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Securities Lending

Will All Good Things Come to Those Who Wait?


It has been widely reported in the media that selling volatility has been on the rise among traders.  The VIX (S&P 500 Volatility Index) is at historic lows, with equities seeming to shrug off negative data.  Volatility ETF/ETN products are a popular (and easy to transact) way to speculate on market calmness. This week, SVXY (ProShares Short VIX Short-Term ETF) was especially active in the securities lending market.  SVXY carries a borrow fee of 2.5%, with Utilization at nearly 95%.  Small primes are showing size today, we are not seeing anything from bulge brackets or retail. 

SVXY seeks daily returns which correspond to the inverse of VIX performance.  Shorting SVXY is akin to buying volatility – betting that there may be a drawdown in the stock market.  So why do traders pay 2.5% to short SVXY when they can just buy VIXY (ProShares VIX Short-Term Futures ETF ), also a long volatility play, with zero borrow cost?  One answer is decay.  Due to the structure of volatility products, inverse funds experience price decay as the fund rolls its positions to match the underlying index results.  Vanilla volatility funds also experience decay, but at a lower rate.  The trading strategy for SVXY shorts is to bet on volatility rising, while potentially profiting from fund decay while waiting.  This has not been a profitable trade this year.  SPY realized volatility (7.8 10-day for Q2) has been consistently lower than Implied (8.83).  SVXY’s share price has doubled YTD.

For information and risks about short selling volatility products, please review this link from the IB Knowledge Base.

Special Risks Associated with ETN & Leveraged ETF Short Sales

The analysis in this article 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 IB 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.


13918




Macro

NASDAQ-100 Trading Commentary


Professionals have combined these three data points to justify higher NASDAQ-100 Index (NDX) prices:

  1. Historical Analog: The NASDAQ-100 Index (NDX) closed up yesterday for the 10th day in a row. Since 1980, a 10-day winning streak has only occurred 21 other times, or approximately once every two years. When this happens, the NDX over the next month is up on average +2.6% and higher 16 of the 21 times. (Source: LPL, Ryan Detrick)
     
  2. Seasonality: The NDX historically moves +/- 3% from the start of super-tech earnings reports – GOOGL (7/24), FB (7/26), AMZN (7/27), AAPL (8/1) – and 10 days after.
     
  3.  Positive Correlation: The NDX has transitioned back to positive correlations. For example, 1-month correlations of the Technology to the Financial sector (XLK/XLF) and Technology to the Energy sector (XLK/XLE) is turning positive. Technology strength in tandem with other sectors portends to a bigger move in the broader equity market, especially as upside implied volatility is extremely low or underpriced. (Source: UBS, Equity Derivatives)

The third observation is most noteworthy if you are calling for higher broad-market prices. Here is why:

We hold the view that the US dollar and crude oil are the most significant driver of asset prices in the world, everything else is just a byproduct of their direction.

The US dollar is in a clear downtrend.

The road map from profiting from a falling US dollar historically looks like this: invest in US exporters, tangible assets (foreigners who buy U.S. real estate or commodities) and appreciating currencies or stock markets.

The idea that foreigners buy US real estate, or interest rate sensitive equities (i.e. the financial sector), or commodities (i.e. energy, materials), if correlations turn even more positive with the technology sector (i.e. US exporters) is not discounted in the market, especially by quantitative or pairs trading strategy that are long on technology and short of energy.

To see the remainder of today's post, please sign up for a subscription to Sight Beyond Sight through Interactive Brokers.

Sight Beyond Sight® is a global macro trading newsletter written daily by Neil Azous. With close to two decades of institutional experience across asset classes, Neil interprets the day-to-day economic, policy and strategy developments and provides actionable trading ideas for investors. We invite clients of Interactive Brokers to sign up for a free trial in Account Management. If you are not a client of IB, you can sign up for a free trial by visiting our website.

This article is from Rareview Macro and is being posted with Rareview Macro’s permission. The views expressed in this article are solely those of the author and/or Rareview Macro and IB is not endorsing or recommending any investment or trading discussed in the article. 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 IB 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.


13917




Technical Analysis

Nasdaq Technical Take: Insurance ETF breaking out?


