Tuesday, July 25, 2017

The VVIX / VIX ratio in all-time highs

Today the VIX, known as the 'fear gauge', which measures the frequency and intensity of changes of the SP500, closed near to its multi-year minimum, at $ 9.79, fifth consecutive day below the $ 10.00 level, demonstrating passivity (or permissiveness, or complacency) of the current market, faced with events like yesterday's. What happened was that the repeal of Obamacare (one of Trump's key proposals, which moved Wall Street upwards when they were announced months ago) failed in the US Senate, suggesting that the next big goal of its plan, the tax reform , it can have the same outcome. Even so, the SPX was not aware of the matter, raising 0.54% to $2,473.83, a new all-time high.

On the other hand, the VVIX index measures the volatility of the VIX volatility index, it is also at a minimum, since both indices travel together. However, if the ratio between the two is plotted, we see that it is at historic highs. That is to say, never a market so calm, so little fearful, as the present.

The ratio VVIX / VIX in maxima tells us that the frequency and
 intensitywith which the VIX varies, it is extreme. 

The concern to a sell-off is evident, the big investors understand this and they begin to look for coverage for their assets, taking advantage of the very low value of the VIX of the market.

Natixis Global Asset Management, an excellent reference blog, proposes an interesting trade based on time combinations of SPY puts options and VIX calls. First buy hedge through VIX calls, waiting for the rise in volatility before the sell-off arrives, and at that moment finance the purchase of SPY puts. Later I will detail this strategy.

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Friday, July 21, 2017

Goodbye to the Rate Hikes in 2017?

Flat CPI and dissapointing Retail Sales.

Today's data confirms Yellen's dovish tone on Wednesday: CPI monthly inflation that remains un-raised (flat, when expected + 0.1%), and Retail Sales again with negative numbers in all its headings, that is, consumption does not rise, something I mentioned previously was already a worrying trend. Its index XRT to the downside, although recovering at noon, however I keep my short position in it. With these two data, I see the promised Promise Rate Hike unlikely in the next FOMC session in September and even difficult in December if those macro numbers do not improve.

Bull momentum in markets

The other expected event, the opening of the earnings season, with the "Big Four", yielded poor reports that knocked down these banks and the XLF finance sector. At midday the tone changed and they recovered, I understand by the euphoria in the new records in the main indices of Wall Street, happy to know that for now they do not expect more rate hikes: SP500, Dow Jones, Russell 2000, and probably soon on the Nasdaq (it had its best week of the year), on all-time highs. I appreciate a bull momentum in the markets, I think this trend may last a few days more.

After today's events, assets such as the dollar close on firm downward, and gold upward but stabilizing. Meanwhile, the Treasury10-year rate and the Finance sector recovered their initial decline.

Arabia says that OPEC agreement is totally fulfilled...

And regarding Crude Oil /CL, Arabia estimates lower oil exports in August and affirms that the OPEC agreement is being fully complied ... do we believe it?

To this report it is necessary to add the low data of inventories of the EIA on Wednesday. With both favorable data, the outlook for this commodity changed completely, as shown by the easy overcoming of the SMA50 average at $ 46.5, which could be expected to continue for some days, as it has bounced evenly among the Bohlinger Bands for months. You have to be vigilant if you break them, as it could be your take off at quarterly highs.

Technically, the price of crude oil has been bouncing in the Bohlinger Bands since the beginning of the year, so the $ 48 can be your next resistance, after surpassing the SMA50 today.
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Monday, July 17, 2017

Yellen returns to her usual dovish tone

Tapering begins soon and gradual Rate Hikes

Well, with Yellen you never know what can happen ... this time radically changed the hawkish tone that she had been carrying since the beginning of the year, due to her usual dovish thinking, betting on limiting the Rate Hikes, confirming what Brainard said yesterday, that the current growing economy with slow inflation progress, does not show clear signs of where it will evolve, and in those doubts it is better to be careful with Rate Hikes. I think it's a good decision, prudent.

