IB Traders Insight


1 2 3 4 5 2 1051


Macro

European Market Outlook: ECB Bank stress test in focus


Morning Briefing July 29th 2016


Friday throws up a very busy end to the week and month, with a host of data expected on both sides of the Atlantic.

The US calendar gets underway at 0530GMT, with the publication of the French preliminary GDP data. At 0600GMT, German June retail sales will be published, followed by the French consumer spending and July inflation data at 0645GMT.

At 0700GMT, the Swiss KOF Economic Barometer. The Spanish inflation and GDP data is expected at the same time.

There is a limited UK calendar set for release Friday, although the Bank of England money supply and consumer credit data will be released.

Further Euro area data set for release at 0900GMT includes the Q2 GDP, July inflation and June unemployment data.
Italian inflation data will be published at the same time.

Across the Atlantic, the US calendar gets underway at 1230GMT, with the release of the US Q2 GDP first estimate and the June Employment Cost Index.

Second quarter GDP is expected to rise by 2.5% after a 1.1% increase in the previous quarter, led by a sharp acceleration in consumption growth to over 4% in the second quarter from 1.5% in the first quarter. The remaining component are seen as a net drag, with inventories a larger drag, non-residential fixed investment, residential investment, and government spending small negatives, and net exports a small positive.

Second quarter ECI is expected to post a 0.6% rise for the second straight quarter, with analysts looking for wage and salaries growth of roughly 0.6% after a 0.7% gain in the first quarter. Benefits growth is seen at a steady 0.5%.

The Market News Chicago report's business barometer, due at 1345GMT, is expected to fall to a reading of 54.0 in July after surging to 56.8 in June, but that reading would still indicate positive growth. Other regional data already released to this point for July have suggested weakness, with the Empire State reading falling to 0.55 and the Philadelphia Fed reading dipping below zero to -2.9 after rebounds for both series in June.                                       

The Final Michigan Sentiment Index will be published at 1400GMT.

The Michigan Sentiment Index is expected to be revised up to a reading of 90.0 in July from the 89.5 preliminary estimate, but remain below the 93.5 final level posted for June. As with confidence, terrorism and Brexit concerns appear to have outweighed strong employment figures and rising stock prices. 

The New York Fed GDP Nowcast is due for release at 1515GMT.

The latest US housing vacancies data will cross the wires at 1400GMT, with the DOE natural gas storage data expected a 1430GMT.

At 1500GMT, the Kansas City Fed Manufacturing Index will be published at1500GMT.

 

Global Economic Trading Calendar


 

Markets


FOREX: In the led up to the BoJ Policy meeting dollar weakness was the main theme for the Asia-Pacific region. Once again, dollar-yen was the main recalcitrant, the early action saw the pair collapse from Y105.34 to Y103.41 before recovering to near Y105. Aussie-dollar drifter higher in a $0.7501 to $0.7542 range and was last at $0.7532. Meanwhile, with the spotlight firmly on BoJ, euro-dollar carved out a $1.1074 to $1.1089 range and was last at $1.108

US INDEX FUTURES: US stock index futures are trading quietly ahead of the BOJ decision, where consensus is for further easing at ETF purchases. Thursday saw mixed earnings, with Ford falling 8% after disappointing results, whilst consumer stables and IT stocks rose as reports by MasterCard and Facebook reported upbeat news. After the NY close, Amazon stock has rallied in extending trading after forecasting Q3 revenue that could easily exceed analysts' expectations. According to Thomson/Reuters I/B/E/S, with just over half of the S&P500 having now reported, 73% of reports have beat analyst expectations on earnings and 58% have beat on revenue - in both cases better than the historical ratio. Currently the Sep'16 e-mini S&P futures are trading down 0.25 of a point at 2,164.50, the Sep'16 e-mini Nasdaq futures are trading up 4.50 points at 4,724.25, while the Sep'16 e-mini Dow futures are trading flat at 18,736.

US STOCKS CLOSE: US stocks rebounded modestly Thursday, but ended mixed. There was no sign of larger trepidation ahead of the BOJ decision, where the market expects further easing to support the Nikkei 225 and overall risk sentiment. The DJIA closed down 0.09% at 18,456.35, the Nasdaq Composite closed up 0.30% at 5,154.982 and the S&P 500 closed up 0.16% at 2,170.06. On July 20, the DJIA and S&P 500 posted new life-time highs of 18,622.01 and 2,175.63. Earlier, the Nasdaq posted a high of 5,160.156, the highest level since Dec 02, 2015 (5,176.772) high.