The major equity indices are soft across the board in what appears to be a natural consolidation after recently making new all-time highs. One group making fresh new highs is the insurance industry.  The insurance ETF, ticker KIE, has been up in eight of the prior nine weeks. This week the KIE has broken out above the prior 52-week high, $89.50, made back in early March, which represents the neckline of a cup and handle pattern. The size of the pattern projects a measured move towards $95, +5.4% from last sale. Momentum is elevated with the daily RSI at 68 suggesting a period of consolidation could occur soon which may provide a more attractive entry for new longs.     

Nasdaq's Market Intelligence Desk (MID) Team includes: 

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT has 16 years of trading desk experience. Prior to joining Nasdaq Brian executed equity orders and provided trading ideas to institutional clients. He also contributed technical analysis to a fundamental research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Airline companies among others understand the trading in their stock. Brian is a Chartered Market Technician.

This article is from Nasdaq and is being posted with Nasdaq’s permission. The views expressed in this article are solely those of the author and/or Nasdaq and IB is not endorsing or recommending any investment or trading discussed in the article. 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 IB 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.

 

13916




Macro

Irrational Optimism


In the months following the election, we saw optimism surge higher in a number of prominent indicators…

  • Homebuilder sentiment hit an 11-year high.
  • Small Business optimism hit a 12-year high.
  • Consumer confidence hit a 13-year high.
  • Philadelphia Fed Manufacturing survey hit a 33-year high.

The thinking was as follows: a new era of higher economic growth was about to take hold, driven by lower taxes, deregulation and massive infrastructure spending. It was said that 5% real GDP, a stronger U.S. dollar, higher long-term interest rates, and higher wage growth were coming.

Reinforcing this belief was the booming stock market in the U.S., hitting new all-time highs on a daily basis and doing so with just about the lowest volatility in history.

Fast forward to today and the stock market continues to hit all-time highs with record-low volatility, but something interesting is developing with respect to the aforementioned levels of optimism. They are starting to move back down…

  • Homebuilder sentiment has moved down to its lowest level since last November.

https://pensionpartners.com/wp-content/uploads/2017/07/irr1-300x215.png

  • Small Business optimism has moved down to its lowest level since last November.

https://pensionpartners.com/wp-content/uploads/2017/07/irr2-300x180.png

  • Consumer Confidence has moved down to its lowest level since last October.

https://pensionpartners.com/wp-content/uploads/2017/07/irr3-300x197.png

  • Philly Fed Manufacturing Survey has moved down to its lowest level since last November.

https://pensionpartners.com/wp-content/uploads/2017/07/irr4-300x191.png

But these are just surveys. Perhaps the real economic data is painting a different picture. Let’s take a look…

  • In the first quarter, Real GDP came in at 1.4%. In the second quarter the Atlanta Fed is projecting 2.5%. The average of the two, 1.95%, is below the expansion average of 2.2%.
  • In the first six months of the year, the U.S. added an average of 180,000 jobs per month (non-farm payroll report). In the prior five years, the U.S. added an average of 214,000 jobs per month.
  • In the first six months of the year, U.S. Retail Sales rose at an average pace of .07% per month. Over the prior five years, the average rate of growth was 0.29% per month.
  • In the first five months of the year, Real Personal Income grew at an annualized rate or 1.89% per year. Over the prior five years, it grew at an average rate of 2.28%.

Based on the data, it would be hard to argue that economic growth is improving, and certainly not supporting the belief that 5% real growth is attainable anytime soon. If anything, growth appears to be slowing down just a bit.

Meanwhile, the U.S. Dollar Index is at a 52-week low, down against every major currency in 2017.

https://pensionpartners.com/wp-content/uploads/2017/07/irr5.jpg

And long-term bond yield have fallen in 2017 while the yield curve (10-year minus 3-month yields) is close to its flattest level of the expansion. The bond market certainly is not buying into a move to 3% real growth, let alone 5%.

https://pensionpartners.com/wp-content/uploads/2017/07/irr6.jpg

But we still have the stock market, hitting new all-time highs on a daily basis with no volatility to speak of. In contrast to the economic surveys, sentiment there has certainly not waned. Is this a signal that 5% growth may indeed be coming? Only if you believe the stock market is the economy.

