Tuesday, December 20, 2016

Markets in Christmas mini-rally mode

Surprisingly, Wall Street shows that it still has the strength to overcome events such as the lamentable terrorist attacks of yesterday in Ankara and Berlin. A slight fall was expected today (SPX +0.28%), but the markets and sectors, despite being almost all of them in overbought and with the VIX close to annual minimums, continue to rise. I understand that it is the usual Christmas mini-rally.

Europe and Asia are not far behind and also continue to rise several days ago. And since this is a week, there are few economic events and generally lower volume of transactions, this bull trend is expected to continue, at least until the end of the year, and then inevitably correct in the first days from January. The 2015 was like this, with a January of precipitous falls, which made presage a major correction that finally did not happen.

Watchlist Update for Christmas

In this section I will leave tips, ideas and links of stocks, etfs and sectors taken from my weekly watchlist, all in tweet mode. It seems to me a more agile way to leave data.

 - Nike NKE earnings on Tuesday, up +1.49% at the moment, after a difficult 2015 unlike its competitors.

All 2016 falling Nike, even with the Social Sentiment at a minimum. The MACD today in turn exceeding the average (dotted line) plus a good earning, could mean its recovery and a good 2017.

- The Mosaic Co. MOS has acquired the Brazilian fertilizer giant Vale VALE, at $2.5B with the clear intention of facing Monsanto MON, today merged with Bayer. It is interesting this sector, it is expected to increase these days its volatility. 

- The banking sector XLF seems to be taking a second look after Trump's triumph. Other analysts believe that their rally is just beginning. In the long term, I think it is a buy, backed by the FED's 2017 plan, which is clearly strong for the dollar and the banks.

- An excellent news for the Peruvian stock market IGBVL, always so slow and heavy: from next year it will be possible to make electronic commerce of shares via internet. It was necessary to take measures so as to make it more dynamic.

- This week the Deutsche Bank DB must resolve the claim with the US Department of Justice. If a resolution that reduces the amount of the same, today at $14.5B, the stock can go to the clouds, taking into account that it is the favorite bank of Trump.

- And Nvdia Corp NVDA continues its unstoppable rally that started this year, almost 280% up. He overcame the important psychological barrier of $100, and against all odds he seems to continue his rise in 2017. He managed to overcome the slight pullback two weeks ago and continues with strength. The same cautiously took this stock because I estimate its rise too high and has again entered into overbought territory.

 - The VIX volatile index or Fear Gauge, is at its lowest levels of the year, below $11.50, so I try to be cautious with longs in these times. As I wrote above, I speculate that the rally may end at the end of the month. See in the chart what happened with the market, index SPX, the last time the VIX reached the levels of today: its correction was shocking. Here is an excellent article on how to trade with volatility through etfs such as VXX, or the one that goes to triple speed UVXY.

The VIX in August 2015 levels. This indicator has the property of returning to its average, if or if, sothat its upward correction should be expected soon, which may or may not be dramatic as it was last year.
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Thursday, December 15, 2016

FED: hawkish vision for 2017, Funds Rate in 0.75%

FED decision with hawkish tone.

After the meeting of the FOMC we know their decisions, and the truth surprised the tone much more hawkish than what the analysts expected, although I think it was necessary to do the Rate Hike, and better, gradually. Now control inflation and not so much employment will become the guide of the Fed in the next two years. In summary:

- The Rate Hike was given in the 0.25% expected, bringing the rate range to 0.50-0.75%.

- There will be at least 3 increases during 2017 (the rate can reach 1.5% by the end of that year), depending on the inflation and growth range with the Trumponomics.

- The FED sees growth and therefore in the long term estimate the interest rate will rise to 3% compared to the projected 2.9% previously. Likewise, core inflation fixes it at 1.7% at the end of this year.

If inflation rises threatening the target of 2%, the FED should accelerate its measures to cool the economy somewhat. And this is likely to happen with unemployment under 4.6%, salaries growing at 4% YoY, plus 4% growth plus tax reduction promised by Trump, undoubtedly domestic consumption will increase and with it inflation. Undoubtedly, we have to spin fine in the US to maintain financial stability.

Winner and losers

The big winner, without a doubt, the US Dollar /DX strengthened and with tremendous increases (+1.37% today) against all currencies, in the case of EUR/USD at level 1.04, minimum at 14 years, and with projection to finish 1/1 at the end of the year as you forecast a few weeks ago. With the pair USD/JPY comes in 118, heading to 120. And with the dollar, the whole banking sector also won.

