Tuesday, June 27, 2017

Unexpected news moves Wall Street

Unexpected news in Crude Oil and T-Bonds

A very special day today on Wall Street, those with unexpected news that move the entire market, commodities and different industrial sectors, and set the pattern of those who can continue in the following days. It is from those days where I prefer not to trade and observe the panorama with patience. Let's see:

- The crude oil /CL resumed the rise (today + 2%) exceeding $44, this time for reasons different from the usual: the news of a fierce cyber attack to the systems of the Maersk shipping company and the largest Russian oil company, Rosneft, moved the price of crude immediately. Without even knowing the details, there is already talk of a WannaCry virus, which attacked the entire cybernetic world in May. And tomorrow comes the weekly report of the EIA and Rig Count, another reason to wait before trading.

- After many weeks, the rate of 10-year Treasury Bonds TNX had a good rise (today +2.85%), almost 7 basis points (following the line of European stock exchanges where the increases were 14 points in France and 13 points in Germany), as a result of Draghi's unexpectedly hawkish comments, which were understood as the early end of the QE. To this is added a poor 5-year bond auction, with high-yield and buy/cover values almost similar to the previous month, reflecting little interest in them. Already in a previous post commented on this possibility of rise, is more, I think will continue to give more steep to the curve of rates.

Second strong tech sell-off in less than 3 weeks

The Nasdaq closed today -1.61%, first time below its SMA50 since December, caused this time by the fine of 2.420 million euros imposed on Google GOOG (today -2.62%) by the European Commission for altering search results to favor. Bad regulation such a regulation, and of course Google is already in the process of appeal. How will the Nasdaq come next: Buy the dip? or more downside? I suggest also wait.

Curious divergence between the Finance and the Nasdaq-100 sectors throughout this month. They are the most popular Wall Street and do not usually follow that behavior.

Health Bill postponed

- The Health Bill reform was postponed by the Senate, which took strength from that sector XLV -0.91% and other annexes such as Biotech XBI -3.53%, and again doubts if the ambitious Trump proposals, that lifted the market to successive all-time highs, will really succeed in being approved. Read: tax cuts, infrastructure expenses, deregulations, etc.

 - Consequence of everything described above, the VIX volatility index that had been hovering and below 10 points, reacted to the upside today, +11.72%, which means paying attention on the following days, as the complacency of the market may be decreasing, and a rotation of sectors may be starting.

The protagonists of today's session, in my opinion, the most important of the
month in the world markets, because they will mark their route in the coming days.
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Saturday, June 24, 2017

Crude Oil, Gold and Treasury Yields: Outlooks

While the Dow Jones and the SP500 SPX are still in all-time highs, Wall Street is not talking about anything other than the return of the XLK technology rally and the million dollar purchase of Whole Foods WFM by Amazon AMZN, which opens a new scenario, still indecipherable, for the beaten retail sector; topics that I will review in future posts.

In the economic agenda this week only highlights the PMI data on Friday. The weekly Jobless Report I believe that it ceased to have relevance for the market, because the 119 consecutive weeks (!) it remains under the 300,000 requests, indicate that the US labor market is at a high point. This week of 'no-news' gives me the opportunity to comment on commodities, currencies, bonds and volatility.

Crude Oil /CL

Remains in the side range $42-54 for a year, approaching $43, his minimum of 8 months. The causes are still the same that are being discussed in this blog: The US and the non-OPEC countries are not complying with the output cut set by OPEC in November last year. Their inventories, reserves and platforms (rigs) continue to rise, and if they are reduced, they are lower than the estimates. This slows down the purchases of investors and affects the fiscal plans of the euro zone and the US as it generates that its inflation is advancing very slowly.

The price is temptingly low, but I still suggest waiting for the EIA data on Wednesday, which sometimes brings surprises: if inventories fall, it should go up. One option is to use the etf USO, with a guarded swing trade.

Important crude support at $ 43 on its weekly chart. As a data, the lines blue
represents its 'value zone', or interval from which it is suggested to do trades.

Gold /GC

It comes down from the $1,300 level after the Rate Hike of the FED, which reinforced the weak dollar. Technically he has broken the SMA50 average and is fighting today against the SMA100 and soon the SMA200. Breaking them could lead to new lows of 2 months. Attentive to any geopolitical event that causes regional or global instability, since gold is the first safe haven to which investors and traders go. On my radar.

US Treasury Bonds $TLT

The comments, dovish and hawkish, coming this week from the various Presidents of the State Reserve Banks (Fedspeaks) can give a better idea of where the fiscal balance and securities backed by MBS mortgages are going (mortgage-back securities), that other giant fixed income segment. Already the slow inflation, is putting the yield curve flat, with risk to bring the market to a bear flattener phase, usually a sign of beginning of a recessive cycle. 

