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IB Traders' Insight

Global market commentary from IBG traders and market participants.

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2015-03-05 23:46:25

Posted by
Darren Chu, CFA
Founder
Tradable Patterns
Contributor

Technical Analysis

VIX (VX) Weekly Chart Bearish Momentum Easing Ahead of Non-Farm Payrolls

The VX is trying to form a double bottom (on the 4hr chart) ahead of today's Non-Farm Payrolls.  Although the daily and 4hr MACD, RSI and Stochastics appear bottomish, the weekly equivalents remain bearishly sloping down.

 

VIX (CFE VX Mar15) Weekly/Daily/4hr/Hourly

 

Tradable Patterns was launched to demonstrate that the patterns recurring in liquid futures, spot FX and equity CFD markets can be traded consistently profitably. Tradable Patterns’ daily newsletter (blog) provides technical analysis on a subset of ten to twelve CME/ICE/Eurex futures (commodities, equity indices, interest rates), spot FX and US equity 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.

2015-03-05 23:44:45

Posted by
Darren Chu, CFA
Founder
Tradable Patterns
Contributor

Technical Analysis

Natural Gas (NG) Rallies on Bullish Storage Figures

NG rallied further yesterday on the back of the storage figure release, and now appears to want to target descending wedge resistance (on the weekly chart) and the round figure of 3 thereafter.  With the weekly chart's descending wedge support and resistance lines not overly close to converging, a bit more resolution to the downside over the next week or so before the wedge reaches its apex is highly probable.  Encouragingly for bulls, weekly, daily and 4hr RSI, Stochastics and MACD are mostly rallying.

 

Natural Gas (CME NG Apr15) Weekly/Daily/4hr/Hourly

 

Tradable Patterns was launched to demonstrate that the patterns recurring in liquid futures, spot FX and equity CFD markets can be traded consistently profitably. Tradable Patterns’ daily newsletter (blog) provides technical analysis on a subset of ten to twelve CME/ICE/Eurex futures (commodities, equity indices, interest rates), spot FX and US equity 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.

2015-03-05 23:43:00

Posted by
Darren Chu, CFA
Founder
Tradable Patterns
Contributor

Technical Analysis

WTI Crude (CL) Bounces off 38.2% Retrace of 48-52 Rally

CL saw a bit of profittaking yesterday following Wednesday's rally, retracing 38.2% of the up move from roughly 48 to 52 (as seen in the 4hr chart).  CL is now in the middle of a sideways channel (on the daily chart) and significantly, trying to hold a break above a downchannel resistance line (on the weekly chart).  Weekly and daily RSI, Stochastics and MACD are mostly rallying ahead of today's Non-Farm Payrolls.

 

WTI Crude (CME CL Apr15) Weekly/Daily/4hr/Hourly

 

Tradable Patterns was launched to demonstrate that the patterns recurring in liquid futures, spot FX and equity CFD markets can be traded consistently profitably. Tradable Patterns’ daily newsletter (blog) provides technical analysis on a subset of ten to twelve CME/ICE/Eurex futures (commodities, equity indices, interest rates), spot FX and US equity 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.

 

2015-03-05 22:16:56

Posted by
Stephen Alley
IB Asia Trade Desk
Contributor

Stocks

FamilyMart (8028) in discussions to merge with smaller rival UNY (8270)

UNY Group Holdings (8270) was trading +8.7% at the Tokyo lunch-break after news emerged that they were discussing a possible merger with their larger rival FamilyMart (8028). FamilyMart is a JPY 510 billion conveniences-store operator and a merger with the JPY 170 billion UNY would make them second-biggest in Japan's convenience store space behind Seven & i Holdings (3382). UNY is a holding company that includes the separately listed convenience-store group Circle K Sunkus (3337) and also engages in specialty retail stores. Shares of FamilyMart were -2.9%  on the news.