 The big losers: minerals such as gold /GC and silver /SI, generally inversed to the dollar, with falls of the order of 3.5 and 7% respectively. The crude oil /CL also fell 3% although there I see other additional factors, such as doubts that comply with OPEC agreements, something already common among oil countries.

Gold is falling from Trump, obvious by the strength of the dollar. Technically in oversold field for weeks, should correct slightly soon despite there are no close supports.

Other big losers were the american Treasury Bonds, in their different maturations. I previously commented on its relevance, and today it takes more interest with these increases of types that come. With yesterday's sell off, its referential index, the yield of 10-year notes TNX reached 2.58% today and with all the strength necessary to reach 3% soon. Note that mortgages use this rate as a reference, therefore they will rise: it is convenient to monitor the mortgage sector, index $DJUSHB. Another fact that shows the strength of this yield: against the Bund (10-year German bond) the spread between both has reached a level that was not seen since the years of the Berlin Wall.

Some charts about FED decision

The Deutsche Bank DB presents its short-term vision of the different economic instruments in the US, in the table below. We already know the response of the FOMC, hawkish. We will see if your forecast is met and the Dow Jones $DJI reaches 20,000 points before the end of the year or if the market reacts as it usually does lately: go against any forecast or analysis.

The Recommended Reading

Another instrument of fixed income affected by the measures of the FED are the Treasury Bills, the safest and short-lived and, therefore, the most affected by changes in the i-rate. This article of the blog Jesse's Cafe Americain, is quite didactic explaining the index IRX that handles Wall Street to follow the T-Bills: its characteristics, behavior and weaknesses, with illustrative graphs comparing it with the other indices. I recommend your reading and careful analysis.

Wall Street is in "Extreme Greed"! mode, according to this CNNMoney indicator.
Read more »

Thursday, December 8, 2016

ECB: tapering since April 2017

The meeting of the European Central Bank took place today, a key for trading in world markets in the coming weeks. Their conclusions were more or less what was expected:

 - Neither the rates (0%) nor the deposit rate are touched, they are both in dangerous negative territory, with deposits at -0.4%. Consequently, the yield of European short-term bonds, sensitive to these data, came strong at rise, because they feared a drop in rates.

 - The ECB can buy debt at rates below -0.4% referential and 1 year (the previous minimum was 2 years), which can buy debt from countries with negative rates in the short term (the case of Germany). This detail abruptly turned the 10-year German bond yield (the Bund, European benchmark) downward, ending at 0.38%.

Today, the 10-year German bond (Bund) was very volatile as 
the decisions of the ECB were being digested.

- As of April 2017 the monthly purchases of 80,000 to 60,000M euros are reduced, that is, the tapering begins, although later, in the conference, Draghi hinted that the initial amount can be returned if the situation demands it. With these huge purchases (which can become a dangerous vice) the ECB helps to keep the yield of the bonds very low, because it increases their demand and with it their price.

 - These tapering will continue until December 2017 (no longer September). European banks happy with the news: more issuance of money for purchases of their corporate bonds.

 - Then in the usual conference, Draghi commented that he does not see inflationary pressure, nor deflation, foreseeing 1.3% for 2017, even far from the 2% target. This data will impact on the euro that follows its fall, as it sees far the rise in interest rates.

- In terms of growth, it foresees a GDP of 1.7% for this year and 1.7% for the next, higher than the previous estimate of 1.6%, good data for stocks, who favor solid economies.

 - Brexit and the election of Trump believes will see effects only in the medium and long term.

The Eurostoxx50 index, which measures the eurozone, continues with its 2-week rise, today at +1.21%, struggling to finally break the resistance at 3,150, which lasted all of 2016, to close the year up. Wall Street, on the other hand, reacted with moderation (SPX +0.01% now), despite a good data from Jobless Claims that reinforces the labor market. In currencies, the euro reacted weak against its peers, including the dollar, the EUR/USD at -1.22% at the moment. For now, these are the data and immediate consequences.

With the decisions of the ECB that ranging market of the Eurostoxx50 all 2016 can break its resistance.

The Recommended Reading

Over the years I understood that risk management is the sure way to succeed in the daily stock trading. One of the ways to manage the risk is to study the industrial sectors daily and trade according to them. 

