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2015-05-28 13:54:19

Posted by
Andrew Wilkinson
Chief Market Analyst
Interactive Brokers
Contributor
Forex

How short is the market in yen?

Nine days ago the net short futures position in the Japanese yen stood at 22,005 contracts according to CFTC data. On that date, the dollar bought ¥120.69. What is remarkable about the price action since then is that it has not taken a large speculative assault against the Japanese currency to drive its value down to a 13-year low. On Thursday the dollar rose to as high as ¥124.46 where it hasn’t traded since December 2002. It appears that some yen bears simply tired of waiting for the next shoe to drop. Hedge funds and speculators have been net short of yen contracts in the futures market from October 2012. Since then, on average, the weekly data has revealed an average net short positon of around 70,000 contracts. Perhaps the yen bears simply became frustrated by price inaction in spite of an extension of quantitative easing by the BOJ. Or perhaps they shortsightedly quit their stance as dollar bulls toned down their view on the pace and start of monetary tightening at the Federal Reserve. One of two things appears to have happened in the past week. Either fresh selling will become evident in Friday’s CFTC report or, there is little demand for the yen at multi-year lows. If that is the case, the price discovery process over coming weeks will be interesting to watch as analysts sharpen their pencils and adopt fresh price targets for the yen.

Chart – Net speculative positioning in yen futures is lightweight

 

The analysis in this article 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.

2015-05-28 13:04:00

Posted by
Neil Azous
Founder & Managing Member
Rareview Macro LLC
Contributor
Macro

China - The 2007 Blue Print

The most important point about last night's -6.5% fall in Chinese mainland equities last night is that the characteristics of last night’s sell-off were vastly different from past events where billions of market value were wiped out.

The analogy most of the bomb throwers want to use is the stock market plunge of February 27, 2007, when the Shanghai Stock Exchange Composite Index (symbol: SHCOMP) dropped -8.84% and that in turn bled into financial markets around the world, including the S&P 500 which dropped -3.45% in its biggest one-day slide since the September 11, 2011 terrorist attacks. For those that don’t remember that day, sell orders were made that led to an instantaneous 200 point drop in the Dow Jones Industrial Average. Back then, there were not enough algorithms or high frequency traders to label it a flash crash.

There are, however, three big problems with the view that something similar will happen this time around.

 

To read the full write up please sign up for a free trial through your trading account.

 

Sight Beyond Sight® is a global macro trading newsletter written daily by Neil Azous. With close to two decades of institutional experience across asset classes, Neil interprets the day-to-day economic, policy and strategy developments and provides actionable trading ideas for investors. We invite clients of Interactive Brokers to sign up for a free trial in Account Management. If you are not a client of IB, you can sign up for a free trial by visiting our website.

 

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

2015-05-28 11:58:39

Posted by
Singapore Exchange

Contributor
Futures

SGX China A50 Index Futures Touch 15,000 as FTSE Starts China A-Share Inclusion

  • SGX FTSE China A50 Index Futures touched 15,000 for the first time in seven years during the extended trading session, following FTSE’s announcement of its transitional move to include China A-shares in its global benchmarks. 
  • Elsewhere, H-shares narrowed the premium gap with A-shares as investors took positions in the former. Recent announcements allowing two–way funds access between China and Hong Kong could invigorate both markets with a slew of investment products. 
  • SGX FTSE China A50 Index Futures’ traded volumes reached 1,026,629 contracts yesterday on the back of robust roll activities. Open interest was a record 818,601 contracts.

FTSE Steps towards including China A-Shares into Global Benchmarks

On 26 May, FTSE Group made the announcement to include China stocks in two new emerging-market indexes. Two transitional indexes that include China A-shares will be launched – a staggered approach that lays the foundation to bring local Chinese shares into the FTSE global emerging markets benchmarks.

During the extended trading session on 26 May, SGX FTSE China A50 Index Futures hit 15,000, the highest level since the global financial crisis, following the FTSE announcement.

