IB Traders Insight


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Fixed Income

MNI U.S. Risk-O-Meter


Sales of new investment-grade bonds fell to just one German state-owned financial firm, a plunge from last week’s modest level, as market turmoil kept corporate issuers sidelined. Jitters about European banks, a precipitous decline in oil prices and global equities, as well as lingering concerns about slowing global growth spurred issuers to await a more stable backdrop for entry. Risk-takers also erred on the side of cautioun, while Federal Reserve Chair Janet Yellen gave her semi-annual Monetary Policy Report to Congress. Additionally, trading flows were relatively thin, with several Asian markets closed for the week, or part of the week, to observe the Lunar New Year holidays. Meanwhile, a backlog of new deals has been swelling, and the primary market is likely to burst once a window opens with sufficient calm.

 

Keep pace with the latest corporate news with MNI's US Risk-O-Meter, a weekly recap of credit risk appetite! For more information and a full version of the US Risk-O-Meter, email Steven Levine at steven.levine@mni-news.com. Click here for more about MNI.
 

This article is from Market News International (MNI) and is being posted with MNI’s permission. The views expressed in this article are solely those of the author and/or MNI 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.


8639




Stocks

Nasdaq Market Intelligence Desk - Equity Market Insight February 12, 2016


Market Update:

Today, the broader market rebounded from sharp losses and equity investors hope that stocks can build on a rally that began in the late afternoon when the Dow was down about 400 points. Ahead of the holiday weekend, the S&P 500 is attempting to close higher for the first day this week. All the major indices are higher this morning, helped by big gains from financial stocks (+2.5%).

  • Gotta get the Milk and Bread? When there is a weather forecast for snow or subzero temperatures, shoppers often flock to stores to buy groceries. It seems the same safety trades are in place with the market racing for bonds and gold and shunning bank stocks on fears rates might see an extended period of “subzero” in many countries. There is even some speculation the US could one day do the same. Whether this turns out to be seen as an overreaction to forecasts or a prudent stocking up on safe things remains to be seen.   
  • Investors got their first sign that consumer are putting the money they were saving at the gasoline pumps and their improving wages into the retail market. January’s US Retail Sales (+0.2%) came in higher than expected (+0.1%), during a volatile trading period. Consumers might be spending more, but don’t appear to be confident about the economy as The U of Michigan Sentiment Index fell to a 4 month-low (90.7), and missing expectations for the 4th time out of the past 5 readings.
  • Speaking of OPEC, “everyone is ready to cooperate,” U.A.E. oil minister says in interview on Sky News Arabia.  Seems when crude prices dip below $30 we hear chatter of production cuts, prices rise a bit, and nothing happens. Global oversupply remains around 1.7 mbps and onshore storage facilities are nearing capacity, so bearish conditions remain in place. Crude prices are in the green today [WTI +10%, Brent +7.6%], but both WTI & Brent are still down 6% and 5% respectively for the week.

Technical Take:
As of 11:05 AM EST
Nasdaq Composite:
Advancers: 1377
Decliners: 756
Advance Volume: 83MM shares
Decline Volume: 49MM shares
New 52 week Highs (prior close): 10
New 52 week Lows (prior close): 500


Possibly or at least partially in reaction to a rebound in oil prices on the back of speculation that producers could work together to cut output, stocks are rallying. We find this curious though since the fact that Oil is being used as an economic gauge means that only news on the demand side of the equation should matter, not supply. More likely, the light volume equity bounce we’re seeing is a result of strength in banks as with DB now planning to buyback $5B in debt and reports that Jamie Dimon personally purchased $26.6MM of JPM stock are taken as an indication that world may not be coming to an end via another credit crisis. At the same time, from a technical perspective there are a couple of signs that a sustained rebound may be budding for equities, though next week will tell us a lot more.  

  • Yesterday the S&P 500 Index (SPX) held our 1810 support, in this successfully testing the 1/20 lows. Some may also make note of a small RSI divergence as the SPX has made new, lower closing lows this week while daily RSI, a measure of ‘overbought/oversold’ failed to register a new low vs the 1/20 low. This along with extreme bearish sentiment as defined by this week’s 49% bear reading from the American Association of Individual Investors (AAII) survey, matching the levels seen coincident with the 1/20 lows, is encouraging from a contrarian’s point of view.  Closing with traction above former support at 1850 would be a modest positive, 1875 more so.  
  • On the Nasdaq Composite Index (CCMP) we see that it too roughly held its 1/20 lows yesterday before reversing.  Today, with less market cap weighting of financials and energy (the leading sectors on the day), the CCMP is lagging. In terms of breadth though it is nearing 2:1 for the advancers. A confident close today above 4350 would get our attention. Otherwise 4220 – 4210 is support to watch.