The present article of Stockcharts.com makes a technical analysis of the 10 sectors that form the GICS classification, graphically using the Relative Rotation Graph RRG quadrant, where at a glance you can identify the leading sectors today, those that are falling , weakening and reinforcing. I literally transcribe your suggestions for these days, quite coincident with what was expressed in previous posts of this blog.

- Well defined sector rotation at the moment
- Avoid Utilities, Staples and Health Care as they push deeper into the lagging quadrant
- Watch Technology as it rotates inside the weakening quadrant
- Financials are still leading, but relative trend is getting mature
- Energy and Industrials inside leading quadrant offer potential
- Prefer Materials over Discretionary inside the improving quadrant

Read more »

Monday, December 5, 2016

Rally Trump continue unstoppable

Rally Trump continue unstoppable.

The 'Trump Rally' remains firm and with fuel to keep rising (SPX today at + 1%), as there are no signs of weakness indicating otherwise. The 350 stocks in all-time highs on the NYSE say it all. Much of this 'second air' of the rally on Wall Street is owed to Europe and the strength that the banking sector has shown there that intuits that tomorrow Draghi and the ECB will dictate measures that will favor their markets: prolongation of the QE stimulus program and no tapering. It seems that 2016 will end with its usual Christmas hikes.

Important fact to keep in mind: this 2016 the Value Stocks (the fearful) outperformed the Growth (the optimists), after almost 3 years, breaking resistance, since the election of Trump.

Europe: next week ECB meeting

Europe again in sight as the ECB meeting approaches next week. Already I commented on the postponement this month of the decision to apply the tapering (reduction of the QE, the stimulus of buying debt). It is understood that if it is given (I see it difficult given the political-economic environment in the Eurozone today), European stock markets would fall sharply, probably pulling Wall Street. In addition to the Bloomberg survey attached thereto, today Goldman-Sachs GS in a report indicated that this is unlikely to occur, which helped increases in all eurozone exchanges.

All this coincides with what happened in Italy with the resignation of Renzi in the wake of his defeat in the referendum. The Italian stock market continues to rise from yesterday, against all forecasts, driven today by the rise of the banking sector at European level: Deutsche Bank DB 10%, Credit Suisse 7%, Barclays 5.6%, Santander 5.5%, HSBC 4.6%, supplemented for the news that the Italian government is going to rescue the emblematic bank Monte del Paichi, the oldest bank in the world, in danger of disappearing. However, what has been known later is that much of the magnitude of this rise has been due to investors covering their shares of banks to the downside, or short squeeze, in the idea of ​​a probable rise in the coming weeks. Attentive these days to Draghi and his friends, who can move the markets soon.

According to this Bloomberg survey, economists 
do not believe a tapering in Europe until mid-2017.


JP Morgan JPM recommended today, for the first time since 2014, to lower the duration of the bonds in the face of a strong rise in inflation (effect dubbed 'Trumpflation'), in addition to the aggressive sell-off of bonds since Trump's triumph . Lowering duration implies having a bias towards bonds with shorter maturities, which, as mentioned in a previous post, are less sensitive to inflation. As a result, the yields of the Treasury Bonds (30 years) and Notes (20 years) TYX and TNX, fell sharply at noon. I think that after a slight pullback by this news, these yields should continue their rise, because the bond bubble has already been growing very dangerously these years, and its correction I still see it incomplete.

The Treasure Notes today at 2.39% comes strong with the 'Trumpflation', 
and with a way to go, because it seems to beat the multi-year trendline shown.

More about the "pot stocks"

The cannabis stocks are being hit and strong after Trump's victory. Already the day before the election commented on how interesting this item could be with several promising penny stocks such as Terra Tech TRTC or Canopy Growth TWMJF, especially if Hillary won. And although the ballotage gave the victory to the legalization of marijuana in 8 of the 9 states that voted, the falls in the prices of the majority of their companies are being of the order of 30-40%. The reasons may be: technical correction after an impressive rise in 2016, or fear of Trump's anti-drug policy naming Jeff Sessions as attorney general, recognized opponent of the herb. We will see in these days how the panorama moves to decide a trade in this "new" subsector.

Yesterday's TRTC chart struggling to beat the trendline, which did not happen today (-17%). It remains to wait for definitions in the topic 'legal cannabis' from the Trump environment to wait for a recovery.