The new indices, named FTSE Emerging Markets China A Inclusion Indexes, will initially have a 5% weighting for China A-shares. That will rise to 32% when Chinese A-shares become fully available to international investors.

The FTSE announcement comes ahead of a much anticipated 9 June decision by rival MSCI Inc. on China A-share inclusion. Presently, China-listed equities have not been included in the MSCI indices. However, this could change as Beijing continues to press its case with money managers and index providers.

Templeton Emerging Markets Group Chairman Mark Mobius, who was against inclusion as recently as March, was quoted in an interview as supporting the inclusion of Chinese shares in MSCI indices and said his funds are now buying yuan-denominated shares.

GaveKal Dragonomics' Chief Executive Officer, Louis-Vincent Gave, also believes the China equity rally still has legs.

“The global investment community is under-exposed to Chinese stocks and bonds, but will be compelled to increase their exposure over the coming two or three years as Chinese financial assets begin to be included more fully in the global benchmarks that passive – and many active – institutional investors track,” he said.

Up till now, it has been a liquidity-driven market with Chinese retail investors spearheading the bull run. However, the next wave will likely involve international investors.

Chinese Equities Extend Winning Streak; Domestic Reforms Fuel Charge 

The magnitude and duration of the rally in Chinese equities continues to silence sceptics. 

China’s CSI 300 Index surged above 5,000 for first time since 2008, while the FTSE China A50 Index soared past 14,700 earlier. In terms of market capitalisation, China’s stock market is the second-largest in the world, with turnover exceeding that of US equities on a number of occasions.

Hopes of further stimulus have helped to fuel Chinese stocks. In addition, the swift pace of reforms has continued to attract both domestic and international interest, adding to upward pressure on stock prices.

The Chinese media reported that the China Financial Futures Exchange (CFFEX) will soon launch the country's first-ever stock index option, broadening the range of available hedging tools as the government quickens the pace of financial market reform. This comes on the heels of the launch of options trading on the China 50 ETF in February.

The first set of stock index options will be based on China's CSI 300 and SSE 50 indices, as well as the small-cap CSI 500 Index.

Another catalyst for the bulls is the impending link-up between the Shenzhen and Hong Kong stock exchanges, which could take place later this year. 

The aggregate investment quota for the Shanghai-Hong Kong stock connect programme will be abolished when a similar equity link is established with the Shenzhen bourse, Ming Pao, the Hong Kong newspaper reported, citing unnamed sources.

Reforms also took another leap forward when regulators in China and Hong Kong announced on 22 May they would allow cross-border sales of funds on 1 July, thereby widening access to financial markets and capital in the world’s second-largest economy.

The initial quota will be a total RMB600 billion (US$97 billion), split evenly between China and Hong Kong. 

At the initial stage, only bond funds, general equity funds, mixed funds, unlisted index funds and physical index-tracking exchange-traded funds would be eligible under the scheme, regulators said in the statement. 

Two-way funds access between China and Hong Kong could invigorate both markets with a slew of investment products.

H-shares Play Catch-Up

Given the market’s recent surge, it is easy to overlook the fact that Chinese equities, until the launch of the Stock-Connect program, had been in the doldrums. Since the 2008 financial crisis, while US equities have gained on the back of the Fed’s looser monetary policy, stocks in China have languished prior to November.

Even with their recent meteoric performance, the largest China A-share companies (as represented by the FTSE China A50 Index) are trading at a price-earnings ratio of around 13 times, compared with 19 times for the S&P 500 Index.

Hong Kong H-shares are even more undervalued, hovering at two-thirds the value of their Chinese counterparts over the past six months.

However, a reversal started at the end of March as the value of H-shares advanced at a faster pace versus A-shares, with the Hang Seng AH Premium Index plummeting from 132.82 on 31 March to 120.61 on 13 April.