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.
Vincent Randazzo, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 13 years of experience in equity markets having served in equity research sales and desk analyst roles at major banks. Vincent’s specific expertise is in technical analysis and has been a Chartered Market Technician (CMT) since 2007.
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.


8638




Options

Profit From Investor Fear With a Wells Fargo Trade


The options market will literally pay you to agree to buy a blue chip bank’s stock at a lower price.

 

Positioning for bank stocks to rebound and rally is a flying pig trade, but stranger things have happened.

After all, negative interest rates are descending upon the world. Dividend yields are now higher than corporate bond index yields for 44% of the U.S. market and 64% of the European market, according to Goldman Sachs. Some investors might equate those developments as signs of a barking cat.

So, in the spirit of expecting the unexpected, Susquehanna Financial Group is telling clients to consider upside trades on Wells Fargo (ticker: WFC). Recently, we broadly advocated buying bank stocks, largely because valuations were so low.

Some might note that bank valuations are low for a reason, but sun shines on dogs, as one witty trader likes to say, so herewith are a few rays for aggressive traders, courtesy of Susquehanna’s Chris Jacobson.

In a recent trading advisory, the strategist told clients that Wells Fargo is trading at historically low valuations. The stock has declined some 17% this year.

If you think Wells Fargo, often regarded as America’s best-run bank, is undervalued, consider selling July puts and buying calls to position for a rebound.

The risk-reversal strategy is a Striking Price favorite because it monetizes investor fear. The trade often works wonders when fear is high, as is the case with financials right now. The implied volatility of Wells Fargo’s options that expire in three months are trading around a two-year high of 29%. Historical volatility is about 24%.

Elevated volatility reflects investor concern about the near-term future of Wells Fargo stock. Executing a risk reversal thus expresses a view that the fear is overstated, at least for long-term investors.

When Wells Fargo’s stock was at $45.31, Jacobson suggested that clients consider selling the July $42 put and buying the July $50 call. Earlier this week, the put and call each traded at $1.85, so the trade could have been executed essentially for free (not including commissions or margin requirements). In more recent trading, prices were even better.

The July $42 put was bid at $2.33, and the call was offered at $1.37 with the stock around $45. This means the options market is paying investors 96 cents for agreeing to buy Wells Fargo stock at $42, and to control the stock above $50.

If the stock is below $42 at expiration, investors would be obligated to buy Wells Fargo’s stock or cover the put at a higher price. Should the stock advance, investors are in a position to profit further if the stock is above the $50 strike price. At $55, which would be a major move, the call is worth $5. The stock’s 52-week high is $58.76.

“For investors who are not quite ready to buy stocks, but fearful of missing out on a rebound, and willing to buy in the event of another leg lower, the bullish risk reversal may make sense,” Jacobson advised clients in his note.

If you put any faith in price targets, Susquehanna sees Wells Fargo hitting $56. Jacobson’s trade puts investors right into the middle of the action. While he likes Wells Fargo, the risk-reversal strategy can be applied to other blue chip stocks that rank as long-term investments.

Get investing analysis that moves stocks and markets—Subscribe to Barron’s for just $1 a week.
 
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.

8637




Stocks

OTC Markets Group Q4 Indexes Performance & Rebalancing


On January 26, OTC Markets Group announced the fourth quarter 2015 performance and quarterly rebalancing of the OTCQX® indexes, the OTCQB® Venture Index, the OTCM QX ADR Index (“OTCQX30”) and the OTCM ADR Index, which track securities traded on the OTC Markets.

OTCQX U.S. Index (.OTCQXUS) Q4 Performance

The OTCQX Composite Index (.OTCQX) gained 4.5% in the fourth quarter, compared to an 11.6% decline in the prior quarter.  The Index was up 3.9% for the full year 2015.  

The OTCQX Billion+ Index (.OTCQXBIL) was up 4.6% in the fourth quarter, compared to an 11.6% decline in the third quarter.  The Index was up 1.8% since its launch in the second quarter 2015.  

The OTCQX International Index (.OTCQXINT) rose 4.5% in the fourth quarter, compared to an 11.6% decline in the prior quarter.  The Index was up 3.8% for the full year 2015.  

The OTCQX U.S. Index (.OTCQXUS) gained 9.8% in the fourth quarter and was up 20.2% for the full year 2015.  

