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Macro

SL Advisors - Bond Investors Agree With the Fed...For Now


The Federal Reserve has brought transparency to their decisions. The famous “blue dots” which show visually each FOMC voting member’s forecast for rates provides insight into their thinking, even if it doesn’t attach names to each dot. We’ve come a long way from Alan Greenspan’s Senate testimony, “Since becoming a central banker, I have learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said.”

Transparency has removed the mystique. It’s now clear that the Fed doesn’t know much more than the rest of us about the economy. They’re also only average forecasters. Ever since the blue dots laid out the likely path of short term rates, which the Fed largely controls, they’ve consistently overestimated where they would set rates. It’s been a source of some amusement – if they can’t even forecast their own actions with accuracy, how can they forecast the economy?

Bond investors long ago concluded that rates would stay lower for longer than the FOMC thought. Ten year treasury yields approximately reflect the bond market’s expectation for short term rates over the next decade. If the FOMC’s thinking aligns with investors, the Fed’s long run forecast of the Federal Funds rate should be similar to the ten year yield. This is the neutral rate, the equilibrium that they regard as being neither accommodative nor restrictive. Historically, it was believed to be around 2% above inflation, for a “real” rate of 2%. Since the inflation target is itself around 2%, 4% was held to be the equilibrium Fed funds rate.

As the Fed provided greater transparency, it revealed a yawning gap between their thinking and that of bond buyers. The bond market turned out to be right, and low treasury yields correctly reflected that short term rates would rise very slowly.

Interestingly though, the Fed’s equilibrium rate also began to slide lower. Since their inflation target of 2% hasn’t changed, it means their equilibrium real rate has dropped to only 1%.

One of the enduring puzzles of the past 25 years is why inflation has been so well behaved. Countless forecasters have been wrong-footed in expecting inflation to rise – with the U.S. unemployment rate at 3.7%, the lowest in living memory, few could be surprised if inflation does move sharply higher. But the FOMC implicitly expects that a less restrictive (i.e. lower real rate) will be needed than in the past to slow things down.

With the Great Recession now ten years old and the need for ultra-low rates gone, views are starting to converge. The Fed’s moderating long run forecast has now crossed the ten year treasury yield. For the first time since the regime of greater transparency, the market and the Fed are in agreement.

However, if treasury yields continue to rise, this will show that the bond market’s forecast of equilibrium rates is higher than the Fed’s. It’ll cause commentators to worry that the Fed is reacting too slowly to the threat of inflation.

It looks likely the Fed Funds rate will approach the 3% equilibrium by next year. The Fed expects moves beyond those levels to become restrictive, which is a normal part of the rate cycle. The interplay between bond yields and Fed Funds forecasts will become more important. So far, investors have been more accurate than voting FOMC members. If treasury yields head towards 3.5% it’ll suggest that the FOMC has allowed their equilibrium rate to drift too low. In that case, expect more White House tweets on rates.

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Please click here for important legal disclosures.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from SL Advisors LLC and is being posted with SL Advisors LLC’s permission. The views expressed in this material are solely those of the author and/or SL Advisors LLC and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


21000




Stocks

Finimize - Bellway Sounds The Alarm


What's going on here?

British homebuilder Bellway has little reason to complain – its stock rose by 3% on Tuesday following solid annual results. But the UK’s fair economic weather may not last…

 

What does this mean?

Bellway sold more than 10,000 new homes last year, with the average price of each unit 9% higher than a year ago. Bellway’s strategy of avoiding building and selling in London, where falling house prices have dragged the UK’s average lower of late, paid off – helping to grow its annual profit 14% beyond last year’s total. But the builder’s 2019 currently rests on uncertain foundations – Bellway said a shortage of workers and materials like timber and bricks could push its prices higher and profit lower. And don’t mention the B-word…

 

Why should I care?

For markets: Not so fast, home buyer.


Wages of UK workers grew by over 3% in August – the fastest rate in almost a decade and, crucially, faster than the rate at which the prices of goods and services increased (a.k.a. inflation). A little extra cash in consumers’ pockets at the end of the month could encourage would-be homebuyers to take the plunge. But Bellway isn’t banking on it. It’s worried that Brexit (okay, we said it) in March 2019 could dent consumer confidence, which would likely have a large impact on Bellway’s year: spring is typically the busiest time for home sales.



The bigger picture: British buyers brought home the fresh mortgage bacon.