US TSY FUTURES: ***Treasury futures have failed to react meaningfully to the plunge in Dollar/Yen which saw the cross fall from 105.20 to 103.30 (Rts matching low), with 10yr futures seeing a small 2.5-tick spike to now trade 0.5-tick higher from the close. Besides the BOJ, there is a slew of economic data out this morning in Japan, including IP, retail sales and household spending. Expectations for the BOJ is for further easing as well as increase asset purchases this time via ETF's, however judging by the price action in the Yen already, the odds for disappointment from the BOJ still remain high.

JAPAN STOCKS: Japanese stocks have been treading water ahead of the BOJ decision, with the market slightly weaker on a stronger Yen. The Nikkei has closed for lunch down 0.40% or 65.45 points at 16,411.39, while the Topix is down 0.38% or 5.02 points at 1,301.98. ng into the BOJ, with the Nikkei seeing a ~700 point range as many pull offers, with some talk of miss-hits, while the Topix has seen a 100 point range ~5% either side. Nikkei futures currently down 0.18% at 16,390 and Topix futures up 0.19% at 1305.

GOLD: Spot gold last up 2.60$ at $1,338.30 per ounce, in a $1,340.45 to $1,334.95 range so far this morning in Asia, with the market failing to benefit from the Yen strength this morning as markets remain jittery ahead of the BOJ decision. The market overall has been bid as the market doubts that the Fed will deliver rate hikes. However higher libor rates could pressure Gold forwards and make the US Dollar stronger.

OIL: WTI crude oil futures for delivery last down $0.02 at $41.12 per barrel, after a $41.20 to $40.95 range in Asia today, with the market focused on the BOJ meeting. Thursday saw Oil prices fell for the sixth day in a row yesterday with Sep Brent easing 77 cents (1.8%) to $42.70 while Sep WTI surrendered 78 cents (1.9%) to close at $41.14.  

 

Technical Analysis


BUND TECHS: (U16) Pullback Stays Above Key 167.03 Support

*RES 4: 168.33 1% volatility band
*RES 3: 168.13 Jul 6 high
*RES 2: 167.75 Hourly high Jul 11
*RES 1: 167.61 Jul 27 high

*PREVIOUS CLOSE: 167.51
                                   
*SUP 1: 167.23/29 Hourly support
*SUP 2: 167.03/12 Jul 26 high, Jul 28 low
*SUP 3: 166.89 Initial rally high Jul 27
*SUP 4: 166.68 Hourly basing area Jul 27

*COMMENTARY* The move above 166.87 on Tuesday was  encouraging and has led to a high so far of 167.61. This just above the key near term resistance from the 76.4% Fibo retrace level at 167.54. On the back of some overbought hourly
conditions we have subsequently seen a pullback to 167.12, which for the time being keeps us above the more important 167.03 support and upside momentum intact. Directly above 167.61 and the next target becomes a return to 168-13.

 

EUROSTOXX50 TECHS: 2961.0/2945.0 An Important Support Area

*RES 4: 3058.0 Jun 23 high
*RES 3: 3014.0 Jul 27 high
*RES 2: 3005.0 Jul 28 high
*RES 1: 2995.0 Hourly resistance

*PREVIOUS CLOSE: 2986.0
 
*SUP 1: 2961.0 Jul 28 low
*SUP 2: 2945.0 Jul 26 low
*SUP 3: 2930.0 Initial rally high Jul 19
*SUP 4: 2903.0 Jul 19 low

*COMMENTARY* Wednesday's 'Gravestone Doji' close remains a concern here, following the pullback from the 3014.0 high. A dip to 2961.0 seen on Thursday, basically a 76.4% Fibo retrace of the most recent 2945.0-3014.0 gains. This keeps recent upside momentum intact for the time being, look to 2995.0 and then
3005.0 for resistance. Back above here would encourage again. Loss of 2961.0 would be initial warning, below 2945.0 a sign of  a deeper correction.

 

Eurex Futures Market Close


Eurex Exchange and MNI are both part of the Deutsche Börse Group

Eurex. An exchange for the better.

As one of the world’s leading derivatives exchanges we offer a broad range of international benchmark products.

For example, we operate one of the most liquid fixed income markets, provide the broadest range of equity index derivatives worldwide and are the platform of choice for European equity derivatives. In addition we cover derivatives on dividends, volatility and ETFs. All on one single platform.

