IB Traders Insight


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Macro

European Market Outlook: US stocks post their best gains in 8-weeks


Morning Briefing May 25th 2016


No respite on Wednesday, with another full calendar on both sides of the Atlantic.


The European calendar kicks off at 0600GMT, with the publication of the German April construction orders and the Gfk consumer confidence data.


At 0630GMT, ECB Gov Council member Luis Linde will deliver a keynote speech at the 2016 IIF Spring Membership Meeting, in Madrid. Villeroy de  Galhau keynote speaks at 0700GMT.


Spanish April producer prices will be published at 0700GMT.


The main European release comes at 0800GMT, when the May Ifo survey is published.


Italian industrial orders data will be released at the same time.


ECB Gov. Council member Philip Lane will give the opening speech at Insurance Europe's 8th International Conference, starting at 0820GMT.


ECB Gov Council members Klaas Knot and Peter Praet speak at the IIF  Spring Membership Meeting from 0900GMT.


Across the Atlantic, the US calendar kicks off at 1100GMT.


At 1230GMT, the US trade data will be released, followed by the FHFA home price index at 1300GMT.


At the same time, back in Europe, the Belgian National Bank publish their latest business survey.


The US Markit flash May services Index will cross the wire at 1345GMT.


The Bank of Canada will publish their latest policy decision at 1400GMT, with analysts expecting them to remain on hold at 0.5%.


Also expected at 1400GMT is the US April building permits revision, with the latest DOE crude oil stocks data at 1430GMT.


Late European data will see the French April jobseekers’ data published at 1600GMT.


Dallas Federal Reserve Bank President Robert Kaplan will speak in a moderated question and answer session, starting at 1730GMT.

 

Global Economic Trading Calendar


 

Markets


FOREX: The US dollar was under pressure toward the end of the Asian morning today, giving back most of the early gains seen earlier vs the yen and aussie, the latter now pushing through fresh session highs so far. The yen was also lifted off initial lows following reported comments from BOJ's Kuroda, with dollar-yen last at Y109.98, almost fully reversing its morning rise to Y110.19 today. Aussie-dollar is currently at $0.7210, at the top of a $0.7174 to $0.7212 range today and up from last night's $0.7183 US close. Euro-dollar woke from an early slumber on demand from Asian accounts to last trade at $1.1155, also at the top of a $1.1135 to $1.1155 range. It closed at $1.1141 last night in the US.

US INDEX FUTURES: US stock index futures are trading modestly higher in early Wednesday trade, adding to their best gains in 8-weeks during Tuesday's session. This has seen Asian equity markets surge, with the Nikkei currently up 1.76%, while the CSI 300 is up 0.64% and the Hang Seng up 2.44%. Also supporting risk appetite is news that Greece has reached an agreement with it creditors to receive further aid disbursements. Currently the Jun'16 e-mini S&P futures are trading up 2.75 points at 2,077.75, the Jun'16 e-mini Nasdaq futures are trading up 9.25 points at 4,454.50, while the Jun'16 e-mini Dow futures are trading up 32 points at 17,719.

US STOCKS CLOSE: US stocks Tuesday finally wrapped their arms around the notion that the Fed raising rates in June or July is not necessarily a bad thing in that it would only be done if the US economy was indeed on track. In addition, the run-up in UK/eurozone stocks (FTSE 100 closed up 1.35%, DAX closed up 2.18%) on reduced Brexit fears helped US stocks also. The DJIA closed up 213 pts or 1.22% at 17,706.05, the Nasdaq Composite closed up 95 pts or 2.00% at 4,861.056 and the S&P 500 closed up 28 pts or 1.37% at 2,078. The S&P 500 posted a 2016 high of 2,111.05 April 20 and subsequently slipped lower, bottoming at 2,025.91 May 19, the lowest level since March 24.