In August, first-time buyers were out in force applying for – and getting – mortgages. So much so that they offset the decline in approvals of other potential borrowers (e.g. people who already own a house but want to move). British buyers possibly made haste after the Bank of England raised interest rates in August, hoping to secure a cheaper mortgage while they still could.

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Originally Posted on Tue October 16, 2018 

Finimize is the daily email that everyone in finance secretly reads. It's the perfect 3-minute cheat sheet on what happened in the financial news: it's free and without any jargon or as Forbes puts it “Super digestible and well-written. A+”. All content is created by the Finimize team, formerly @Goldman Sachs, Barclays, etc. Join more than 200,000 daily readers.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Finimize and is being posted with Finimize's permission. The views expressed in this material are solely those of the author and/or Finimize and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


20997




Technical Analysis

ChartSmarter - Healthcare Sector Overview: 10/17/18


Trigger summaries:

Buy rare name that held upward sloping 50 day SMA in recent overall turmoil RGEN here.  Stop 53.

Buy pullback into recent gap fill VNDA 21.75.  Stop 20.30.

Buy pullback into bull flag trigger breakout ACAD 22.50.  Stop 19.75.

Buy successful retest of prior bull flag breakout RGNX here.  Stop 58.50.

Sell stop to short below bearish descending triangle PBYI 39.75.  Buy stop 44.

Group Outlook:

  • Last week we focused on the medical devices ETF, but today lets look at the more brisk IBB. We will go into more depth of the IBB in the next paragraph, but measuring it up against the dodgy XLV, is like the analogy of risk on/risk off, akin to the EEM:SPX ratio. One who invests in the EEM has felt the danger this year, against the comfort of the somewhat stable SPX. Below we offer a technical take of the IBB presently and even after todays surge back above its 200 day SMA it is not out of the woods. Give it credit for quickly recouping its 200 day SMA, remember it is not a crime to lose it, but you must spoon the line and recapture in a swift pace. Last Friday registered a bullish morning star pattern, with that third session in the pattern being a doji, which often sees a weakening of the prior trend. Todays volume could have been a bit more energetic, but an old trader once told me that slow trade on a comeback is to be welcomed as market participants are unwilling to believe a turnaround could be underway. That will show itself in firmer trade once the conviction solidifies.

Smaller Cap Healthcare vs. More Mature:

  • When one wants to gauge the risk appetite in healthcare, investors can compare the performance of the smaller cap IBB ETF to the more mature, defensive XLV. The top four components in the IBB are the old "four horseman" of biotech being AMGN GILD BIIB and CELG, and together they compromise 33% of the fund. They are certainly not your nimble featherweights of biotech, but they are more conservative than the top four holdings in the XLV which consist of JNJ PFE UNH and MRK. Below the chart shows how IBB has underperformed the XLV. On a YTD basis the IBB has added 8% while the XLV rose by 12%, and over the last one year period the difference becomes more clear with the IBB up 2% which the XLV has jumped 13%. Perhaps that will start to change as the IBB recorded its strongest day of 2018 rising 4.2%, and more importantly CLOSING back above its 200 day SMA.

Examples:

  • As many names within the healthcare group try to work off technical damage from last week, like every other sector, some will recede more than others. The smaller cap names often display a higher degree of volatility, and that scenario could potentially offer investors nice rewards. Below is the chart of VKTX and how it was highlighted in our 10/12 Healthcare Report. The stock now trades 36% off most recent 52 week highs, even after today 8% plus gain. There were a couple things to like about the set up as it recorded a bullish inverted hammer candle, which could also be interpreted as a bullish piercing line candle. This occurred at a rising 50 day SMA after a pullback of 11 handles, nearly 50%, just 3 weeks prior. One can consider plays like this as lottery tickets, but technically this chart is doing just what it should.

Special Situations:

Digesting a doubling recently, since week ending 2/9 which bounced nicely off round 30 figure. RGEN is a best in breed healthcare name higher by 56% YTD and 48% over the last one year period. Earnings have been mixed with bigger gains of 5.7 and 8% on 5/8 and 2/22 and losses of 1.6 and 3.2% on 8/2 and 11/9/17 (REPORTS 11/1 before open). The stock is lower 3 of the last 4 weeks, but was immediately preceded by a 17 of 20 week winning streak, with 16 of the 17 weeks CLOSING in the upper half of the weekly range. It is now just 4% off most recent all time highs and has held its 50 day SMA, in an overall market climate where a very select few did. Enter RGEN here and add to through cup base trigger of 59.09.