Innovative and reliable technology supplies about 400 participants and 7,500 traders in 35 countries with access to more than 2,000 products across nine traditional and alternative asset classes.

For further information please visit www.eurexchange.com

MNI

MNI subscribers make critical decisions with deeper insight and greater confidence. Pinpoint information and market-moving interviews let them react instantly to market changes and more importantly, anticipate future market moves. MNI reporters are market professionals in the news business. They work like journalists but think like traders. When interviewing Fed officials, our reporters ask the same questions you would ask. They cover the angles you would cover. Write the way you read.

MNI’s news services are now available via the IB Trader platform. Please click here to view our provider page or contact MNI directly on sales@mni-news.com or +1 212 669 6400 for our Americas sales team and +44 207 862 7408 for our EMEA sales team.

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.


10349




Technical Analysis

AUDUSD Daily MACD Trying to Positively Cross Ahead of BoJ


The AUDUSD edged higher yesterday post-FOMC, refusing to decisively go in any one direction ahead of today's highly anticipated BoJ announcement at 1am EST.  Although not a direct play on the Yen, all markets today will see a volatility spike on the news.  Far greater volatility of course will be seen on the Yen crosses and Nikkei, but with their technicals mixed at the moment, I'll focus on the higher probability setups like the AUDUSD which continues trying to grind higher off ascending triangle support (on the daily chart) towards the same triangle's resistance.  Weekly, daily and 4hr RSI, Stochastics and MACD are bottomish, rallying or consolidating recent gains.  I am long at .7525 as of today's Asian morning and will look to exit at .754 at least half an hour before the BoJ.  Post-BoJ, assuming the RSI, Stochastics and MACD in the 4hr chart are sloping up, I'll look to re-enter my long intraday.

 

AUDUSD Weekly/Daily/4hr/Hourly

 

Click here for today's technical analysis on EURUSD, Silver

 

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.

 


10348




Options

What's Trading in Facebook Options


Interactive Brokers Chief Market Analyst Andrew Wilkinson looks at one option strategy in play after Facebook earnings. 

The analysis in this video is provided 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 investments. 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.


10347




Futures

Crude Price & Gold Resiliency


Scott Shellady, Futures Institute Contributor

This video is from CME Group and is being posted with CME Group’s permission. The views expressed in this video are solely those of the author and/or CME Group and IB is not endorsing or recommending any investment or trading discussed in the video. 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.


10346




Stocks

The Best and Worst of the Consumer Discretionary Sector 3Q16


Sector Analysis 3Q16

The Consumer Discretionary sector ranks second out of the ten sectors as detailed in our 3Q16 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Consumer Discretionary sector ranked fifth. It gets our Neutral rating, which is based on aggregation of ratings of 13 ETFs and 19 mutual funds in the Consumer Discretionary sector as of July 11, 2016. See a recap of our 2Q16 Sector Ratings here.

Figure 1 ranks all eight ETFs that meet our liquidity standards and Figure 2 shows the five best and worst rated Consumer Discretionary mutual funds. Not all Consumer Discretionary sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 393). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Consumer Discretionary sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

Figure 1: ETFs with the Best & Worst Ratings – Top 5

NewConstructs_ETFratings_ConsDisc_3Q16

* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Five ETFs are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums. See our ETF screener for more details.

Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5

NewConstructs_MFratings_ConsDisc_3Q16

* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

ICON Consumer Discretionary Fund (ICCCX) and Rydex Leisure Fund (RYLIX, RYLAX) are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

PowerShares Dynamic Leisure & Entertainment Portfolio (PEJ) is the top-rated Consumer Discretionary ETF and Fidelity Select Leisure Portfolio (FDLSX) is the top-rated Consumer Discretionary mutual fund. PEJ earns a Very Attractive rating and FDLSX earns an Attractive rating.

iShares US Consumer Services ETF (IYC) is the worst rated Consumer Discretionary ETF and Rydex Series Retailing Fund (RYRTX) is the worst rated Consumer Discretionary mutual fund. IYC earns a Neutral rating and RYRTX earns a Very Dangerous rating.

443 stocks of the 3000+ we cover are classified as Consumer Discretionary stocks.