US TSYS: Cash treasuries are seeing a small rally in the first hour or so of trade with reasonable volumes of around ~$630 mln changing hands. It appears that there has been a continuation of positive news that has fed risk appetite from Tuesday, with Greece reaching an agreement with its creditors this morning and is in line to receive a E10.3 bln disbursement to avoid default, however the deal is yet to be approved by the IMF. This comes after the past 24-hours saw risk assets relish such courses as US new home sales and an easing of Brexit fears, with e-mini S&P futures currently up 3.00 points, while the Nikkei is 1.54% higher. Flows so far this morning have seen Asian commercial bank sellers of 10's. Traders see a 1.88%/82% range in 10's for today. Currently 10yr futures are down 1 at 129-17.

JAPAN STOCKS: Japanese stocks have been buoyed by a sharp improvement in risk appetite during Wednesday's morning session, which saw global US and European shares surge on Tuesday, with resulting yen weakness also boosting shares. The Nikkei has closed for lunch up 1.80% or 296.91 points at 16,795.67, while the Topix is up 1.48% or 19.57 points at 1,346.07.

GOLD: Spot gold last up $1.29 at $1228.54 per ounce, in a $1223.50 to $1230.30 range so far this morning in Asia, as the USD weakens slightly against all the majors except the beleaguered British pound. However, the metal has had a few poor weeks as the market digests the possibility of a Fed hike at either the June or July meeting after failing to eat significantly into producer selling near $1280/$1300.

OIL: WTI crude oil futures for Jul'16 delivery last up $0.65 at $49.27 per barrel, after a $48.62 to $49.35 range in Asia today, on solid volume after the weekly API inventory data showed a drop of 5.1 million bpd in the last week. The more definitive DOE/EIA data are due on Wednesday and is expected to also show a smaller fall, but with focus also on the persistently falling levels of production the contract looks set to work through the resistance band from $50 to $51, then up to $55 on the continuous spot charts. Also coming into focus is the June 2nd OPEC meeting, although little is expected to come from that that might put a stronger bid under crude.

 

Technical Analysis


BUND: (M16) Bears Need Close Below 55-DMA

*RES 4: 164.94 Bollinger band top
*RES 3: 164.75 Low Feb 23 now resistance (continuation)
*RES 2: 164.60 High Apr 11
*RES 1: 164.07 High May 23

*PREVIOUS CLOSE: 163.55

*SUP 1: 163.12 55-DMA
*SUP 2: 162.67 Low May 4
*SUP 3: 161.94 100-DMA
*SUP 4: 161.84 Low May 2    

*COMMENTARY: M16 continues to find support ahead of the 55-DMA which is less than ideal for bulls and resulted in a break of previous initial resistance Monday. Bears continue to look for a close below the 55-DMA to confirm an easing of bullish pressure and below 162.67 to shift immediate focus to 161.46-94 where the 100-DMA is noted. Bulls need a close above 164.07 to reconfirm a bullish bias and above 164.75 to shift focus higher.

 

EUROSTOXX: Focus Shifts To 3067.61 Resistance

*RES 4: 3156.86 Monthly high Apr 21
*RES 3: 3139.64 200-DMA
*RES 2: 3113.91 Bollinger band top
*RES 1: 3067.61 Alternating daily support/resistance

*PREVIOUS CLOSE: 3010.12

*SUP 1: 2983.13 100-DMA
*SUP 2: 2893.63 Low May 6
*SUP 3: 2860.32 Monthly Low Apr 7
*SUP 4: 2855.81 Bollinger band base

*COMMENTARY: Having spent the past few weeks trading sideways, supported ahead of 2893.63 and capped ahead of key DMAs, bulls take comfort in a close above the 55-DMA (3009.50) that sees pressure shift to 3067.61. A close above 3067.61 remains needed to confirm focus on a test of the 200-DMA. Bears now need a close below the 100-DMA to relieve immediate bullish pressure.