2015-03-05 15:04:19

Posted by
Singapore Exchange

Contributor

Futures

India Budget Boosts Outlook

  • India’s Union Budget unveiled on 28 February 2015 ignited trading interest in domestic equities as foreign funds rushed to penetrate the market.
  • The Budget promised sufficient changes to ignite fresh optimism in Indian growth during Modi’s reign.
  • The CNX Nifty Index gained 160.75 points on 28 February 2015 and topped 9,000 points on 3 March 2015. A surprise rate cut by India’s central bank on 4 March is expected to add to India’s export competitiveness on a falling Rupee.
  • SGX CNX Nifty Index Futures led in price discovery during the special India Union Budget trading session on Saturday, 28 February 2015.

Budget Ignites Rally

The much-awaited India budget, while not the game changer as some anticipated, managed to stoke fresh anticipation for India’s potential growth.

Corporate income tax is set to be lowered to 25% from the current 30% over the next four years. An additional 700 billion rupees (US$11.3 billion) will also be injected into the country's roads and railway infrastructure in fiscal year 2015.

A national investment and infrastructure fund, which would raise debt and invest in infrastructure, is also being considered. If set up, the fund will help to enhance funding accessibility for local firms.

The CNX Nifty Index rallied on Saturday trading gaining 160.75 points. The budget triggered a buying frenzy in domestic stocks in the following week. A net total of 134,088,210 units were created in India-related ETFs between 28 February to 3 March 2015, according to Bloomberg data.

Net Creation of ETFs (28 February- 3 March 2015)

Source: Bloomberg

On the other hand, some observers expressed disappointment with Prime Minister Modi avoiding the potential political costly battle of scrapping food subsidies. The cost of the South Asian nation's food subsidies for the fiscal year ending on 31 March 2015 is estimated to surge by 25% to 1.15 trillion rupees (US$18.6 billion) year-on-year. The combined subsidy for rice and wheat accounted for a third of India’s total subsidy bill.

The failure to scrap subsidies coupled with the projected increase in capital spending would mean that the government has to push back its target of reducing fiscal deficit to 3% of GDP by a year to 2018. The fiscal deficit is expected to occupy 3.9% of GDP in 2015 while the economy is projected to expand between 8% and 8.5% year on year.

Luckily for India, the dip in oil prices allowed for the increased spending without a corresponding cut in food subsidies.

India’s Fiscal Surplus/Deficit

Source: Bloomberg

Some analysts have stated that the budget is far from the game-changing budget of 1991 which ushered in India's economic liberalisation.

On the other hand, others pundits such as rating agency Standards & Poor praised the budget, stating it displayed “the government's commitment to keeping the fiscal deficit low despite lower-than-expected revenue growth”.

Morgan Stanley was also positive, stating "The budget lends greater conviction to our out-of-consensus earnings forecasts for the coming two years", and "we continue to be bullish on Indian equities with our key overweight positions being private sector banks, industrials, discretionary consumption and technology”.

CNX Nifty Index Tops 9000; SGX CNX Nifty Index Futures Registers Robust Interest

Despite these mixed feelings, foreign investors voted with their fingers and invested  millions of dollars into the India stock market.

On 28 February 2015, the CNX Nifty Index gained 160.75 points to close at 8901.85.

The surge continued with the CNX Nifty index crossing the 9000 mark for the first time before closing at 8996.25 on 3 March amidst continued optimism over economic reforms and foreign fund buying. The Nifty has surpassed its previous lifetime high of 8,996.60 set on 30 January 2015.

Performance of SGX Nifty Index Futures

Source: Bloomberg

The SGX CNX Nifty Index Futures contract continued its inexorable advance in line with the broad equity market. The contract has set a number of new records since the start of the year. January saw a record high of 1,991,291 contracts traded with highest average daily volume of 99,565 contracts. Open interest touched 534,531 on 24 February 2015.

Strong trading interest was also seen in the roll market. As of 25 February 2015, 87.1% of the February 2015 SGX CNX Nifty Index Futures contract have been rolled into the March 15 contracts. This is markedly higher than the 1-year historical average of 78.7% as market participants took positions ahead of budget day.