NVR Inc. (NVR: $1,770/share) is one of our favorite stocks held by FXD and earns a Very Attractive rating. NVR is also on June’s Linking Executive Comp to ROIC Model Portfolio. Over the past five years, NVR has grown after-tax profit (NOPAT) by an impressive 30% compounded annually. Over this same time, NVR has improved return on invested capital (ROIC) from 12% in 2011 to a top-quintile 20% over the trailing twelve months (TTM). Most impressive is that NVR has earned positive economic earnings in every year of our model, which dates back to 1998. Despite the strong fundamentals, the stock remains undervalued. At its current price of $1,770/share, NVR has a price to economic book value (PEBV) ratio of 1.1. This ratio means the market expects NVR’s profits to grow only 10% from current levels over the remaining life of the business. If NVR can grow NOPAT by 7% compounded annually for the next decade, the stock is worth $2,600/share today – a 47% upside.

Sears Holdings Corp (SHLD: $13/share) is one of our least favorite stocks held by Consumer Discretionary ETFs and mutual funds and earns a Very Dangerous rating. Sears Holdings was in the Danger Zone in April 2013 and the stock remains overvalued. Sears’ NOPAT has declined from $1.4 billion in 2006 to -$911 million in 2016. Over the trailing twelve months, NOPAT has declined even further to -$1.3 billion. Similarly, Sears’ ROIC has declined from 9% in 2006 to a bottom quintile -9% TTM. Despite the issues at SHLD being widely known, and the stock falling drastically, the stock remains overvalued. To justify its current price of $13/share, SHLD must immediately achieve pre-tax margins of 5% (highest level ever achieved in our model, compared to -6% TTM) and grow revenue by 11% compounded annually for the next 13 years. For reference, Sears last achieved positive revenue growth in 2007 and consensus estimates expect revenue declines for the next two years. We think it is safe to say the expectations for future profits baked into the current stock price appear too high.

Figures 3 and 4 show the rating landscape of all Consumer Discretionary ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst ETFs

NewConstructs_ETFratingsLandscape_ConsDisc_3Q16

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds

NewConstructs_MFratingsLandscape_ConsDisc_3Q16

Sources: New Constructs, LLC and company filings

This article originally published here on July 12, 2016.

Disclosure: David Trainer and Kyle Martone receive no compensation to write about any specific stock, sector or theme.

About New Constructs

QUESTION: Why shouldn’t mutual fund research be as good as stock research? Why should fund investors rely on backward-looking price trends?
ANSWER: They should not.

Don’t judge a mutual fund by its cover. Take a look inside at its holdings and understand the quality of earnings and valuation of the stocks it holds. We enable you to choose the best fund based on its stock-picking merits so you do not have to rely solely on backward-looking technical metrics. 

The figure below details the drivers of our forward-looking Rating system for mutual funds. The drivers of our predictive rating system are Portfolio Management and Total Annual Costs. The Portfolio Management Rating (details here) is the same as our Stock Rating (details here) except that we incorporate Asset Allocation (details here) in the Portfolio Management Rating. The Total Annual Costs Rating (details here) captures the all-in cost of being in a fund over a 3-year holding period, the average period for all mutual fund investors.

Cutting-edge technology enables us to scale our forensics accounting expertise so that we can cover enough stocks to cover the ETFs that hold them as well. Learn more about New Constructs. Get a free trial. See what Barron’s has to say about our research. 

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


10343




1 2 3 4 5 2 1051

Disclosures

We appreciate your feedback. If you have any questions or comments about IB Traders' Insight please contact ibti@ibkr.com.

The material (including articles and commentary) provided on IB Traders' Insight is offered for informational purposes only. The posted material is NOT a recommendation by Interactive Brokers (IB) that you or your clients should contract for the services of or invest with any of the independent advisors or hedge funds or others who may post on IB Traders' Insight or invest with any advisors or hedge funds. The advisors, hedge funds and other analysts who may post on IB Traders' Insight are independent of IB and IB does not make any representations or warranties concerning the past or future performance of these advisors, hedge funds and others or the accuracy of the information they provide. Interactive Brokers does not conduct a "suitability review" to make sure the trading of any advisor or hedge fund or other party is suitable for you.

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.

Any information provided by third parties has been obtained from sources believed to be reliable and accurate; however, IB does not warrant its accuracy and assumes no responsibility for any errors or omissions.

Any information posted by employees of IB or an affiliated company is based upon information that is believed to be reliable. However, neither IB nor its affiliates warrant its completeness, accuracy or adequacy. IB does not make any representations or warranties concerning the past or future performance of any financial instrument. By posting material on IB Traders' Insight, IB is not representing that any particular financial instrument or trading strategy is appropriate for you.