subpar at 1.9%, which should continue to keep any concerns about the prospect of a near-term rate hike from the Fed under wraps.

Separately, the second quarter Employment Cost Index revealed compensation costs for civilian workers increased 0.5% (Briefing.com consensus 0.6%), seasonally adjusted, on the heels of an unrevised 0.8% increase for the first quarter.  Wages and salaries, which make up about 70% of compensation costs, increased 0.5% while benefits, which make up the remaining portion, jumped 0.6%.

The indexes that are going to be more closely watched today, however, are the equity price indexes.  They are indicated to open lower, partly because the earnings news since yesterday's close hasn't been above reproach, but mostly because of some valuation concerns and exhausted buying power.

--Patrick J. O'Hare, Briefing.com

This article is from Briefing.com and is being posted with Briefing.com's permission. The views expressed in this article are solely those of the author and/or Briefing.com and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

 


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Technical Analysis

USDCHF Leads USD Oversold Bounce Gaining 150 Pips


The USDCHF rocketed roughly 150 pips yesterday, leading the US dollar oversold bounce.  The continued strength early in today's Asia morning saw the USDCHF break above a gently downsloping resistance line (on the 4hr chart).  Significantly, this past week's bounce occurred off just below the key .95 round figure, and has allowed the USDCHF to re-enter a downchannel (on the weekly chart) after being briefly below its support line.  The weekly, daily and 4hr RSI, Stochastics and MACD are rallying, consolidating recent gains or bottomish.  I will look to enter long intraday today in the green zone (of the daily chart), targeting the red zone for early next week.  The amber/yellow zone is where I might place a stop if I was a swing trader (although in my personal account with which I seldom hold overnight I set my stops tighter).

 

USDCHF Weekly/Daily/4hr/Hourly

 

Click here for today's technical analysis on Raw Sugar, Cocoa

 

Tradable Patterns was launched to demonstrate that the patterns recurring in liquid futures and spot FX markets can be analyzed to enhance trading performance. Tradable Patterns’ daily newsletter provides technical analysis on a subset of three CME/ICE/Eurex futures (commodities, equity indices, and interest rates), spot FX and cryptocurrency markets, which it considers worth monitoring for the day/week for trend reversal or continuation. For less experienced traders, tutorials and workshops are offered online and throughout Southeast Asia.

 

This article is from Tradable Patterns and is being posted with Tradable Patterns’ permission. The views expressed in this article are solely those of the author and/or Tradable Patterns and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

 

 


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Macro

GUOSEN Closing Bell (July 28)


MARKET

Chinese stocks closed mixed, with the benchmark Shanghai Composite Index ended at 3253.24 points. The A-shares stocks mainly fluctuated around all day with decreasing turnover, as the market expected fund injection from national pension funds and first resistance should be 3250 to 3260 points level. Non-ferrous Metal and Food& Beverage sectors led the gains; while Military and Non-bank Financial sectors led the falls. Combined turnover for both markets was CNY 458.5bn, down 16.96% dod.

 

Close

% Change

Vol (bn CNY)

%YTD

Shanghai

3253.24

0.11

198.43

4.82

Shenzhen

10437.94

0.41

260.55

2.56

CSI 300

3721.89

0.26

125.82

12.44

ChiNext

1734.07

-0.47

70.05

-11.62

 

Sector

Top 1

Led by

Top 2

Led by

Upward-leading

Non-ferrous Metal

002460

Food& Beverage

600779

Downward-leading

Military

300252

Non-bank Financial

601878

 

NEWS

*Eight provinces entrust National Social Security Fund with 410 billion Yuan in pension funds. The National Social Security Fund (NSSF), which manages a portion of local pension funds, has already received and invested 172 billion yuan from local governments. The fund saw meagre returns of 1.73% last year, which some analysts attributed to poor performance by its stock market investments. (Caixin)

*The electronic manufacturing sector led China's industrial upgrade in the first half of the year, expanding 13.9 percent year-on-year in terms of industrial output, official data showed Thursday. The growth rate was 7 percentage points higher than the country's average growth of industrial production. (Xinhua)

*China reports lowest urban unemployment rate in recent years. The registered unemployment rate in Chinese cities stood at 3.95 percent at the end of the second quarter, the lowest level in recent years, official data showed. China created 7.35 million jobs in the first half of the year, 180,000 more than that in the same period last year, the Ministry of Human Resources and Social Security announced on Friday. (Xinhua)

 

FUND FLOW

 

Click here for more information about Guosen.

This article is from Guosen Securities Co., Ltd. and is being posted with Guosen Securities Co., Ltd.’s permission. The views expressed in this article are solely those of the author and/or Guosen Securities Co., Ltd. and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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