Wednesday, January 18, 2017

Concerns in UK and the Libor Market

ECB will continue its stimulus 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.

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

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

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 its 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. 

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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Friday, January 13, 2017

Wall Street want a less mediatic Trump

As I glimpsed yesterday, Trump's first press conference brought a pretty bearish tone to the market. It was a speech full of indefinitions, vagueness and phrases, without giving details, for example, of its fiscal policy and taxes. This translates, in today's opening, into a strong sell off: SPX at -0.80%, all sectors in red, treasury bonds up and dollar /DX down (-0.77%), losing in front of all his world pairs. The worst day of the market since October, until now. We will see tomorrow, Friday, if the earnings of the big banks (JPMorgan JPM, Wells Fargo WFC and Bank of America BAC), confirm the Trump rally.

It is foreseeable that, at the beginning, the position will be great for Trump. Because of this the tone of his speech will have to change: stop being as media and exaggerated as in the campaign and take the profile that his position requires. When you officially take office, you will be required to make specific and unambiguous definitions. Hopefully change your style because I perceive a great disappointment on Wall Street, translated today in the results.

Trump twit sinks Health sector

Of the little concrete thing that said yesterday Trump, the health sector XLV, that came improving, was the most beaten when criticizing strongly to the pharmaceutical sector IBB ('drug-makers are getting away with murder'), reason why I think it is prudent to avoid this sector until having more precise definitions. Read more here.

It´s not the first time that a Trump twit stir the markets. Health sector, the new victim.

Technology sector in high levels that seem dot-com years

A couple of notes for the mid term: The technology sector XLK is coming, slowly but surely, to the high levels it had in the dot-com years. It took 17 years to do it, and unlike those years, this time with very solid foundations and companies like the FAANG (Facebook, Apple, Amazon, Netflix and Google) leading. Attentive to that level of resistance, which this year can be broken.

The technology sector, 20 years after the dot-com bubble, now near those record highs.

The popular Bitcoin

Bitcoin, the digital currency, increasingly sounds on Wall Street. It had a meteoric rise in its 'value', but also a lot of distrust and disbelief, since it was created in 2009. Banks today are taking it more and more seriously, and there are already funds interested in creating etfs for trading on the NYSE, as you can read here. For the moment you can follow its evolution with the NYXBT index. To take into account for this 2017, with risk management.

Be careful with the bitcoin and the bubble its creating.
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Tuesday, January 10, 2017

Commodities: prospects for January

MACD bear divergence on SP500

The MACD indicator generally gives good results in indices such as the SPX. As you can see there is a clear bear divergence these days, similar to the one that occurred in mid-2016, which starts the usual technical corrections. Remember, it is fatal to do trading based on a single technical data. This technical detail, you have to read it in combination with the news, in this case the first press conference of Trump, tomorrow, and what his secretary Tillerson (former Exxon XOM CEO) announces, events that I presume will have a bearish corrector effect in some sectors of the market, more than others.

To my taste, the most interesting moves to trade this week will be in the commodities, which I detail below.

The /ES July-August bear divergence triggered the pullback of September. 
A similar figure has been repeating these days.

Health sector in strong recovery

The Health sector XLV has been recovering, with 6 sessions in a row, after being the least favored initially with Trump's triumph. His opposition to Obamacare, the universal health program promoted by Obama, hit this sector hard, as you can read here

This week the Annual Healthcare Conference is being held in San Francisco, the largest of the year, where the Biotech subsector (followed by the IBB index) will be the main protagonist. Finished it, we will see the conclusions and the main favored stocks.

Main economic events of the week in the US, basic for good trading on Wall Street.

Commodities Update: Gas, Gold, Crude Oil, Copper

- Speculative movements of natural gas /NG, make it rise today 6% after several days of falls (of the order of 20%) in the news of a winter not as cold as predicted in December, leading to lower gas consumption. However, nothing guarantees that this increase will continue, it is simply an obvious technical correction. Safer is to wait for the results of inventories, this Thursday, and see the weather as it responds in these weeks. If you want more risk, the very volatile triple-rate etf UGAZ and DGAZ, bullish and bearish, take advantage of the momentum of the commodity.

 - The gold /GC is recovering, reaching its highest point of the month, this before the certain weakness of the dollar after its meteoric boost post-Trump. At the moment it is an ideal commodity only to speculate in the short term, just with the first Trump actions and the evolution of the SPX will be confirmed if the gold will have a good 2017. The etf 3X NUGT and DUST for the more seasoned.

- Crude oil /CL returns to its usual uncertainty, with doubts about breach of the stipulated cuts, both by OPEC and non-OPEC countries, added to the proven increase in reserves in the US and its fracking, outside these treaties, trying to take advantage of the situation, as I mentioned earlier. Today falls again 2% after the rise of last week. I'm waiting tomorrow the inventory data to decide to trade here.

Crude, gas and gold: in daily charts of the last 5 months to notice their different tendencies.

- Copper /HG, the main material for construction, had a breakout, breaking resistances, after the election of Trump and his offer to 'rebuild America', to then enter in December in technical correction. Today he seems to find a solid support in 38.2% of his Fibonacci, already for several days, and with his MACD changing to positive. In addition, today was the news of increased inflation in China, its main market, signal of secure demand.  The JJC etf follows it quite well, and is a good trading alternative for this month.

The 38.2% of its Fibonacci seems good technical support. 
Copper today up 3.4%, its highest monthly rise.

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Friday, January 6, 2017

T-Bonds on its best day in 6 months

"Buy the election, sell the inauguration"

I support my impression, in the sense that I estimate the rally on Wall Street will continue even a few days more, until close to the assumption to the command of Trump and then come a necessary correction. Morgan Stanley sums it up in an elegant phrase  'Buy the election, sell the inauguration'.

T-Bonds on its best day in 6 months

Yield of 30-year US Treasury bonds TYX today reached 2.96 less than the psychological 3%, its minimum in 5 weeks. Something similar with the 10-year notes, which fell sharply today, standing at 2.36%, all motivated by the poor ADP employment data plus the drop in crude oil prices yesterday, lower inflation and higher bond prices. This has led the yield curve to adopt the flat form, the ideal strategy to buy long-term bonds, or to sell short-term bonds.
The Yield Curve: the short-term bonds depends on the Fed and its RateHikes, the long-term inflation. Today the curve is flattening (Bull Flattener) after the strong Bear Steepener post Trump.

Best commodities behavior in 2016

This chart is for future reference: the assets (stocks, commodities, indices) that performed best in 2016.

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Monday, January 2, 2017

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.

Short News for beginning 2017

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.

- 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 ETNs 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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