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.
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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, 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.
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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.
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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. 
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