Good behavior of the Copper /HG

The commodity with the best post-Trump behavior has been copper /HG. This fact is directly related to his plan to rebuild the country's infrastructure: copper is one of the main materials used in construction, the basis of all electrical installations, in addition to uses in telecommunications. With its rise of more than 20% has broken a resistance that came from 2014 at $2.2 and points to the next resistance at $3. At present, China's consumer statistics are expected to strengthen its rise, although a slight correction can be expected for the profit-taking of investors and traders. Since I do not trade futures, I use JJC, the etf that follows copper with acceptable daily transactions. On my radar.

Read more »

Wednesday, November 30, 2016

OPEC: white smoke in Vienna

Finally, OPEC countries reached an agreement.

And finally, at noon, after days of various declarations and rumors, the complicated member countries of OPEC reached an agreement. What yesterday seemed very difficult to achieve due to the stubborn demands of Iran and Iraq in terms of their production cuts, which yesterday made the oil fall almost 5%, was achieved today in Vienna with happy faces everywhere ... at least for the picture.

Today its future /CL closed at close to $49, its monthly maximum, after a strong increase of +8.5%, expecting this to end with its days of extreme volatility, understood as continuous changes of direction and speed in the price. The output cut agreed by the OPEC group was 1.2mbd (million barrels per day), close to 4.5% of its daily production, setting the total at 32.5mbd, significant to reduce the current excess supply of about 2 years. Some analysts estimate that the price will fluctuate in the $ 50-60 until mid-2017.

Saudi Arabia will be responsible for monitoring the compliance of member countries, it is known that these accustom not to meet the cuts, produce more than stipulated and create these crises of global overproduction. They must also supervise that the non-OPEC countries do not begin to increase their production, now on stand-by.

As traders, follow the Energy XLE sector, today +5%. All oil companies had increases of the order of 10% on average. Another good move is to buy calls at the money from the etf of the crude USO that may have annual maximums within a few days.

Grafico ichimoku del crudo /CL en 2016: desde julio, la volatilidad lo hizo subir y bajar de la nube,
en rango lateral.  Se espera que con el acuerdo OPEP las tendencias se definan mejor.

Fine OPEC. So... Rate Hike in December ?

As a consequence of the oil agreement, an increase in inflation can be expected, justification expected by the FED to raise rates in December. As traders, there are many options: follow the dollar /DX that is strong, or in its absence short gold /GC. Another point where you can trade is treasure bonds /ZN and /ZB: it is known that inflation is your main enemy, so you have to observe the shape of the yield curve, to see if the inclination it has been given within the expected, and invest in the indicated, either short or long term. Incidentally both today had a strong rise helped by oil.

The notes to 10-years TNX today in 2.37% and those of 30-years TYX
in a strong 3.02%, after 3 days to the low.

The Recommended Reading

Mentioned in several Wall street news, the yield curve, takes important news to be near a new policy in the US and also a probable Rate Hike in December. Understanding this curve, its four types (normal-reverse-flat-humpback), its inclination (steep or flat) and its relationship with the market, will allow us to make better trades. Or its basic principles, such as the primary and direct influence of the yield on short-term bonds is the i-rate assigned by the FED, while the long-term ones depend, also directly, on inflation and how it is eroding the value of the bonus in time.

This didactic article by Felix Baruque in the blog 'Strategy of Investment' explains it colloquially, suggesting that it can happen in the immediate future. I strongly recommend your reading and careful analysis.

Understanding the rate curve is decisive to invest taking advantage of the inflation and i-rate data.
Read more »

Wednesday, November 16, 2016

Construction comes strong with Trump

Rise of inflation seems a safe bet.

The increase in inflation, which goes hand in hand with the fall in the price of government and corporate bonds, seems to be a safe bet in these weeks. With Trump and the latest statements by Yellen, the market assumes that the necessary Rate Hike will be given in December. The yield of the US 10-year Treasury Note TNX continues to rise, already 2.3% these days.

 See the illustrative table of the US interest rate for 200 years, taken from cnn.com, where values ​​and inflection points are observed. Only by seeing if stable values ​​greater than 3% are reached, will it be possible to ensure that there is a rebound in progress at historically healthier levels. The stocks will welcome this rise, but not the bonds. As traders, following the etf TLT and future indices (/ZN and /ZB) becomes mandatory these days.

A change of government may be what the FED needed 
to justify a gradual increase of the i-rate to historical averages of 3-4%

Construction comes strong with Trump

Within the discretionary sectors XLY, in strong rise from Trump, one of its subsectors that will be favored is the construction, one of the most dynamic and engine of all economic reactivation, as it did in the years following the crisis of 2009. So, its behavior in these last two years has been rather erratic.

