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.