The Hang Seng AH Premium Index tracks the average price difference of A-shares over H-shares for the largest and most liquid Chinese companies with both A-share and H-share listings (“AH Companies”). A value of over 100 would indicate a price premium of A-shares to H shares and a value of below 100 means H-shares are trading at a premium versus A-shares. A value of 100 means A-shares are trading on par with H-shares.

When regulators gave the green light to expand the types of funds eligible to access the Stock-Connect program, H-shares moved higher on speculation Chinese mutual funds would buy Hong Kong equities.

Nonetheless, on 16 April, news on a series of reforms to be initiated on China’s cross-border investment market propelled A-shares higher. These reforms will include the introduction of daily repatriation for QFII funds and a US$5 billion quota for QFII licence holders.

At the same time, spreads between the SGX China A50 Index Futures front- and second-month contracts started to narrow sharply from the middle of May. Daily average volume of China A50 Index futures jumped to 429,552 (as at 30 April 2015) – a 35% increase from March. 

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

2015-05-28 09:32:40

Posted by
Andrew Wilkinson
Chief Market Analyst
Interactive Brokers
Contributor
Macro

Jobless claims tick up - labor market remains firm

First-time claims for unemployment benefits rose marginally ahead of the Memorial Day holiday weekend, but remained below 300,000 for a twelfth-straight week. The initial claims tally rose by 7,000 to 282,000 while the ongoing count through the prior weekend rose by the same to 2.222 million. The four-week moving average picked-up off a 15-year low to stand at 271,500, yet showing signs of defiance in the face of other data suggesting economic performance  was surprising to the downside. The Bloomberg economic surprise index only recently showed signs of rebounding from its weakest reading in six years. However, all the while, the labor market has remained strong. In the first four months of 2015, employers have added 775,000 jobs. Although the pace of gains has been restrained by a lull during the first quarter, the proof is in the pudding is evidenced by the drop in the unemployment rate to 5.4%.

Chart – Claims and economic surprise

2015-05-28 09:18:11

Posted by
Jamie Lissette
Trading Analyst
Hammerstone Group
Contributor
Stocks

Sector News Breakdown

Consumer

  • Costco (COST) Q3 EPS $1.17/$26.1B vs. est. $1.16/$26.63B; Q3 comp sales down (-1%)
  • Tilly's (TLYS) Q1 EPS 5c/$120.19M vs. est. 4c/$121.01M; Q1 comp sales, including e-commerce sales, increased 2%; sees Q2 EPS 1c-5c below consensus 8c and sees Q2 comp sales down 2% to up 2% (says guidance assumes effective tax rate of 40%)
  • SpartanNash (SPTN) Q1 EPS 44c/$2.31B vs. est. 41c/$2.32B; reaffirms year views
  • Popeye’s (PLKI) Q1 EPS 58c/$79.5M vs. est. 54c/$81.38M; reports global same-store sales increased 7% in 2015; boosted year eps view by 1c on top and bottom line
  • Bright Horizons (BFAM) files to sell 3M shares of stock
  • Dunkin' Brands (DNKN), J.M. Smucker (SJM) and Keurig Green Mountain (GMCR) launch K-Cup pod
  • Dave & Buster’s (PLAY) 8.5M share Secondary priced at $31.50
  • ServiceMaster (SERV) 20M share Secondary priced at $34.00
  • Chipotle (CMG) upgraded to Buy from Hold at Miller Tabak