Trigger RGEN here.  Stop 53.

Slight pullback was warranted after failing to CLOSE above 23.45 cup base trigger recently. VNDA is a bio pharma play higher by 47% YTD and 39% over the last one year period. Earnings momentum is moving firmly in the right direction with three consecutive nice gains of 5.1, 12.2 and 6.6% on 8/2, 5/3 and 2/15 after a loss of 12.4% on 11/8/17 (REPORTS 11/7 after close). The stock is higher 3 of the last 5 weeks, starting with a 3 week winning streak that thrusted higher by 23% the weeks ending between 9/14-28, and registered a powerful streak rising 13 of 16 weeks ending between 5/4-8/17. Enter VNDA on a pullback into todays gap fill from the 9/25 session at 21.75.

Trigger VNDA 21.75.  Stop 20.30.

Holding very round 20 figure very nicely, even though stalling bear upside gap fill recently from 4/6 session. ACAD is a biopharma laggard lower by 24% YTD and 36% over the last one year period. Earnings momentum has been soft with losses of .8, 20, 9.4 and 9% on 8/9, 2/28, 11/8/17 and 8/10/17 and a gain of 11% on 5/4 (REPORTS 11/6 after close). The stock is on a 4 week winning streak, beginning with a huge 45.3% gain the week ending 9/21, and went on to GAIN another 7.5% the last 3 weeks, showing excellent resilience. Enter ACAD on pullback into break above a bull flag trigger of 22.25 at 22.50 which carries a measured move to 31.

Trigger ACAD 22.50.  Stop 19.75.

As orderly a pullback as you will see from a name 27% off most recent all time highs. RGNX is a biotech play higher by 87% YTD and over the last one year period. Earnings have been mostly higher with three straight advances of 13.5, 26.9 and 1.7% on 5/9, 3/7 and 11/9/17 before a recent loss of .3% on 8/8 (REPORTS 11/7 before open). The stock is lower 3 of the last 4 weeks, with two that fell more than 14%. It is now holding the round 60 number, which is successfully retesting a bull flag breakout from 6/19. Enter RGNX here and add to through its 50 day SMA and then finally through a double bottom trigger of 83.55.

Trigger RGNX here.  Stop 58.50.

Name completely deflated and once traded north of 250 in summer of 2014. PBYI is a biopharma laggard lower by 57% YTD and 66% over the last one year period. Earnings have been poorly received with declines of 8.1, 20.7 and 19% on 8/10, 5/10 and 11/10/17 and a gain of 15.1% on 3/2 (REPORTS 11/8 after close). The stock is lower 11 of the last 14 weeks, beginning with a 7 week losing streak the weeks ending between 7/13-8/24 which fell by a combined 36%. To its credit it has been holding the round 40 number well since late August, but a move below would feature a breakdown under a bearish descending triangle. Short PBYI with a sell stop of 39.75 which carries a measured move to 15.

Trigger PBYI 39.75.  Buy stop 44.

Good luck.

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ChartSmarter is a website dedicated to the art of technical analysis. We focus on both daily and weekly timeframes with a strong emphasis on Japanese candlesticks. Incorporated into our work is the use of traditional technical strategies such as head and shoulders, triangles, gap fills and round number theory. Inside each daily report we highlight 5 names on both the long/short side depending on the overall market conditions. 

The author has worked within the financial industry for more than 25 years, but for the last 8 has centered in primarily of trading capital using technical analysis.

The opinions expressed by the author are his own. Trades or positions discussed by the author are neither a solicitation to buy or sell a security, nor are they investment advice. Recipients should always do their own due diligence before buying or selling a security. Every reader is responsible for his/her decision to buy or sell a security.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from ChartSmarter and is being posted with ChartSmarter’s permission. The views expressed in this material are solely those of the author and/or ChartSmarter and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


20999




Macro

Interactive Brokers - Steve Sosnick: Fed Policy & Federal Reserve Chair Powell


Steve Sosnick, Interactive Brokers chief options strategist, discusses Federal Reserve Chair Powell and fed policy influence. Is there a Powell put, and if so where is it struck?