It is expected that the FED with the application of its monetary normalization plan (via progressive ceilings for the reinvestment of treasury bonds) will force the sale of the portfolios in the long term and therefore encourage the increase of their rates of 10-year TNX notes, today at 2.19%, its annual minimum. I estimate that is the trend. 

The yield curve begins to get dangerously flat, by the Rate Hike (affects the short term) and the slowrise in inflation (in the long term). If the curve is reversed it is a sign of early recession.
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Monday, June 19, 2017

FED applies 2nd Rate Hike of 2017, interest now in 1.25%

Summary of FED decisions after FOMC meeting

- As expected, the FED raised the interest rate by 25 points, bringing the range to 1.00-1.25%, the third increase in 6 months, second of this year.

- There will be a RateHike more in this 2017. I say, is it really necessary to do it before the current regression of inflation?

- He repeated what 'current weak inflation is something momentary' (the same speech as Draghi and the ECB).

- Indicate that the labor market continues to strengthen and economic activity grows moderately. The growth projection was increased from 2.1% to 2.2%

- Maintains price stability through the 2% target for inflation accompanied by maximum employment.

- They outlined the plan to normalize the balance sheet, that is to reduce its fiscal debt of $4.5 billion, which would begin in the 4th quarter, with the progressive expiration and non-renewal of existing bonds, without selling any.

As predicted by analysts, despite the dismal inflation data (supported by the persistent low price of crude oil and the slow takeoff of the Trumponomics), the FED decided to give the Rate Hike, although it is estimated that if the trend continues, the next hike will hardly be give in September, month of the next FOMC meeting. Maybe it was not the best decision to give the RateHike yesterday after a weaker 2nd semester than the first, since the risks of recession or falling economic activity are latent (it is assumed if the GDP falls 2 consecutive quarters).

While the indices closed mixed, in the sectors led the 3 defensive par excellence: Staples XLP, Utilities XLU and Health XLV, giving an idea of what may come in the following days. Today he opened session with the same tendency. And with the dollar strengthening, in these days the gold /GC and the Japanese yen may be the best niches to trade, to the downside.

After the announcement (2pm), the dollar and gold abruptly changed their trend. Not so the bonds that reversed at the end of the session the slight fall of the afternoon. The poor CPI inflation data came out of them.
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Friday, June 16, 2017

Apple running the market on technical day

Today there is a session where the technical analysis in the trading is prime: it is that before an important event, as it is tomorrow the announcement of the FOMC, it is when the technical indicators and patterns work best. Obviously from tomorrow the situation will be completely different since the economic news is what sets the course of the market: you also have the monthly inflation data CPI and Retail Sales, as well as meetings of the Bank of England and Bank of Japan, where, Unlike the FED, both are expected to keep their interest rates unchanged.

Therefore, I always maintain that trading must take the best of both opposing currents: you can not be 100% fundamental, or 100% technical. Each one has its space and time, you just have to know when one premium over the other. Today at least, it is an ideal day for day-traders.

Yesterday, for example, the Apple APPL chart closed with a hammer located just above its significant SMA100 average, a clear signal of bounce upward. And as we know that Apple moves the entire technology sector, today they recover after the largest sell-off since the end of 2016, with the Nasdaq reaching +0.80%. And this in turn pulls the entire SPX market by 0.40%.

The hammer, with its handle touching the SMA100 average, marks a technical rebound, which we have no idea how long it will last since tomorrow is the news that marked the course.
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Wednesday, June 14, 2017

Inflation and Retail Sales, both downside

Surprise the monthly data in the US of inflation CPI -0.1% when expected to remain flat, but even more the fall of Retail Sales, with -0.3% far from the expected +0.4%. This sub-sector, followed by the XRT etf, has been hit hard since last year, and I will analyze its problem.

The signal is clear: both bad results indicate that the US economy is still weak, it is reacting very slowly, so that the tone of the FOMC today can be somewhat dovish (it is perceived by the SP500 SPX which is in slight rise early +0.10%).

The market assumes with these numbers that there will be no more rate hikes than the two assumptions, and therefore the immediate reaction of the 10-year Treasury Bonds TNX, dependent on inflation, which fell very strongly reaching the rate at 2.1 % breaking its average SMA200 support. Obvious, the dollar /DX also felt the blow, and safe haven values such as gold /GC and the yen FXY are on the rise. Everyone waiting for the decision of the FED in a few more minutes, which is discounted will give the Rate Hike, and maybe the graphics will be reversed.

In this 10min chart you see the immediate reaction today to the announcement of 
low CPI and Retail Sales: TNX rate and dollar DXY in fall, TLT and gold /GC upwards.
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Tuesday, June 13, 2017

FOMC: Rate Hike on Wednesday?