Energy

  • The American Petroleum Institute (API) reported that crude supplies rose 1.3M barrels for the week ended May 22, according to sources (Platts forecast a 1.8 million-barrel decline)
  • Jinko Solar (JKS) Q1 ADS 88c on revs $443.5M; said 1Q module shipments 753.8mw and sees 2Q module capacity 4,000 mw, cell capacity 2,500 mw, wafer capacity 3,000 mw, module shipments 850mw-950mw
  • Transocean Ltd. (RIG) said its CFO is stepping down effective immediately; to be replaced by Mark Mey, former Atwood (ATW) executive vice president and CFO
  • EnerSys (ENS) Q4 EPS $1.15/$629.9M vs. est. $1.14/$635.06M; reaffirms forecast
  • KNOT Offshore Partners (KNOP) files to sell 5M common units for limited partners
  • EnLink Midstream Partners (ENLK) announced that it has acquired the remaining 25% equity interest in EnLink Midstream Holdings, or EMH, from EnLink Midstream (ENLC) for approximately $900M units

Financials

  • TD Bank (TD) Q2 EPS $1.14/$7.76B vs. est. $1.11/$7.26B
  • Royal Bank of Canada (RY) Q2 EPS C$1.63 vs. est. C$1.59; said Q2 Basel III common equity tier 1 ratio 10.0%
  • Genworth (GNW) upgraded to Equal Weight from Underweight on valuation at Morgan Stanley
  • MB Financial (MBFI) authorizes $50M repurchase plan

Healthcare

  • Spectranetics (SPNC) 12-month data from Excite ISR trial show its laser atherectomy devices used with PTA are safer, more effective vs. PTA alone
  • NeoStem (NBS) 12.5M share Secondary priced at $2.00
  • TEVA disclosed a 1.35% stake in Mylan (MYL) and said the purchases underscored its commitment to consummate a deal as soon as possible – Reuters  reports

Industrials & Materials

  • Celadon Group (CGI) files to sell 3.5M shares of common stock
  • Atlas Air (AAWW) files $300M automatic mixed securities shelf
  • Amerco (UHAL) Q4 EPS $2.43/$642.7M
  • Aegean Marine Petroleum (ANW) Q1 eps 25c vs. est. 23c; said Q1 revs down 40% YoY to $1.02B amid drop in oil
  • Macquarie Infrastructure (MIC) files to sell 1.9M shares of common stock

Technology, Media & Telecom

  • Palo Alto (PANW) Q3 EPS 23c/$234.17M vs. est. 20c/$223.22M; said billings grew 56% YoY to $302.2M; announced it has acquired CirroSecure; sees 4Q EPS 24c-25c on revs $252m-$256m vs. est. 24c/$247.9m
  • CA Technologies (CA) to acquire Rally Software Development Corp. (RALY) for $19.50 per share, which equates to approximately $480 million, net of cash acquired http://goo.gl/UN0bzG
  • Semtech (SMTC) Q1 EPS 27c/$130.1M vs. est. 28c/$132.5M; see Q2 eps 21c-26c on sales $120M-$130M vs. est. 37c/$140.88M; boosts stock buyback to $100M
  • Google (GOOGL) is set to unveil plans at its annual developer conference on Thursday for an overhaul of its mobile payment products. Changes include a service called Android Pay that will let merchants accept credit card payments from inside their mobile apps and can be integrated with loyalty programs at retailers – NY Times http://goo.gl/YqfGvB
  • NXP Semiconductors NV (NXPI) is selling its radio-frequency power-amplifier unit to a Chinese joint venture partner for $1.8 billion in an attempt to get regulatory approval for its acquisition of Freescale Semiconductor Ltd. – Bloomberg
  • Tech Data (TECD) Q1 EPS 80c/$5.89b vs. est. 71c/$5.63b; sees Americas 2Q sales decline of low to mid-single-digit y/y, sees mid-single digit sales growth in Europe
  • Rentrak (RENT) Q4 eps loss (3c)/$28.5m vs. est. loss (2c)/$29.6m; sees year total company revenue growth 36%-39%
  • Tech Data (TECD) announced it has entered into an agreement to acquire certain assets of Signature Technology Group

 

The content of this post was created by the Hammerstone Group. The Hammerstone Institutional Forum, a chat-based platform for traders, provides subscribers with up-to-the-minute breaking news headlines and instant analysis that drive the market. For more information please visit www.thehammerstone.com. For more information on the stocks mentioned in the Hammerstone Recap, please contact Brian Ducey at brian@thehammerstone.com.