The OTCQX Banks Index (.OTCQXBK) rose 6.4% in the fourth quarter, compared to a 1.0% gain in the prior quarter.  The Index was up 16.1% since launching in the first quarter 2015.

The OTCQB Venture Index (.OTCQB) declined 7.0% in the fourth quarter and was down 26.8% since its launch in the first quarter 2015.  

The OTCM QX ADR 30 Index (.OTCQX30), powered by BNY Mellon DR IndicesSM, gained 4.89% in the fourth quarter compared to a 9.95% decline in the third quarter.  The Index was flat for the year.

The OTCM ADR Index (.OTCDR) powered by BNY Mellon DR Indices, rose 4.72% during the fourth quarter compared to an 11.95% decline in the prior quarter.  The Index was down 1.06% for the full year 2015.


To view the real time best bid/ask data for 10,000 OTCQX, OTCQB, and Pink securities, customers of Interactive Brokers can subscribe to OTC Markets Group data in Account Management.


Q4 2015 Index Performance & Rebalancing

These indexes are market capitalization-weighted and have a minimum liquidity screen to ensure tradability; and are re-balanced every quarter.

In Q4, the following companies were removed from our indexes as they graduated to an exchange listing during the quarter:
-    Anavex Life Sciences Corp.
-    Klondex Mines Ltd.
-    Xtant Medical Holdings, Inc.
-    Alexandria Real Estate Equities, Inc.
-    COPsync, Inc.
-    Titan Pharmaceuticals, Inc.
-    Trinity Place Holdings Inc.

OTC Markets Group Inc. (OTCQX: OTCM) operates Open, Transparent and Connected financial markets for 10,000 U.S. and global securities.  Through our OTC Link® ATS, we directly link a diverse network of broker-dealers that provide liquidity and execution services for a wide spectrum of securities.  We organize these securities into markets to inform investors of opportunities and risks: the OTCQX® Best Market; the OTCQB® Venture Market; and the Pink® Open Market.  

OTC Markets Group continues to be the global leader in exchange graduates, advancing more than 450 companies to the New York Stock Exchange, NASDAQ and NYSE MKT since 2009. In 2015, 60 companies graduated from the OTCQX, OTCQB and Pink markets to an exchange compared with nine graduates from Canada’s TSX Venture Exchange and four graduates from the London Stock Exchange’s AIM Market.

Our data-driven platform enables investors to easily trade through the broker of their choice at the best possible price and empowers a broad range of companies to improve the quality and availability of information for their investors.  To learn more about how we create better informed and more efficient financial markets, visit www.otcmarkets.com.

OTC Link ATS is operated by OTC Link LLC, member FINRA/SIPC and SEC regulated ATS.

Subscribe to the OTC Markets RSS Feed

Past performance does not guarantee future results. Investors cannot invest directly in any of these indexes.

OTC Markets Group Inc. provides no advice, recommendation or endorsement with respect to any company or securities.  Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities. Investors should undertake their own due diligence and carefully evaluate companies before investing.


This article is from OTC Markets Group and is being posted with OTC Markets Group's permission. The information provided in this article is from OTC Markets Group 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.


8594




Stocks

The Best and Worst of the Materials Sector 1Q16


Sector Analysis 1Q16

The Materials sector ranks fourth out of the ten sectors as detailed in our 1Q16 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Materials sector ranked seventh. It gets our Neutral rating, which is based on aggregation of ratings of nine ETFs and 15 mutual funds in the Materials sector as of January 22, 2016. See a recap of our 4Q15 Sector Ratings here

Figure 1 ranks from best to worst the eight Materials ETFs that meet our liquidity standards and Figure 2 shows the five best and worst-rated Materials mutual funds. Not all Materials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 26 to 121). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Materials 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

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

Sources: New Constructs, LLC and company filings

Fidelity MSCI Materials Index ETF (FMAT) is excluded from Figure 1 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

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

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

Sources: New Constructs, LLC and company filings

iShares US Basic Materials ETF (IYM) is the top-rated Materials ETF and Fidelity Advisor Materials Fund (FMFEX) is the top-rated Materials mutual fund. Both earn an Attractive rating.

PowerShares S&P SmallCap Materials Portfolio (PSCM) is the worst-rated Materials ETF and Rydex Basic Materials Fund (RYBMX) is the worst-rated Materials mutual fund. PSCM earns a Dangerous rating and RYBMX earns a Very Dangerous rating.