Produced on October 16, 2018

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


20970




Macro

Briefing.com - Tuned Up for a Mixed Start


The stock market had a great day on Tuesday.  It got a lot of bulls fired up that it was the start of a formulaic, V-shaped recovery that has been seen often following a big price drop like the one experienced last week.  It might be when it's all said and done, but that sense of V-shaped gratification is going to have to be deferred at the start of today's trading.

Currently, the S&P futures are down 10 points and are trading 0.2% below fair value.  The Nasdaq 100 futures are down 34 points, but are trading 0.4% above fair value.  The Dow Jones Industrial Average futures are down 117 points and are trading 0.5% below fair value.

Those mixed indications are most likely not what many participants were expecting considering companies like Netflix (NFLX), Lam Research (LRCX), CSX Corp. (CSX), and United Continental (UAL) kept the good earnings news flowing with September quarter results and/or guidance that exceeded expectations.

The stocks of those companies are all up in pre-market trading, yet Netflix is the real luminary, adding 10.0% as investors have taken great delight in the company's stronger than expected subscriber growth and subscriber growth forecast.

The response to the Netflix report should presumably keep a bid in the growth/momentum stocks that powered yesterday's rally, yet the futures indications are raising some questions about whether that trade will continue to have traction.

In the same light, the semiconductor stocks should presumably maintain some leadership style given that leading chip equipment company Lam Research (LRCX) said it thinks the September quarter marked a near-term trough for its business.

IBM (IBM), meanwhile, is not a party to the positive earnings responses.  It is down 5.0% in pre-market trading, having been undercut by investors who were duly unimpressed by the recognition that IBM's revenues declined 2.1% year-over-year.

IBM's weakness is a major factor driving the weakness in the Dow Jones Industrial Average futures, as is the weakness in Home Depot (HD), which is down 1.5% following a Credit Suisse downgrade to Neutral from Outperform.

Macro matters are also playing a part in the soft futures indication, with a lot of focus surrounding the housing market.

Mortgage applications declined 7.1% week-over-week, impacted partly by the Columbus Day holiday but in keeping with a softening trend due to rising mortgage rates.  Refinancing applications dropped 9% while purchase applications fell 6%.

Rising mortgage rates and high prices that have stemmed from limited inventory have crimped affordability for home buyers.  Unfortunately, it doesn't look as if the supply situation is going to provide meaningful relief soon.

Housing starts declined 5.3% in September to a seasonally adjusted annual rate of 1.201 million units (Briefing.com consensus 1221K), with single-family starts down 0.9% to 871,000. 

Building permits were down 0.6% to a seasonally adjusted annual rate of 1.241 million (Briefing.com consensus 1273K), although that was owed to a 9.3% decline in permits for buildings with five units or more.  Single-family permits were up 2.9% to 851,000, which tied with March for the third-lowest annual rate this year.

The key takeaway from the report is that the supply of new homes isn't picking up fast enough to meet the demand for new homes at more affordable price points.  Accordingly, overall home sales activity will continue to be curtailed by affordability constraints.

There will be some commentary on housing market conditions in the FOMC Minutes for the September meeting that will be released today at 2:00 p.m. ET.  Those minutes are dated obviously, but with the market's heightened sensitivity to the specter of future rate hikes, these minutes could cause a stir if they convey a resolute stance to maintain a tightening bias.

Stay tuned there.  In the meantime, the stock market is tuned up for a mixed start.

--Patrick J. O'Hare, Briefing.com

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Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Briefing.com and is being posted with Briefing.com's permission. The views expressed in this material are solely those of the author and/or Briefing.com and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


20996




1 2 3 4 5 2 1633

Disclosures

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The material (including articles and commentary) provided on IB Traders' Insight is offered for informational purposes only. The posted material is NOT a recommendation by Interactive Brokers (IB) that you or your clients should contract for the services of or invest with any of the independent advisors or hedge funds or others who may post on IB Traders' Insight or invest with any advisors or hedge funds. The advisors, hedge funds and other analysts who may post on IB Traders' Insight are independent of IB and IB does not make any representations or warranties concerning the past or future performance of these advisors, hedge funds and others or the accuracy of the information they provide. Interactive Brokers does not conduct a "suitability review" to make sure the trading of any advisor or hedge fund or other party is suitable for you.

Securities or other financial instruments mentioned in the material posted are not suitable for all investors. The material posted does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before making any investment or trade, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice. Past performance is no guarantee of future results.

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