 

Eurex Futures Market Close


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This article is from Eurex Exchange and is being posted with Eurex Exchange’s permission. The views expressed in this article are solely those of the author and/or Eurex Exchange 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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Technical Analysis

GBPJPY Nearing Completion of Weekly Chart's Reverse Head & Shoulders


The GBPJPY surged almost 300 pips yesterday, and is now bumping up against ascending triangle resistance (on the 4hr chart) and nearing triangle resistance (on the daily chart).  Significantly, the GBPJPY is in the late stages of a Reverse Head and Shoulders (on the weekly chart), and should be testing the neckline in the next few days.  A break above triangle resistance (on the daily chart) will likely coincide with this neckline break.  Weekly and daily RSI, Stochastics and MACD are rallying or consolidating recent gains.  I am flat and will look to go long on any mild pullback of between 23.6 and 38.2% of yesterday's ~300 pip rally.

 

GBPJPY Weekly/Daily/4hr/Hourly

 

Click here for today's technical analysis on GBPUSD, Cotton

 

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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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Options

Huge Milestone for China Could Lead to Big Profits


On the verge of MSCI’s A-shares decision, investors could profit from a quirk in the options market.

 

Are Chinese stocks about to get a huge buy order?

The options market says yes and the stock market says no ahead of a major milestone for China’s market. In totality, both markets could be shouting a giant risk-adjusted “maybe,” but the answer will not be known until sometime in June.

MSCI, the index company, is expected to announce next month whether China’s mainland stocks, or A-shares, will be included in MSCI’s Emerging Market Index. Inclusion means investors would be forced to buy mainland Chinese stocks to reflect the index’s changed composition.

For now, all that is certain is that bearish investors have so heavily shorted shares of Deutsche-X Trackers Harvest CSI 300 Index ETF (ticker: ASHR) that it appears on bank “hard-to-borrow” lists. (To short stock, investors borrow shares from banks, sell them and hope to buy them back at lower prices.)

In the options market, however, many investors have bought upside June and July calls that will be profitable if ASHR rallies into July. If the stock and options positions are related, and they probably are, it shows that bearish stock investors are hedging their bets by buying calls. Should MSCI add China to the index, ASHR will advance, crushing the short sellers. The losses would be offset by gains in the calls. If ASHR declines on the news, the calls will lose value.

China has twice failed to win inclusion in MSCI Emerging Market Index, largely over concerns about the government’s market controls. The government recently relaxed some restrictive rules that disadvantaged foreign investors, a move heralded as a positive step toward inclusion.

MSCI, meanwhile, is interviewing investors to solicit their views on adding China to the index. Some investors, perhaps privy to the tenor of those talks, may have decided to hedge their shorts in anticipation MSCI rules in favor of China. After all, the call purchases are relatively recent, suggesting bears are hedging short stock positions, or front-running positive news.

The China trade has one particularly seductive quality for options investors: It is a binary event. These even-odd outcomes are favorite bets for active traders because they can risk a little and make a lot – at least in the options market.

With ASHR at $23.06, some investors are focusing on buying July $24.90 calls at 40 cents. If the stock were to hit $26, the calls would be worth $1.10. (The strike prices are unique because they were adjusted to reflect previous capital gain distributions. Each contract still represents 100 shares of the underlying security.)

Investors comfortable buying ASHR at a lower price can take advantage of a pricing quirk related to the fact that it’s hard to borrow shares of the ETF. When investors cannot borrow stock to short, they buy puts. When this occurs, put prices can be more expensive than merited due to the pricing dynamics of the stock-loan market.

With ASHR at $23.06, investors can buy ASHR’s July $24.90 calls at 40 cents and sell the July $21.90 put at 70 cents. This trade generates a 30-cent credit, but obligates investors to buy stock at $21.90 or lower, or they must cover the put at a higher price. If the stock is at $17, for example, the put is worth $4.90.

Bottom line: this event-driven trade is high risk, and potentially high reward. If you can handle the heat, the cost of admission is not high.