On Thursday, its index $DJUSHB had its highest daily rise (+3%) in 9 years due to the strong fundamental data of Housing Starts yesterday, which measures the start of new residential construction in that country. If we add to this its weekly candle chart that shows bounce in the diagonal support, and aimed at exceeding the SMA200 average, the expectations are very high for a trader. On my radar I already include high market Cap homebuilding companies such as Lennar LEN or Taylor Morrison TMHC.

The hedge fund manager Todd Sullivan bases it from the banking point of view, given its close relationship with the construction of new houses: the current narrow margin between the interest rate of the bills (bonds maturing at 1 year) and the notes ( mature to 10 years), that is to say an adjusted yield curve, prevented the easy access of those interested in obtaining a mortgage loan for their home.

El hedge fund manager Todd Sullivan lo fundamenta desde el punto de vista bancario, dada su estrecha relacion con la construccion de nuevas viviendas: el actual estrecho margen entre la tasa de interes de los bills (bonos que madura a 1 año) y las notes (maduran a 10 años), es decir una ajustada yield curve, impedía el fácil acceso de interesados en obtener un préstamo hipotecario para su vivienda.

Housing. Technically: rebound in the trendline, and routed to the SMA200. Fundamentally yesterday its best result in years. Plus the aggressive policy of Trump: the construction sector is strong.

Crude Oil +5% on rumors

Yesterday there was a practical application of 'buy on rumors, sell on news': the tremendous rise in crude oil in the session on Tuesday (+ 5%), occurred as a result of the rumor of a probable agreement on the part of the members of OPEC supported by a strengthening of diplomatic relations between member countries. What is clear is that the market is telling its member countries: 'if you do not reach an agreement, the fall in prices will continue'.

Technically, the fall of its price in a month (almost -12%) was going to bounce back soon and strong, and it did yesterday with the mentioned rumor, although the doubts persist (today the oil falls again - 1% at the opening of the session), and will be so until the meeting in Vienna at the end of this month. That is to say, I presume there will not be a rally held until that date, only speculative movements, ideal for those traders who admit high risk-reward.

This year Energy sector XLE has a better relative performance than the oscillating crude /CL (gray line). With Trump, this ratio can be reinforced if, in addition, OPEC does not reach an agreement.

Pause in the financial sector rally

The post-Trump rally of the Finance XLF sector (-1.3% today) seems to be losing strength, for the moment, for the traders (included) that are collecting profits, the usual profit-taking after a powerful rise like this. However this sector may end up being one of the biggest beneficiaries of Trump's policy.

His 15-year weekly chart relative to SP500 shows two details: the high ratio he had in the last Republican government (Bush, 2001-2007), more than double the current value, and also an interesting cut of the bullish symmetric triangle pattern, indicating that in the long term it can continue in that trend. I will wait for the brief fall of these days to restart long positions there.

The graph, taken from StockTwits, not only breaks the triangular pattern, 
but also the average line SMA10. Very good signals for XLF.
Read more »

Thursday, November 10, 2016

Trump election: an epic day for Wall Street

An epic day yesterday for the trading of Wall Street. Known already Trump's triumph, a real surprise for everyone, we are now interested in knowing how you can go to the stock market after this event. I will not comment on the political aspect because it is not a motive of this blog, although my opinion favorable to the republican had already expressed before.

The day was amazing: on election morning it looked like everything was going to be aimed at a tight triumph of Hillary. However, something called my attention in my daily trading: there were a lot more puts than calls for the SPY, the etf that follows the SP500 index. The Put/Call Ratio indicator was flying ... this meant that Trump's triumph was in the minds of many, since a very strong fall in the market was discounted if he won.

Already at night, closed the polls and with the first results of the states, began to glimpse a winner Trump. Wall Street perceived it and its most accurate indicator, the futures of the SP500, /ES began to fall as expected. After hours and with Trump's victory in Florida, it sank -5% (!), The Dow Jones was more than -700 points (!!), the future of gold /GC reached +4%, and the Japanese stock market was sinking. This remained until the triumph of the Republican. Just in the early morning when he gave his first words, very conciliatory, talking about unity and Hillary's greeting, Wall Street reacted timidly, thinking that maybe not everything was going to be as bad as the liberal press painted it. The next day, the market opened with the SPX in negative territory (-2%), to recover quickly with great force, something totally unthinkable the previous day, the Dow almost reaching its all-time high, the European stock markets rising and gold receding to flat ... crazy!