161 stocks of the 3000+ we cover are classified as Materials stocks.

Monsanto Company (MON: $91/share) is one of our favorite stocks held by IYM and earns an Attractive rating. Over the past decade, Monsanto has grown after-tax profit (NOPAT) by 16% compounded annually. Over this same time, the company has improved its return on invested capital (ROIC) from 7% to 14%. Despite the long-term profitability of the company, shares remain undervalued. At its current price of $91/share, Monsanto has a price to economic book value (PEBV) ratio of 1.1. This ratio means the market expects Monsanto’s profits to grow by only 10% over its remaining corporate life. If Monsanto can grow NOPAT by just 5% (under a third of historical rate) compounded annually for the next decade, shares are worth $140/share today – a 54% upside.

Vulcan Materials (VMC: $82/share) is one of our least favorite stocks held by Materials ETFs and mutual funds and earns a Dangerous rating. Vulcan Materials business has yet to recover from the global recession in 2008. Since 2007, the company’s economic earnings have fallen from -$88 million to -$463 million on a trailing twelve months basis. Over this same time, its ROIC has declined from 8% to a bottom quintile 3%. Despite the deterioration of the business, the stock trades at the same prices it did prior to the recession, which leaves it significantly overvalued. To justify its current price of $82/share, Vulcan must grow profits by 14% compounded annually for the next 23 years. This expectation is awfully optimistic given that since 1998, Vulcan’s NOPAT has actually declined by 1% compounded annually.

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

Figure 3: Separating the Best ETFs From the Worst ETFs

Sources: New Constructs, LLC and company filings

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

Sources: New Constructs, LLC and company filings

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

 

 

About New Constructs

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

Don’t judge an ETF 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 ETF 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 ETFs. 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). The Total Annual Costs Rating (details here) captures the all-in cost of being in an ETF fund over a 3-year holding period, the average period for all 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.


8636




Futures

Stocks and Oil Plunge as Safe Haven Continues for Gold & Bonds


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.


8635




Technical Analysis

Silver (SI) Surges Over 3% Breaking Weekly Chart Downchannel Resistance


Silver (SI) surged over 3% yesterday breaking above upchannel resistance (on the weekly chart), but is nowhere near as overextended as Gold (GC) in the near-term.  Admittedly, I missed the earlier buying opportunity, but will not chase SI as GC (which often correlates highly with SI) appears ripe for a bit of profittaking.  Furthermore, SI's daily and 4hr RSI and Stochastics are tiring.  I'm targeting to go long on any slide back to the 4hr chart upchannel support.

 

Silver (CME SI Mar16) Weekly/Daily/4hr/Hourly

 

Click here for today's technical analysis on US Treasury Bond, Gold, VIX, Soybean, S&P500, Nasdaq100, DAX, Euro Stoxx 50, Nikkei

 

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.

 


8634




Technical Analysis

Gold (GC) Surges Over 4% Breaking Daily Chart Upchannel Resistance


Gold (GC) surged over 4% yesterday breaking above upchannel resistance (on the 4hr and daily charts), and is now appearing rather overextended in the near-term.  Rather than chasing this long opportunity, I'll continue waiting for a healthy pullback.  Admittedly, I missed the earlier buying opportunity, but prefer not going long on upchannel resistance breakouts, as these are typically not sustainable, with the price typically falling back within the upchannel within a few sessions.  Furthermore, the daily and 4hr RSI and Stochastics are tiring.  I'm tentatively targeting to go long on any slide back to the 4hr chart upchannel support.

 

Gold (CME GC Apr16) Weekly/Daily/4hr/Hourly

 

Click here for today's technical analysis on US Treasury Bond, Silver, VIX, Soybean, S&P500, Nasdaq100, DAX, Euro Stoxx 50, Nikkei

 

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.


8633




Technical Analysis

US Treasury Bond (ZB) Rejected at Weekly Chart Upchannel Resistance


US Treasury Bond (ZB) spiked higher yesterday only to begin reversing most of the day's gains around the US equity market open.  Rejection occurred right at upchannel resistance (on the 4hr, daily and weekly charts).  With ZB having led the safe haven markets higher in recent months, I expect any weakness to presage a rebound in risk appetite.  Although the weekly RSI, Stochastics and MACD don't display well on the chart screenshot (due to limited history on the March 2016 contract), the tiring daily and 4hr RSI and Stochastics are hinting that ZB may want to pullback soon towards upchannel support (on the 4hr chart) at the very least.