This week it is presumed that the FOMC will raise the interest rate by 25 basis points for the 2nd time this year, bringing the range to 1.00-1.25%, despite the slow but sure progress of consumption and inflation, something that the FED considers transitory.

What the market is finally interested are the perspectives that the FED proposes until the end of the year: how the fiscal deficit will be handled, whether there will be reductions in inflation and growth expectations (following the ECB's line in Europe last week, although lately I see that both markets no longer converge as they used to do) and above all, the tone of the message (hawkish or dovish). This determines the movement of the SP500 and the commodities.

My favorite stock in those 'FOMC days' is usually the gold /GC (in its 'normal' GLD or 'fast 3X' JNUG variants) and the TLT Treasure Bonds, both shelter elements that traders use when there is indecision in the market, the same the yen, through the etf that follows it, FXY.

In addition to the FOMC meeting, pay attention to the inflation data (CPI) on Wednesday and the Price Index (PPI). Another data in a critical sector these months is Retail Sales.
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Friday, June 9, 2017

SuperThursday: like any other session...

Yesterday was the dreaded SuperThursday (elections in the UK, meeting of the ECB and the Comey case in the US, all the same day), and the markets did not suffer any visible excess, I would say that it moved like any normal day.

- In the United Kingdom, May did not have the expected success with his election advance. While he won the elections, he lost his conservative majority in parliament, and this new scenario can complicate his path to Brexit, and even his tenure in office. To continue these days the FXB, etf that follows the sterling, today reacting in fall -1.6%, tendency can continue until May defines its negotiations in favor of the parliamentary majority, because it is understood that the pound does not suit the Brexit.

The etf of British stocks EWU accompanies this fall (-1.3% today): these tend usually to diverge, which reveals even more the weakness of the currency today. On the other side of the ocean, we will see how much these events influence the FOMC, which will meet next week.

- The Comey case, former director of the FBI that appeared before the courts today, was just one more blow from the Democratic press that wants to lie down Trump. It did not bring anything new and it did not interest the markets. It does not give for more the analysis here: Trump continues and reinforced even more, the same as the dollar and the banking sector.

- The decision of the ECB was to maintain interest rates and the QE, before the loose progress of inflation and low wages, noting that the European economy is doing well. There are even rumors that Draghi intends to take the rates to negative territory, to boost the economy ... I would expect the quick and sure recovery of the price of crude oil before proceeding to drastic measures like that.

Already on Wednesday Bloomberg announced that the ECB planned to cut inflation prospects, a fact that weakened the euro, and strengthened the dollar and the Finance XLF sector (+ 1.55% at the moment). As I do not trade with futures, I prefer to follow the FXE etf that follows the euro, and which has been bouncing from its resistance at $109.

The euro can stop its 2-month rise, because in addition to the news, it is bouncing from 
its significant resistance at $109, is oversold and with its MACD crossing to the downside.

The Recommended Reading

For any trader that, as in my case, follows the world economy before deciding my purchases, I believe that the Brexit, and its outcome, will be the event that will mark the markets in the coming days or weeks, I have no doubt. To understand well how this will affect the English and European economy and trades (its relevance, the right of passport, its legislation, its consequences, etc.) I recommend this didactic article by Toby Clarence-Smith, written for Toptal, which will clarify the many doubts that exist with this topic.

The link is: https://www.toptal.com/finance/market-research-analysts/el-impacto-de-brexit-en-el-sector-de-servicios-financieros/es

The transfer of offices and brain drain can be one of the consequences. 
Immediate negatives of the Brexit. The banks have already started with it.
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Friday, June 2, 2017

Stocks to Watch: Lennar Corp. $LEN

Lennar Corp. ($LEN), $53.68.

In a November 2016 post, I analyzed how attractive it was to invest (not to trade) in Lennar Corp. LEN, given the post-Trump situation that was coming. Time gives me the right, the construction firm continues its progress supported not only in the environment but in its soundness and good accounting numbers.

Technically it is observed that, since April, its chart entered in a distribution cycle (pressure to sell, low volume, significant resistance at $53.50), with the stock in a lateral range that has allowed him to form a clear inverse head-and-shoulder , one of the most bullish figures known. Today closed +1.84% overcoming that resistance of 3 months. It can be said that today he entered the 'action' stage of a breakout. Subtract the confirmation of the same (reaction and resolution) in the coming days.

Conclusion: if you invested, as me, in LEN in November 2016, keep more time your shares. If you want to invest from now, wait the following days that a false breakout is not formed under $53.50. The confirmed improvement of this level will be the signal to invest long in this company.

From the notice in this blog (yellow circle) with the stock at $ 43.50 the advance has been solid and the inverse head-and-shoulder breaking the resistance is auspicious. I'm still bullish in LEN.

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