The election week, from bull Monday when the FBI 'cleaned' Hillary, going through the electoral night, the unexpected outcome of the markets yesterday and today in all time highs.

After the event, today it is urgent to know in detail the next Trump economic proposals: tax cuts, tax deficit and public spending treatment, lower regulations, trade agreements and tariffs on imports, Obamacare, etc. to see where to make the best investments and trades, depending on the sectors where he will put more emphasis on his political plan. While this is not clear, all market movements (today began strong upward to normalize at noon) are pure speculation, the 'buy on rumor, sell on news.'

Special mention, the rise of the XLF Finance sector, after the Trump victory, today again in ranges of +3-4%, so the etf that follows this sector at triple speed (3X), the FAS, can be an attractive opportunity to make cash these days. Trump offered a more relaxed regulatory environment, and an increase in public spending to grow the treasury supply. This should raise long-term interest rates, benefiting this sector. And higher long-term yields can boost bank profits, since they increase the spread between what banks earn by financing longer-term assets (loans) with short-term liabilities. Hence, the increases in this sector can continue.

Trump's promise to 'rebuild the country's infrastructure' coupled with its proposal for tax cuts, suggests that inflation will increase with more growth (and debt) and with it higher interest rates. As a result of this, the US Treasury Bonds reached their highest levels of the year yesterday: those that measure the yield, TNX (T-Notes to 10 years) and TYX (30-year T-Bonds), yesterday had increases of the order of +10% (!). Of course the dollar /DX was also very solid yesterday against all its global peers. Conversely, treasury futures, which fear the word 'inflation' /ZN (10-year), /ZB (30-year), or the etf TLT, which measure the price of bonds, fell in the range of 3 to 4%. It is discounted (US bets already at 80%) that the FED will give the Rate Hike in December.

Closing of the main indices, yesterday November 9, post-Trump. To remember.

Within the other sectors, Utilities XLU is the weakest for the second consecutive day, meaning it is a purely defensive sector. The opposite happens with Health XLV that goes very well. Remember that Hillary had promised a strict control of prices and patents to the pharmaceutical and biotechnology sub-sector. Good investment opportunity there. On the other hand, the XLK technology sector is being hit by the idea that Trump can limit commercial agreements, vital for this sector. As indicated above, knowing well the Trump plan we will know where the money will flow. In advance, attentive to Finance, Biotechnology, Infrastructure and Energy.

Today at noon, sectors Finance, Industries and Health remain solid as yesterday. Volatility VIX returning to its average. Continue the Trump effect.
Read more »

Monday, November 7, 2016

UK in trending news. Cannabis: the other election

Hillary's influence on Wall Street.

When it seemed that there would be a tenth consecutive day of falls in the SP500 index, something that has not happened since 1975, the weekend the FBI canceled its trial against Hillary Clinton, arguing there was not enough evidence to initiate proceedings against her. Also, again all the polls are giving Hillary a win, what Wall Street wants. End point: immediate reaction of the futures and global stock markets, today in strong rises, with the SPX reaching almost 2% in these instants and with all sectors in green. Definitely, the market fears Trump, and tomorrow's result will set the trend for Wall Street and other stock markets until the end of the year.

Today's Heat Map on Wall Street: the highest daily rise since June.

The other elections: Cannabis

Regardless of the Clinton-Trump duel that will have everyone in front of the television set at 7pm EST, there will be other less important choices, but for the trader, attentive to investment opportunities can be very significant. The legalization of marijuana is already on track in the US, and will be in the ballotage of nine states today, including California, which represent 25% of the North American population. There are several legal companies, most penny stocks, grouped under the MJIC North American Marijuana Index and traded on the Over the Counter Bulletin Board (OTCBB), in an industry that completed an impressive growth of 17% in 2015. And the surveys They indicate that 57% of adults are in favor of the legalization of cannabis as a medicinal and recreational drug. A similar trend is taking place in Canada and countries in Europe.

Although I am not a supporter of the legalization of marijuana, here I act more as a trader: it is too interesting a niche to put aside. The success will be in choosing the companies that will prevail over the rest. Without being a guru on the subject, I opt for the moment for the largest Market Cap, the highest volume of transactions and the characteristics of your business. I suggest three, after reviewing their fundamentals:

- Terra Tech Corp TRTC, Market Cap $ 175M, yesterday with 22 million transactions, is perhaps one of the most popular stock, this year with an increase of 336% (!), Focused more on the agricultural aspect of the plant: crops and production.