 

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

2015-05-28 09:12:04

Posted by
Jamie Lissette
Trading Analyst
Hammerstone Group
Contributor
Stocks

The Hammerstone Report

Another day, another record, this time for the tech heavy NASDAQ, closing at a fresh all-time yesterday, led by gains in semiconductors (on reports yesterday of a deal between AVGO and BRCM), but futures point to a lower open, following a sharp pullback in Asian markets overnight. Speeches from two Fed officials, as well as readings on weekly jobless claims and pending home sales, are on the calendar for today. Greece still remains a focus for European markets amid mixed reports on the country reaching a deal with its international creditors about getting funds necessary to make payments to the IMF.

In Asian markets, Chinese stocks fell the most in four months after more brokers tightened margin trading requirements for clients and the central bank drained money market liquidity. In addition, filings showed China Central Huijin Investment Ltd., a unit of China's sovereign wealth fund China Investment Corp. (CIC), reduced its stakes in the country's biggest state-owned banks for the first time. The Shanghai Composite Index sank 6.5% to 4,620.27 (its biggest daily percentage decline since Jan. 19, when the index dived 7.7% after China tightened up margining-trading rules). In other Asian markets, The Nikkei Index rose 78 points to 20,551, but the Hang Seng Index plunged 626 points or 2.23% to settle at 27,454.

European markets were mixed on reports the European Central Bank (ECB) can’t provide interim funding to Greece under current rules, a member of the central bank’s governing council said. “I know that there have been some ideas floating around that we [the ECB] might give some interim financing just like that. I don’t see any legal possibility for that,” Ewald Nowotny, who is also Austria’s central bank governor, told CNBC.

World News

  • China brokerages tighten margin lending rules on stock trading
  • Japan retail sales climbed 0.4% from March, when they dropped 1.8% (economists had forecast a gain of 1.1%); retail sales rose 5% year-on-year in April, the first positive result in three months, but still came lower than expectations of a 5.4% growth.  Large retailers' sales jumped to 8.6% in April from a decline of 13% the month before.
  • The People’s Bank of China drained tens of billions of yuan from the financial system recently by selling repurchase agreements, according to two people familiar with the matter. - Bloomberg
  • AAII Poll: Bulls in American Association of Individual Investors survey rise to 27.0% from 2-year low 25.2%; Bears rise to 25.1% from 25.0% and those Neutral slip from 12-yr high, fall to 47.9% from 49.8%
  • It is not clear how the Federal Reserve should respond to the "purported" effect that low interest rates are causing excessive risk-taking in financial markets, said John Williams, president of the San Francisco Fed, on Thursday.
  • Bank of Russia bought another $200 million on the Moscow exchange on Tuesday, taking the amount of its interventions this month to nearly $2 billion, the central bank saiid.

 

The content of this post was created by the Hammerstone Group. The Hammerstone Institutional Forum, a chat-based platform for traders, provides subscribers with up-to-the-minute breaking news headlines and instant analysis that drive the market. For more information please visit www.thehammerstone.com. For more information on the stocks mentioned in the Hammerstone Recap, please contact Brian Ducey at brian@thehammerstone.com.

 

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

2015-05-28 02:06:38

Posted by
Darren Chu, CFA
Founder
Tradable Patterns
Contributor
Technical Analysis

USDX (DX) Nearing 61.8% Retrace of 100-93 Fall

The US Dollar Index (DX) has rallied strongly off downchannel support (on the weekly chart), and is approaching the 61.8% retrace of the approximate 100-93 fall.  With the powerful move this last week and a half, the weekly RSI, Stochastics and daily MACD are all rallying.  The 4hr equivalents though are tiring and turning down.  I'll be flat the DX today but am watching it closely to determine when I enter longs on markets which benefit from DX weakness.

