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.
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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


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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.


Trumpflation


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.



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