In recent weeks, the President has suggested as much. Mr. Trump, who called the entire stock market advance under President Obama a “big, fat, ugly, bubble,” has been touting it as a barometer of success…

https://pensionpartners.com/wp-content/uploads/2017/07/irr7.png

It would be an understatement to say that there has been no President in history who has mentioned the stock market with greater frequency. This is interesting, for if the stock market is said to be a real-time reflection of his performance, what will the President say when it actually goes down (there hasn’t been a 5% correction since he was elected, one of the longest stretches in history)?

As most market participants understand, the President and their policies have very little influence on equity returns. There are a multitude of factors that drive the stock market (earnings, valuation, sentiment, economy, etc.), and the President is just one microscopic piece of that puzzle. This is as it should be in a free market economy, where no one person has undue influence.

Considering the growing divide between the stock market and the real economy, the question for investors is whether they still believe the post-election narrative to be true. Will the dream of 5% growth be realized and do they take Trump at his word when he says: “we’ve signed more bills – and I’m talking about through the legislature – than any President, ever”?

Rational optimism is the best default mindset to have and has served me well throughout the years. But there are times when optimism reaches a point that is simply not supported by the data, hence becoming irrational. After the election, the homebuilder/consumer/housing/manufacturing surveys were at such a point. In recent months they seem to be slowly coming back to reality, understanding that there was no paradigm shift on election day.

Will the stock market be next?

Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages a mutual fund and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.

You can follow Charlie on twitter here.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

This article is from Pension Partners, LLC and is being posted with Pension Partners, LLC's permission. The views expressed in this article are solely those of the author and/or Pension Partners, LLC and IB is not endorsing or recommending any investment or trading discussed in the article. 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.


13914




Stocks

Nasdaq Market Intelligence Desk - Equity Market Insight July 21, 2017


As of 11:45AM

  • NASDAQ Composite -0.3% Dow -0.32% S&P 500 -0.21% Russell 2000 -%
  • NASDAQ Advancers: 1081 Decliners: 1013
  • Today’s Volume: -5%

US stocks are weaker this morning following the downtick in other markets across the globe. The Euro/USD continues to move higher today, as concerns the US economy might not benefit from the president’s plan to catapult the economy in the near-term. All 11 S&P sectors are in the red, on higher than normal volume (options expiration Friday). Crude Oil (-1.5%) is suffering its largest pull-back in 2 weeks, and applying pressure to Oil and Gas (-0.75%) stocks.  

  • It's been well documented the Nasdaq Composite is in the midst of an impressive winning streak, closing higher yesterday higher for the 10th consecutive day. Despite opening today on a down note, the recent winning streak has shown the index has been able to rally over the course of the day, closing higher than the opening print 9 out of the 10 sessions.
  • Crude oil was unable to hold above the $47 level and is down 1.9% today ahead of Monday’s OPEC meeting.  Analysts expect little if anything from the meeting, so if they do announce something it could result in a price spike.  Bloomberg comments that the cartel is in a difficult spot, higher prices will draw in more US production while lower prices hurt their local economies and government budgets. “They’re between a rock and a hard place” say Mike Wittner at Societe Generale.
  • Three IPOs on Nasdaq today including, PetIQ (Ticker: PETQ), Osprey Energy Acquisition (Ticker: OSPRU) and Eagle Financial Bancorp (Ticker: EFBI). Congratulations! Employees from PetIQ were at the Nasdaq Marketsite to cheer on the opening trade ($21.00) and the stock is currently higher by 28%! 

Nasdaq's Market Intelligence Desk (MID) Team includes: 

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT has 16 years of trading desk experience. Prior to joining Nasdaq Brian executed equity orders and provided trading ideas to institutional clients. He also contributed technical analysis to a fundamental research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Airline companies among others understand the trading in their stock. Brian is a Chartered Market Technician.

This article is from Nasdaq and is being posted with Nasdaq’s permission. The views expressed in this article are solely those of the author and/or Nasdaq and IB is not endorsing or recommending any investment or trading discussed in the article. 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 IB 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.


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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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