She also reiterated that the reduction or tapering of the US balance sheet, of $ 4.5 trillion, will begin sometime during the year, but again without specifying dates. It is understood that, doing so, would mean stopping the Rates Hikes, to avoid an excessive rate increment in the debt markets. Although with the FOMC you never know ...

And on the rate of federal funds (which banks charge each other when they lend money, similar to Libor), estimates that this 'something low', so it is expected next increases there, to a neutral level, which don't accelerate or discourage economic activity.

The markets around the world happy with these statements (SPX + 0.75% at the moment), that is, can continue with the party. The same happens with the bonds as the TNX benchmark rate plummets to -1.86% at this time. We'll see how he reacts after today's bond auctions.

Immediate reactions of the markets today: dollar, rates, SPX and XLF finance sector.

Yellen speech

I think it is important to insert the summary of what Yellen said today in the Senate, taken from econoday.com. Highlight the main thing, which can give topic for future analysis in this blog:

There are no surprises in the text of Janet Yellen's testimony this morning as she repeats that tapering will begin sometime this year and that a limited number of gradual rate hikes will extend over the next few years. Yellen said the long-run level for the balance sheet, now at $4.5 trillion, is still unknown and that the Fed does not intend to use unwinding as a policy tool. On rates, she said the neutral rate is "quite low" by historical standards and that the funds rate doesn't have far to go to hit a neutral stance for policy.

She repeated that inflation is being held down by unusual factors (cell phones, drugs and gasoline) and that uncertainty remains when inflation will respond to high levels of employment. Yellen also warned once again against using monetary tools in a "mechanical" way. On the economy, she said odds are 50-50 whether growth proves stronger or softer than expected and she gave an upgrade to the global economy, saying it has improved.

In questions and answers, Yellen said the FOMC intends to return to a Treasury-only portfolio following the unwinding of its $1.8 trillion in mortgage-backed securities holdings. Regarding the timing of when unwinding will begin, which is generally expected at either the September or December FOMC meetings, she would only add that it should be done "relatively soon." She did, however, offer an indication on how long the unwinding will take, saying she expects it to end around 2022. On rates, she said one more hike is likely this year. She also expressed commitment to achieving the Fed's 2 percent inflation target and attributed recent price weakness to special factors, factors she warned that will hold down inflation rates until they drop off. Yellen further noted that unemployment, current at 4.4 percent, is running below what the FOMC considers to be sustainable. On her own status, she said she hasn't given further thought on her own reappointment and conceded that this may be her last semi-annual testimony (her term as chair expires in early February next year).

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Tuesday, July 11, 2017

Guide for Stock Trading this week: Crude Oil, Bank Earnings, Retail Sales

Crude Oil /CL

On Wednesday there is the monthly report of OPEC, at times when the stock, at $ 44.57 after the brief rise at the beginning of the month, has been falling to new supports, making the Energy XLE sector remain the lowest of 2017, with - 15% YTD. The truth is that while on the one hand no one trusts OPEC and its output cuts, as I said months ago, on the other hand, production in the US also rises again: number of rigs and inventories upwards. In other words, none of them fulfills anything ... so, difficult the crude rebound as expected. And if the report is not favorable, the decline can be serious. If this happens, shortly it would enter shortly the etf USO that follows it, watching the support at $ 42.50. The other option is the etf 3X UCO, for lovers of higher risk-reward.

A bad report can bring Crude Oil to new lows, technically reinforced by 
being under the 3 SMA averages and the imminent crossing in the MACD.

"Big Four" Earnings

Early Friday, three of the 'Big Four' Wells Fargo WFC, JP Morgan JPM and Citi C, open the fires of this season. I am interested in the latter, it is good (15% YTD) recovering its pre-crisis levels of 2008. I will always say that I prefer to wait for the result of earnings and then trade according to it. The other is gambling, valid if one accepts a high risk-reward.