Meanwhile, the CNX Nifty Index is set to undergo a rebalancing exercise. With effect from March 27, 2015, Jindal Steel & Power and DLF will be excluded from the CNX Nifty Index while Idea Cellular and Yes Bank will be included. The inclusion of Yes Bank, will increase the financial sector weightage in the 50-stock index. With Yes Bank, Nifty will contain nine banking stocks. However the inclusion of these two stocks is not expected to add much volatility to the index. Examination of the average standard deviations of the Jindal Steel, DLF, Idea Cellular and Yes Bank reveal that DLF exhibits the highest day-to-day volatility.

Sectors of CNX Nifty Index

Source: Bloomberg

Average Standard Deviation (2008- 2014)

Source: Bloomberg

Act 1 Scene 2 – Devalue Your Way to Prosperity

On 4 March 2015, India’s central bank added fuel to the euphoria by lowering interest rates in a surprise move for the second time this year, a booster for Prime Minister Narendra Modi’s first full-year budget.

The benchmark repurchase rate was cut to 7.5% from 7.75%.

“This makes explicit what was implicit before –- that the government and the Reserve Bank have common objectives and that fiscal and monetary policy will work in a complementary way,” Governor Raghuram Rajan said in a statement. INR slumped against the US dollar, falling 0.77%.

The cut in repo rate will further aid India’s exports competitiveness and boost the “Make in India” campaign championed by Prime Minister Modi. The USD/INR rate has been outperforming other Asian currencies since the start of the year, gaining 2.39% even as other currencies lost ground.

Performance of INR and Major ASIAN Currencies against the Greenback (Jan-Feb 2015)

Source: Bloomberg

Francis Tan of UOB Global Economics & Markets Research said “We think that the RBI will keep the current repurchase rate unchanged for now, as once the US starts their interest rate normalisation in the middle of this year, capital outflow worries could once again be on RBI’s dashboard. We recall the period of capital outflow and the quick depreciation of the INR during May 2013 when the US Fed started the ‘taper talk’”.

Volatility could spike in the coming months as the US proceeds to raise rates.

The SGX INR/USD FX Futures contract saw 187,405 contracts (approx US$6 billion in notional value) traded in February with open interest rising 55.3% on the month to reach a high of 16,019 contracts as at 27 Feb 2015. The futures contract has seen steady growth in volume and open interest since July 2014.

Weekly Volume and OI of SGX INR/USD FX Futures Contract

Source: Bloomberg

 

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

2015-03-05 14:07:44

Posted by
Barron's

Contributor

Options

GE: Traders Get Bullish on Succession Chatter

Looking to next month’s earnings report, traders load up on options that will pay off if stock rises.

 

General Electric’s pre-earnings buzz is getting more intense. Speculation is swirling that Jeff Immelt, GE’s chairman and chief executive, could be replaced by Jeff Bornstein, GE’s (ticker: GE) chief financial officer.

Bornstein’s “focus on costs, cash flow, earnings quality, and transparency is getting traction,” Barclays’ Scott R. Davis recently opined in a research note. “He has a more open mind on portfolio simplification. There is a view inside GE that he may now be the front-runner for the next CEO post.”

In a front-page story today, The Wall Street Journal reports that GE has been hurt by falling oil prices, impeding Immelt’s efforts to overhaul the conglomerate. A GE spokesman declined comment on GE’s CEO selection process or when Immelt might relinquish a job he has held since September 2001.

The hint of a leadership change, however, has made GE’s stock and options even more appealing to investors ahead of April 17 earnings. In the options market, investors are buying upside calls in anticipation earnings push the stock above its 52-week high of $27.53 set in June. The options action implies that traders expect GE shares to rise above $35 by next January.

“March and April call buying suggests an expectation of near-term catalysts, but January 2016 and 2017 call buying suggests long-term bullish views,” Goldman Sachs advised clients in a recent trading note.