 

USDX (ICE DX Jun15) 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.

2015-05-28 02:06:33

Posted by
Darren Chu, CFA
Founder
Tradable Patterns
Contributor
Technical Analysis

EURUSD Forms Green Daily Doji at 61.8% Retrace of 1.06-1.145 Rally

The EURUSD began its attempt at a reversal pattern yesterday with a daily green Doji, and is easing on the downward pressure as seen by the rallying 4hr RSI, Stochastics and MACD.  The daily MACD though, along with weekly RSI and Stochastics continue sloping downwards, suggesting caution to the bulls.  Note how the EURUSD is testing the 61.8% Fib retrace of the approximate 1.06-1.145 rally.  I will look to establish a long once I see a flattening out of the daily MACD.

 

EURUSD 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.

2015-05-28 02:06:26

Posted by
Darren Chu, CFA
Founder
Tradable Patterns
Contributor
Technical Analysis

EURJPY Retesting Downchannel Resistance on Weekly Chart

The EURJPY rallied strongly yesterday, breaking above descending wedge resistance (on the 4hr chart), bouncing off upchannel support (on the daily chart) and is on the cusp of retesting downchannel resistance (on the weekly chart).  The weekly, daily and 4hr RSI, Stochastics and MACD are all rallying except for the daily MACD, whose green line is trying to flatten.  I will look to establish an intraday long today on any notable pullbacks to the 134-134.5 range as the near 200 pip rally over the last 2 days may need a bit of a breather before re-attempting a break above the weekly chart's downchannel resistance.

 

EURJPY 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.

2015-05-27 15:21:17

Posted by
Andre Rouillard
New Constructs, LLC
Contributor
Stocks

Why One Investment Style Falls Below the Rest

Check out this week’s Danger Zone interview with Chuck Jaffe of Money Life and MarketWatch.com.
 

This week, ETFs and mutual funds in the Small Cap Blend investment style are in the Danger Zone. The Small Cap Blend style ranks last out of the 12 styles as detailed in our 2Q15 Style Ratings report.

Of the 710 Small Cap Blend ETFs and mutual funds under our coverage, 497, or 70%, earn a Dangerous-or-worse rating. Less than 2% of these funds receive Attractive ratings. Zero ETFs or mutual funds receive our Very Attractive rating.

Poor Portfolio Management

The primary reason for Small Cap Blend funds’ poor ratings is their poor stock picking. We rate each fund under our coverage with a Portfolio Management rating. The Portfolio Management rating measures the quality of a fund’s holdings.

Figure 1 juxtaposes the ratings of stocks in the Small Cap Blend style with the portfolio management ratings of mutual funds and ETFs in the style. 1067 out of the 2596 stocks held by Small Cap Blend funds earn a Neutral-or-better rating. These Neutral-or-better-rated stocks make up 42% of the market cap in the Small Cap Blend style.

Figure 1: Portfolio Management Rating of Funds vs. Quality of Stocks

Sources:   New Constructs, LLC and company filings. 

Despite the high proportion of Neutral-or-better Small Cap Blend stocks, just 10% of ETFs and 16% of mutual funds in the style even manage to earn a Neutral Portfolio Management rating. No ETFs or mutual funds earn an Attractive Portfolio Management rating.

Even more disheartening is that the three ETFs that do earn a Neutral Portfolio Management rating contain less than 1% of the assets invested across all Small Cap Blend ETFs. Similarly, just 11% of all Small Cap Blend mutual fund assets are in mutual funds that earn a Neutral Portfolio Management rating.

Even though the advice “past performance is not a guarantee of future returns” gets repeated again and again, investors still gravitate towards funds with a strong history of performance. Unfortunately, that means investors in the Small Cap Blend style are missing out on funds with superior holdings simply because said funds don’t yet have established track records.