- Growblox Sciences Inc GBLX, penny stock of only $ 35M of capitalization but with a high volume of transactions, which allows trades with little spread. Very focused on cannabis chemistry research, which turns it into medicines and therapies. I see potential.

- American Cannabis Inc AMMJ, dedicated to design and consultancy, is associated with Canadian companies, which makes it a binational business. Its capitalization is $ 85M and it has a good volume of transactions in the stock market.

- Canopy Growth Corp TWMJF, largest producer and Market Cap of Canada, with exponential growth in sales.

There are other interesting companies: Medicine Man MDCL, focused on cannabis consultancies from growth techniques to retail operations or Cannabis Sativa Inc CBDS whose stock grew almost 2,000% YTD (!). According to the results of the ballotage of today it will be seen if it is convenient to do trading (not investing) in th risky industry, like all penny stock companies. A Hillary victory would pop up this sector.

GBLX has the potential to grow. His ichimoku shows a clear bull strategy, 
by today surpassing the blue conversion line to the red base line on the cloud.

UK in trending news: Brexit, May, Bank of England

Two important news from the United Kingdom: The pound, followed by etf FXB, so affected months ago, with minimums of 31 years, resumed its vigor once again upon hearing the news that the Superior Court of that country ruled that the approval of the parliament to activate Article 50 that puts the Brexit plan into immediate operation, although it leaves the option of appeal to the government. Tremendous blow for Theresa May and her cabinet that planned to give immediate start to her 'Hard Brexit', the complete divorce of the European Union. As a result of this, the GBP/USD pair exploded upwards, almost +1.2% at the moment. Take note that this strengthening could be brief if in December it resolves the appeal that the government will raise.

Everything that happens in the United Kingdom is setting the pace in the Eurozone, curiously since they left it via Brexit. The second important news was given by the Bank of England, which decided, like the FED yesterday, to maintain the reference rate unchanged at 0.25% and continue its debt issuance program, via government and corporate bonds. Its economy seems to be effectively improving when the QE rescue programs work: this week your PMI of Manufactures reached a surprising 55.4, while your GDP increased to a healthy 2.3% YoY (year over year, compared to the same period of the previous year). It still needs to level its trade balance as imports continue to outperform exports, despite the weak pound.

The gap between exports and imports is widening. 
Work for the British to tighten them as a sign of improving their economy.

The divergence between Pound and FTSE100 index

Already in a previous post, we show the divergence between the stock index FTSE100 and the pound, both at historical highs and lows respectively, and its reason: most of the companies that make up the FTSE100 index generate sales abroad, which bring more money by converting to your weak local currency. The breakdown that occurred in mid-June, the day of the Brexit election, can be seen in the comparative chart. Only if the FTSE100 continues to rise and the pound stops falling, could be interpreted as a technical signal that is beginning the strengthening of this currency, along with an increase in exports.

The EWU, etf that covers companies in the United Kingdom, is falling after the pound. 
Read more »

Monday, October 24, 2016

Draghi and the ECB: indecision until December

ECB: the interest rate remains at zero.

In the early hours, Mario Draghi, president of the European Central Bank, the protagonist of the day in the markets, spoke. In summary, it confirmed that the interest rate remains at zero, as does the negative rate on deposits (-0.4%). He also reiterated the continuity until March 2017 (or beyond ... that if: without any abrupt cut) of the Quantitative Easing QE, postponing to December the decision whether there will be a gradual brake (the so-called 'tapering') to this program of purchase of debt, contradicting what Bloomberg.com suggested a few weeks ago. Everything will remain the same until the last annual meeting of the ECB on December 8th: ECB buying debt at an impressive rate of 80,000M euros per month (without achieving inflation so that the desired increase, as it remains at 0.4%, far from the planned 2% being very difficult in March to reach that target) and the rate 'zero interest' will continue to grow the tremendous bubble in the bonds, the one that Draghi claims not to see (!). To read so many conjectures and diverse suggestions of the private banks on this subject, and seen the poor results obtained until today in the eurozone, it is deduced, without needing to be expert in economy, that something does not go well with the ECB monetary.