 

US Treasury Bond (CME ZB Mar16) Weekly/Daily/4hr/Hourly

 

Click here for today's technical analysis on Gold, Silver, VIX, Soybean, S&P500, Nasdaq100, DAX, Euro Stoxx 50, Nikkei

 

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.


8632




Stocks

ETF "Short" Report


Short Interest Can Distort Fund Flow Data

Many investors watch ETF money flow data in an effort to discern where the “smart money” is moving. Inflows into a certain area are generally viewed as bullish while outflows are perceived as bearish. One shortcoming of this approach however is that money flow data is often distorted by short interest in the ETF. This is because ETFs are often the “go-to” instrument for short sellers, and Authorized Participants can easily create more shares to satisfy demand from short sellers, which appear as bullish inflows but are really just creating larger short positions.

This was particularly acute during the Financial Crisis, when traders were prohibited from short selling stocks of large financial firms such as J.P. Morgan Chase (JPM) and Citigroup (C). Instead they shorted the Financial Select Sector SPDR (XLF), which saw its shares outstanding soar more than 10-fold between June 2007 and September 2008, even as prices plunged (Figure 1). The large inflows here clearly would not have been viewed as a bullish indicator.

Fortunately, FINRA requires member firms to report short interest positions in all securities—that is, the number of shares sold short—on a semi-monthly basis. Data from the many member firms is aggregated and then reported as a percentage of shares outstanding for each stock or ETF. This information, combined with the standard fund flow data we already have, can help give investors a clearer picture of investor sentiment. With it, we can calculate whether money flows are net long (i.e., bullish) or net short (bearish).

So what does recent data show? At the highest level, money flows look much the way investors might expect for the month of January, which was a rough period for stock investors. Money flowed out of equity ETFs and into Fixed Income funds. However, the net short flows of $25.7 billion away from equities were about 50% higher than the outflows calculated under the standard approach, which were about $16.8 billion, as the short interest in equity ETFs grew from 8.2% to 8.8% during the month (Figure 2). Meanwhile net long flows into Fixed Income funds were about $12.3 billion, just slightly below the standard flow measure of $12.7 billion, as short interest in the category rose from 3.3% to 3.5%.

Delving deeper into equity funds reveal some surprising data points. While Emerging Markets continued to see outflows along with the rest of the world, the net short flows were actually smaller, at $2.8 billion, than the $4.0 billion outflows seen by standard measures, as short interest in the category declined. This suggests that some short sellers see further downside as limited, and they may have decided to take some profits in anticipation of a possible rebound.

Energy is another area where flows were particularly distorted by changes in short interest. Money flows into the sector were a positive $400 million for January under standard measures, suggesting some bullishness on the part of investors. However, when we take into account the increase in short interest, those inflows turn into outflows, or net short flows, to the tune of $475 million.

While ETF money flows are helpful indicators of changes in investor sentiment, short interest in the underlying stocks of an ETF may tell us more about the levels of bearish sentiment, both because conviction levels are likely higher among investors shorting a single stock, and because the notional dollar amounts are typically far greater. The latter point is due to the fact that the combined market cap of any ETF’s constituents far exceed the ETF’s assets, so even a relatively low short interest in the underlying constituents likely represents a larger “bet” in dollar terms than whatever the short interest in the ETF equates to.

So where is short interest indicating the most bearishness? Table 1 below shows the ten ETFs with the highest percentage of short interest in their underlying constituents. A quick glance reveals that Biotech and Energy-related ETFs are heavily represented, suggesting these areas may see yet more subpar performance going forward. These ETFs have sizeable allocations to such heavily shorted stocks as Myriad Genetics (MYGN), United Therapeutics (UTHR) and Transocean Ltd. (RIG).

Ironically, this could actually redound to the benefit of investors who own any of these funds, since many funds earn extra income from lending securities in their portfolios. This extra income may lead to positive tracking error (that is, enable the ETF to beat its benchmark), thereby offsetting  the fund’s expense ratio borne by investors.

Short sellers aren’t always right, of course, but they don’t survive long without some skill in spotting losers. Short interest reflects the collective wisdom of the short-selling crowd, and therefore is another valuable data point to consider when evaluating ETFs.

Reprinted with permission from AltaVista Research
For more information go to www.etfresearchcenter.com
T 646.435.0569 | E info@altavista-research.com

About AltaVista

A better approach to ETFs. AltaVista’s ETF reports and ratings are built on a fundamentally-driven analysis of each fund’s underlying constituents, with the aim of helping investors make better fund selections based on forward-looking measures of investment merit.

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