Steven M. Sears is a Senior Editor and Columnist with Barron's. He is the author of "The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails." Mr. Sears previously reported for Dow Jones Newswires and The Wall Street Journal. He has reported upon most major modern financial events, including the Asian Contagion, the bursting of the Internet Bubble, the Credit Crisis, and Europe's sovereign debt crisis. He also was part of exchange executive teams that modernized the U.S. options market, and introduced electronic trading. Interact with him on Twitter @sm_sears.

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This article is from Barron's and is being posted with Barron’s permission. The views expressed in this article are solely those of the author and/or Barron's 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.


9684




Macro

New Home Sales Surpass Estimates in April


New home sales surpassed estimates in April, running at a seasonally adjusted annual rate of 619,000 (Briefing.com consensus 521,000). That represented a 16.6% increase from March, which saw an upward revision to 531,000 from a previously reported 511,000.

Not only did the April reading come in well ahead of expectations, but the upward revision to the March figure vaulted that reading past last month's Briefing.com consensus estimate, which stood at 521,000. New home sales in April were up 22.8% versus the same month a year ago and today's report pointed to the best month of new home sales since January 2008.

Thanks to the pick-up in activity, the April rate was above the prior 3-month average of 531,667.

Median sales price increased 9.7% year-over-year to $321,100.

At the current sales pace, the inventory of unsold new homes stands at a 4.7 months' supply, which is down from 5.8-months' supply in March and below the 6.0-months' supply that is typically associated with normal periods of buying selling.

Briefing.com subscription services provide streaming market commentary and analysis along with a continuous flow of macro analysis, investing ideas and research reports. Please take a Free Trial of these live services on Interactive Brokers! (IB clients may sign up for a free trial in Account Management.)

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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Stocks

Tuesday Spreads


Dow  +1.1% S&P 500 +1.2% NASDAQ Composite +1.6% Russell 2000 +1.7%
NASDAQ Advancers: 1720/Decliners: 427
Advance Volume: 120MM shares/Decline Volume: 21MM shares
New 52 week Highs (prior close): 50
New 52 week Lows (prior close): 36


US stocks are higher by 1.0% this morning, helped by gains from Financial and Information Technology stocks. The Dollar is once again up 0.3% and approaching a 2 month high. European equities are experiencing their best session in over a month while the catalyst remains unclear. Traders are speculating that today’s broad-base advance is fueled by a short-squeeze.

  • April new home sales increased 16.6%, well above the expected 2.4%. The annualized pace of 619k is the highest reading since January 2008 and the biggest month over month increase since the early 1990s. The report also highlighted another data piece that showed median new home sales climbed to $321k (from $297k). The MoM figured appeared to benefit from seasonal buying and an increase in high-end purchases.
  • According to Reuters, Monsanto (+2.8%) plans on rejecting the deal from Bayer for $122/share, looking for a higher offer. Separately, technology stocks are up more than 2.9% (led by semiconductors) over the past 3 trading sessions, as positive results from some sector bellwethers appeared to get the bullish momentum going.
  • The difference (or spread) between the yields on the US 2-year treasury (0.91%) and the 10-year treasury (1.84%) is about 0.93%. Because its decline below 100 basis points for the first time since 2007, has bond and equity traders watching. Often a flat or inverting yield curve is a sign of a weakening economy, but the compression of spreads may have to do with the 2-year end of the curve, as some investors don’t want to be in the way of a potential summer rate increase that would hurt the value of these bonds. At the same time, the longer end of the curve is holding steady as inflation pressures remain relatively subdued. One interpretation is that the US is not headed for a recession but expecting slow growth over the longer term while preparing for a normalization of shorter term rates. The Department of Treasury at 1pm EST today will report the results of their $26 billion 2-year note auction.

Spread between the 2-year US Treasury Note and the 10-year Treasury Note:

Nasdaq's Market Intelligence Desk (MID) Team includes: 
Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

This article is from Nasdaq and is being posted with Nasdaq’s permission. The views expressed in this article are solely those of the author and/or Nasdaq 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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