To be sure, GE rarely attracts this much positive investor attention. Until recently, the company was largely dismissed as too big to manage.

But since Immelt was named chairman and chief executive officer, GE has largely fallen from favor. GE’s shares have profoundly underperformed the Standard & Poor’s 500 Index.

On Sept. 4, 2001, GE’s stock closed at $40.83.

Based on price percentage change, GE is down 37% versus the S&P 500’s 86% gain through the end of last month.

The total return picture is equally ugly. Including dividends, GE is flat for the same period, while index investors have seen their wealth expand by 143%.

“I’m absolutely stunned,” a senior trader at a top-trading firm said after reviewing GE’s stock history.

This massive divergence between GE’s stock and the S&P 500 has made Immelt an antihero for many investors.

They would have done much better buying a low-cost index fund than owning shares in one of the world’s premier corporations. Immelt gets little credit for shrinking the sprawling company, and guiding GE through the aftermath of the 9/11 terror attacks and the worst financial crisis since 1929.

With the anti-Immelt chorus seemingly nearing a crescendo, many investors hope GE’s April earnings report marks the start of a transformation. The mere hint of a leadership change attracts the attention of investors, including those who might have shunned GE for other industrial conglomerates like 3M (MMM), which has handily beaten the index since 2001. Investors cite two pending deals as compelling near-term reasons to consider GE.

First, GE is buying Alstom’s power and grid businesses and forming several joint ventures. This deal could close by summer.

Also, GE is expected to soon sell its remaining shares in Synchrony Financial (SYF). Those deals could boost GE’s stock.

Against all the bullish speculation and trading, analysts are lowering GE’s first-quarter earnings estimates. Three months ago, analysts estimated that GE would earn 38 cents a share on revenue of $34 billion. They have subsequently lowered the hurdle to 30 cents a share, which could supercharge whatever forward guidance management offers on the post-earnings conference call.

“The stock could be $30 quite easily if we get any additional data points that show that GE’s cost focus has staying power, that it can earn a margin on its backlog, and it executes well on Alstom, Synchrony, and any other portfolio moves it announces,” Barclays’ Davis told clients in the same note that suggested a leadership change.

The options market reinforces Davis’ view of GE’s stock price. With GE’s stock at $25.89, investors are buying upside calls in anticipation of a meaningful stock rally. During the past 10 days, investors have accumulated about 138,000 April $26 calls, 137,000 January $30 calls, 127,000 January $35 calls, and 117,000 February $25 calls. The calls were mostly executed at midmarket prices — between the bid and ask — that indicates institutional investors bought securities.

The call-trading pattern reflects an expectation that analysts and investors will soon bullishly rerate the stock.

Should these forces swirling around GE be validated by the company’s earnings report, investors should not expect GE to suddenly trade like Tesla Motors (TSLA) or some other momentum stock. GE’s shares are still priced in the options market like a stodgy conglomerate.

The implied volatility of GE’s call options that expire April 17, the day of earnings, is 19. The corresponding put implied volatility is 18. GE’s annual historical volatility is about 15%. The difference between GE’s call and put volatility reinforces the market’s bullish earnings expectations.
 

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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 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.

2015-03-05 13:40:05

Posted by
Waverly Advisors, LLC
Technical/Quantitative Market Research
Contributor

Technical Analysis

Waverly Advisors Summary Stats

%Chg: percent change from the previous day’s close

SigmaSpike: the day’s change expressed as a standard deviation of the last 20 trading days. Values inside +/- 1.0σ are generally insignificant, +/- 2.5σ are large (for the volatility of the particularly instrument), and +/-4.0σ are very large.

C/DayRng: the current price as the pipe “|” within the day’s range. Can easily see at a glance if trading near high or low of the day. The day’s open is “:”. You can read more about this indicator in my book.