Retail Sales 

With the retail sector XRT in crisis (today -2.34%), on Friday comes its monthly report, in which another bad result (a consensus of 0.1% is expected compared to the previous -0.3%) could be catastrophic. It is already at levels it had during the crisis of 2008. Yesterday, another iconic brand such as Abercrombie & Fitch ANF sank -21% pulling giants like Macy M -7%, WalMart WMT -2.8% BestBuy BBY -6.91% among others .

In a previous post I recommended going short in XRT, because I do not see any improvement in the medium term. Amazon, one of the culprits of its crisis, even reinforces its policy with its next Geek Squad service.
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Friday, July 7, 2017

Guide for Stock Trading next week: T-Bonds, FED Speaks, CPI

After this beginning of the month where the fluctuations and correction of the Nasdaq-100 QQQ and the increase in bond yields marked the path of the market, other events and factors will be the new protagonists of this exciting week. Attention to:

Treasury Bonds

To the usual weekly auctions of bills are added this week the major auctions of 10-yr notes and 30-yr bond, which move this market, specifically the futures /ZN and /ZB, both in weekly decline as they follow the price of the bonds , inverse to the yield. In addition, the Mortgage Requests Index MBA complements this important week for fixed income assets. Although today there was a correction (German Bund included) because of the profit-taking of investors, I believe that the yield increase of these Treasuries will continue, except Yellen change of tone, because the conditions, fundamental and technical, are given .

FED Speaks this week

Several statements by FED members this week (Brainard and Kashkari among them) and on Wednesday the head of the FED, Janet Yellen, who will move the world markets when she comments on growth, rates, inflation, the US tax debt and when the following rate could be given Hike We will see if she confirms her hawkish thought that shows since the beginning of the year, and as in previous times, the tone of your message will be the key.

The FED members that are voters this year. Who is who: hawkish and dovish.

Consumer Price Index

The inflation data CPI will be decisive to clarify the path that the FED can follow. The dismal data of last month (-0.1%, expected on Friday + 0.2%) made rethink everything that was done in 2017 and questioned whether it was necessary to have given the Rate Hike in June, here I thought it was not the moment. Attention that day to the TNX rate and etf like TLT or TMV to do swing trading.

Tomorrow complement with other assets to follow this week, and during the week I will be deepening them.

Econoday summarizes weekly all economic activity in the US and the world. Not mentioned above also highlights the PPI data, prior to inflation, and Industrial Production.
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Monday, July 3, 2017

The Apocalypse of the Retail sector?

The purchase of organic giant Whole Foods WFM by Amazon AMZN at $13,700M continues to generate headlines within a week of its announcement. The immediate repercussion is the reinforcement in the fall of the Retail XTR sub-sector, which was already terrible in 2017 with news such as the closing of giant stores in the sector (Sears: 19 of its stores and 72 more on the way, JC Penney, RadioShack, Macy, among many others), Experts estimate that we are witnessing the beginning of the end of the retail as an economic model and lifestyle in the US, exported to the whole world. This good article by Francisco Jiménez for El Economista covers what I( say.

The YTD performance of the retail sector is around -18%. As a trader, 
you have to look for purchase opportunities in companies that survive this crisis.

Grocery supermarkets, direct competitors, felt the blow, it is enough to see a week their falls in the price of their stocks:
Kroger KR -25%
Target TGT -13%
Costco COST -10%
WalMart WMT -5%

The new strategies, promotions and loyalty chains will be everything for these companies if they want to lose part of their market share to the technological giant, because now the shopping experience at WFM will improve with the unique Amazon online platform. For the moment I suggest entering short in the retail sector, through the XTR etf, or triple-speed RETL. This situation is for a short time, because the idea is to look for the business opportunity that appears in every fall. Putting the mentioned companies on radar, today it is premature and risky to say what their destiny will be: their news, strategies, earnings of the next months will be those that define their future and subsistence.

The table shows the PE (Price / Earnings) in the main US supermarkets. Costco's high value is worrisome, above 20.03, which is the average PE of the retail sector.
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