As a result, the indices of New York SPX and European stock exchanges (DAX, FTSE100, CAC40) remain almost flat with a slight tendency to fall, but without major upsets. The FXE euro, which had expected the interest rate hike, has weakened against the dollar, and at this time the EUR/USD pair falls -0.40%. Last week his fall beat the three SMA averages (50,100 and 200) and today support @1.095. With the next, almost certain, Rate Hike of the FED in December, we could reach a 1:1 euro-dollar parity at the end of the year.

Problems with the euro, two weeks above the MA, in bearish territory.

Iran decided to be excluded from the OPEC pact

Iran decided to be excluded from the OPEC pact for a output cut, currently at 4.77M barrels/day, lowering the price of Crude Oil, returning it to around $50. OPEC plans to limit the daily production of its members to 33 million. As I mentioned in a previous post, one can not trust the Arab countries when they say something, the story says, besides that they do not fulfill the agreed quotas. The problem is that this Iranian attitude, the second largest member of OPEC, can cause a domino effect in other 'complicated' countries such as Nigeria or Libya, and who also knows Russia. On November 30th they meet to decide agreements. It is expected in these weeks, high volatility of the price of oil depending on how the news comes.

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Monday, October 17, 2016

Concerns in Libor Market

CPI data and the Rate Hike

The important inflation data of today (Consumer Price Index) was in line with the consensus 0.3% and higher than the previous month (0.2%), that is to say because it is so flat it does not contribute anything far-reaching to the discussion of the FED on Rate Hike. As I have been saying for a few days: Wall Street, in the immediate future, will no longer move on this issue because it already assumed it (that the Rate Hike will be given in December) but for other conjunctures: the result of the 3rd Clinton-Trump debate tomorrow, see the oil /CL breaks the psychological barrier of $50, and business results. On this last point, after the bad start of Q3 earnings with Alcoa AA, these come in strong rally with many 'beats'. Earlier in the day, Goldman Sachs GS joined the group of winning banks of the week by widely exceeding consensus EPS ($4.88 vs. $3.79), while the popular Netflix NFLX is around + 20% higher report considerable increase of its subscribers, among others. Therefore, the SP500 index SPX is around 1% at the moment.

ECB will continue its QE ?

Maybe it is a reason to keep an eye on other key markets such as the eurozone. So, this Thursday has the announcement of the European Central Bank ECB and its stimulus policy Quantitative Easing QE, being the only doubt: will it always extend until March 2017? If we compare it to what happened in the post-crisis USA, between 2008 and 2014, (see graph below) I would say that they still have the field to do it. Attentive to this news that moves world markets with force.

On the left, the direct effect that the QEs had on the NYSE. On the right the comparison of assets between the FED and the ECB: doing it with caution, the Europeans have place to extend it.

High inflation data in UK

And outside the eurozone, we have the United Kingdom: today the English CPI in September reported the largest monthly rise in inflation since 2014, reaching 1%, compared to 0.6% in August. The decline in i-rate and the QE of a few months ago seem to have had a rapid effect on the English economy, so much so that it is already worrying that inflation can reach levels of 3 to 4% for 2017 just in times that the pound passes through historically low levels and this may be what is causing the rise in prices of consumer goods, and not the QE stimulus. The expectation of Theresa May and her team is to reach the 2% inflation goal, trying not to exceed the growth rate of her population's salary (currently around 2%) and avoid these falling in real terms. They are the first visible effects of Brexit.

The pound at its worst in 31 years, and the FTSE100 reaching all-time highs. 
While therefore, inflation is fast moving ... and the Brexit hard is coming

Concerns in the Libor market because increase in its rate

With respect to the Libor market, there is concern over the excessive rise in its rate, which is a reference in many financial transactions and short-term derivatives worldwide, in clear contradiction with the FED and the majority of global rates that remain stable throughout 2016. It lends itself to suspicions about the history of 2011 where manipulation of this rate was detected to benefit 16 world banks (if not: Bank of America, JPMorgan, Deutsche Bank, Barclays, HSBC, among others ... Their greed has no limits.

This time, the 'official' explanation for this fact is that this month we must complete the implementation of Money Market reforms by the SEC, the US Securities and Exchange Commission. It stipulates moving active millionaires from large international banks to government ones, to be used only by government instruments. They argue that the very high demand of these funds in these months in international banks, has raised the Libor rate. Sounds nice, but... we believe the bankers ?

Similar increase in the LIBOR than in 2011, the year of the uncovering 
of the fraudulent management of this rate ...

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