For sectors: analysis is done using the State Street Sector SPDRs (XLE, XLF, etc.) %Chg is the day’s change for the SPDR, and Excess is the Excess Return for the day (the SPDR’s return – the S&P 500 return).

 

For more information about Waverly Advisors please click here.

2015-03-05 13:38:10

Posted by
Waverly Advisors, LLC
Technical/Quantitative Market Research
Contributor

Technical Analysis

Waverly Advisors Update: Largest Advances / Declines

The individual stock tables are simply ticker lists showing the largest values for the following criteria:

SigmaSpike: Largest volatility-adjusted moves. (Note that this measure, though we might call it a “standard deviation spike”, does not assume that anything is normally distributed. You’ll see a handful of +/-4.0σ moves on many days, and +/- 10σ do happen.)

GapOpen: The stock’s opening gap, expressed as a SigmaSpike.

FromOpen: Stocks often reveal stronger trending character by their relationship to their opening print, rather than to the previous day’s close. This screen evaluates the move off the open as a SigmaSpike.
 

For more information about Waverly Advisors please click here.

2015-03-05 13:36:13

Posted by
Waverly Advisors, LLC
Technical/Quantitative Market Research
Contributor

Technical Analysis

Waverly Advisors Afternoon Update

Largest Rel Volume: Stocks with the largest multiple of their 20 day average volume. Note that the “average” value for this number will change as the trading day progresses, but the relative position of a stock within this list should show some persistence. These are likely stocks in the news, or stocks experiencing a sharp flow of new information.

Largest Rel Ranges: First, we express each stock’s daily range as a % of the 20 day average range, and then choose the 10 with the largest values of that measure. These are the stocks with the largest daily ranges, relative to their own typical daily ranges.

Gap Analysis shows stocks with open gaps (today’s high < yesterday’s low or today’s low > yesterday’s high) remaining.

Stocks with Open Gaps (for the Day): ACAD, AER, ALSN, ANF, AZN, BMRN, BUD, CCL, CENX, CL, CMS, CNQ, COG, COMM, COST, CSIQ, ECA, ENDP, FE, FLS, GLNG, HDB, INCY, JKS, JOY, KITE, KR, LINE, MAC, MBLY, MDVN, MEOH, MNK, MYL, NCLH, PEIX, RCL, SGEN, SNE, SWKS, UL, UN, UNH, WETF, WFM, WM, XEL, ZIOP

 

For more information about Waverly Advisors please click here.

2015-03-05 11:55:52

Posted by
Andrew Wilkinson
Chief Market Analyst
Interactive Brokers
Contributor

Options

Stability in oil ahead?

It seems that many onlookers feel comfortable that the accentuated weakness in the price of crude oil may have ended. But one option trader appears to be positioning for prices not to budge much over the next couple of years. One investor sold the January 2017 straddle 2600 times using the United States Oil Fund (Ticker: USO), which closely tracks the price of oil futures. The trade expiring in almost two years’ time is possibly aimed at taking advantage of the decay of time value embedded in options prices, while banking on a strictly limited jaywalk in the value of the fund. With the USO trading at $19.00, the investor took in a premium of $6.70 per contract on the trade, which sets breakeven parameters on the straddle strategy of $25.70 to the upside and $12.30 to the downside. The fund touched its recent low of $16.30 on January 29 when crude oil futures closed at $45.23. Its price last traded above the current breakeven for the strategy on December 3, when crude futures settled at $69.47. The trade commands such a premium in part on account of high implied volatility, which has actually slipped on the day by 7.6% to stand at 42.9%. Volatility peaked on the USO in the days after the price of oil reached its current floor. By comparison, the same straddle combination using the January 2016 expiration is priced at around $5.00 per contract implying breakeven parameters of $14.00 and $23.00 for the oil fund.

Chart – USO and crude oil prices

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Securities or other financial instruments mentioned in the material posted are not suitable for all investors. The material posted does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before making any investment or trade, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice. Past performance is no guarantee of future results.

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