High Costs Only Worsen an Investment

The second reason for so many poor funds in the Small Cap Blend style is the high costs across the board. The Small Cap Blend Style is one of the most expensive of all 12 styles, with average total annual costs of 2.09%, ranking behind only the Small Cap Value and Small Cap Growth styles.

Normally investors do a good job of avoiding funds with high costs. However, in this case, investors are ignoring the high costs associated with the Russell U.S. Small Cap Equity Fund (RLACX). RLACX is one of our least favorite mutual funds in the Small Cap Blend style and charges total annual costs of 4.40%. Despite its poor holdings and high costs, RLACX has over $2.3 billion in assets. While the fund’s expense ratio of 1.25% might look attractive, its high front-end load costs of 5.75% and transaction costs of 0.79% loom large.

Many investors don’t take these costs into account when investing in a fund, but these additional costs erode 36% of their return over a 10-year period. To make matters worse, RLACX charges investors these high costs while 48% of its portfolio consists of Dangerous-or-worse rated stocks.

A Bad Stock in a Bad Fund

Granite Construction (GVA) is RLACX’s top holding and earns our Dangerous rating. Over the past 10 years, Granite’s after-tax profit (NOPAT) has declined by just over 4% compounded annually. It seems Granite’s moat has disappeared as well, as its pretax margin has declined from 8% in 2008, to just 3% in 2014. Over the same timeframe, its return on invested capital (ROIC) has declined from 22% to just 4%, which ranks in the bottom quintile of all companies we cover. The company has also been bleeding cash and has a cumulative free cash flow of -$72 million over the past four years.

In addition to not being a growth stock, GVA is no value stock either. To justify its current price of $36/share, Granite must increase its pretax margins to 5% and grow profits by 21% compounded annually over the next 9 years. This expectation seems extremely unlikely given Granite’s long-term declining profits and value destruction.

If the company can grow profits by a still-optimistic 13% compounded annually for the next 10 years, the stock is worth $26/share, a 27% downside. This is the kind of downside risk embedded in RLACX’s top holding and we haven’t even looked at the rest of its portfolio yet. Investors don’t deserve to pay such high fees for such poor stock picking.

Quality Can Be Found in the Small Cap Blend Style

When it comes to overall rating, which combines our Portfolio Management and total annual cost ratings from above, there are a few Attractive rated funds in the Small Cap Blend investment style. These funds combine quality stocks with relatively low total annual costs. The top three funds, excluding those with less than $100 million in assets are as follows:

  1. Virtus Quality SmallCap Fund (PXQSX) – receives our Attractive rating by charging only 1.3% in total annual costs and allocating over 21% of assets to Attractive-or-better-rated stocks.
  2. Royce Small Cap Value Fund (RVVRX) – despite what its name would imply, RVVRX allocates more towards a mix of small cap stocks, not only value stocks. It receives our Attractive rating by charging only 1.3% in total annual costs and allocating over 21% of assets to Attractive-or-better-rated stocks.
  3. Janus Perkins Small Cap Value Fund (JDSNX) – much like RVVRX, despite what its name implies JDSNX’s portfolio more closely resembles a Small Cap Blend fund. JDSNX receives our Attractive rating by charging only 1% in total annual costs while allocating 52% of assets to Neutral-or-better rated-stocks.

While these three funds might earn our Attractive rating, they are few and far between. Fund managers need to do a better job allocating to quality stocks. At the same time, investors need to be more diligent about which funds they purchase in the Small Cap Blend style.

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

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In-depth risk/reward analysis underpins our stock rating. Our stock rating methodology grades every stock according to what we believe are the 5 most important criteria for assessing the quality of a stock. Each grade reflects the balance of potential risk and reward of buying that stock. Our analysis results in the 5 ratings described below. Very Attractive and Attractive correspond to a "Buy" rating, Very Dangerous and Dangerous correspond to a "Sell" rating, while Neutral corresponds to a "Hold" rating.

 

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.

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