Tuesday, January 15, 2019

TODAY IN THE MARKET - TUE 01/15




























Note: Our daily "S&P 500 Outlook, Forecast, and Trading plan for Wednesday, 01/16" will be posted around 8:30am EDT, Wednesday.

THE GIST (“THE WHAT”)



A fresh round of stimulus announced by China to abate an economic slowdown boosted investor confidence at the open. With easing of fears of an imminent global recession, the S&P 500 index rallied on the back of solid gains in Technology stocks, helping the index to regain the psychologically important 2600 level for the first time since December 14, 2018. Disappointing earnings by JPMorgan Chase & Co, however, capped confidence. 

Taking a sharp leg higher at the open, the index pared gains following a catastrophic defeat of U.K. Prime Minister Theresa May in British Parliament where lawmakers rejected the Brexit plans with large numbers. However, gaining momentum on the back of a solid tech-led rally, the index closed near session highs at 2610.30, up 27.69 points and gaining 1.07% over previous session’s close.


THE DETAILS (The "How & Why"):


In an attempt to abate an economic slowdown, China signaled a fresh round of stimulus by improving credit availability for small and medium sized companies. Following a surprise drop in December’s exports, the Chinese Ministry of Finance pledged to cut taxes and increase infrastructure spending to help improve market sentiment.
  
Tech-heavy Technology and Communication Services led the advances, closing higher by 1.74% and 1.48%. FAANG stocks rose broadly on easing of recession jitters. Facebook Inc., Apple Inc., Amazon.com Inc. and Alphabet Inc. rose 2.45%, 2.05%, 3.55% and 3.33%, respectively. Netflix Inc. soared 6.52%, leading the Consumer Discretionary sector higher by 1.13% after the video streaming company announced its plan to raise its monthly subscription prices by 13% to 18%.   

Health Care sector also outperformed the broader index, up 1.74%, led by a sharp 8.43% rise in Edwards Lifesciences Corp. after it agreed to pay $180 million to settle a long-standing patent dispute with rival Boston Scientific Corp. Nektar Therapeutics and Incyte Corporations were the other strong gainers within the sector, rising 7.23% and 7.10%, respectively.

Defensive sectors rebounded from recent losses in today’s broad-based rally. Utilities, Real Estate and Consumer Staples all closed higher by 1.27%, 1.06% and 0.96% higher, respectively. While utilities traded broadly higher for the day, PG&E Corporation and Edison International offset gains within the sector. While PG&E Corporation tumbled another 17.54% following bankruptcy filing, Edison International fell 5.33% following a stock downgrade by BofA Merrill Lynch, citing a challenging operating environment in California.

JP Morgan Chase & Co. dampened confidence within the Financials sector on missing earnings estimates for the first time in 15 quarters amid market volatility and lower-than-expected bond trading revenue. The banking giant, however, erased early session declines and closed the session with a 0.73% gain. Meanwhile, Wells Fargo & Co also shed 1.55% on missing sales estimates. Bank of America Corp, Goldman Sachs and Morgan Stanley are all scheduled to report their quarterly earnings later this week.

On the flip side, the only two sectors to underperform were Materials and Industrials, down 0.65% and 0.32%, respectively. Albemarle Corporation was the worst decliner within the Materials space, down 4.33% on stock downgrade, followed by a 4.11% decline in Sherwin-Williams Company on issuing a lower-than-expected sales forecast.



S&P 500 OUTLOOK for TUE 01/15


Brexit Chaos and Draghi Speech Potentially to Eclipse Earnings Headlines today 


Geopolitical events (not involving China, for a change) today likely to cause chaos in the currency markets which would spill over into the equity markets today - UK parliament to vote on Theresa Mayer's Brexit Plan. Added to that, ECB chair Draghi is slated to present his annual report this afternoon, which could by itself be a huge currency market mover. These two events could be driving the S&P 500 and other markets today, especially with the potential for wild, knee-jerk moves. Our models indicate staying on the sidelines till the dust settles down (at least until after 2pm EST), or trading with widened ranges. 

Since Wed, 01/09, our models adopted a bullish bias which will be invalidated if the index registers a daily close below 2555. The near term target for this bullish bias is the 2630-2635 band. Our models indicate that the risk today is a heightened volatility which could cause sudden, violent moves up or down with no real directional move, specially surrounding the Brexit and Draghi related headlines.    

Below, you will find our models' trading plans for today (for the results of the published trading plans for Friday, click here)

Trading Plans for TUE, 01/15:


Medium-term/long-term Models: For today, Tuesday 01/15, our medium-term models indicate trading off of the broad 2606-2548 band - going long on a cross above 2606 and going short on a cross below 2546 - with a 12-point trailing stop on both trades. If these levels are not crossed during the regular session hours, the models would stay flat.  


If a long is triggered, the profit target would be 2630, and if a short is triggered the profit target would be 2530. 

Aggressive Intraday Models: For today, Tuesday 01/15, our aggressive intraday models indicate going long on the index crossing above 2606 and going short on a break below 2556 during regular session hours - with an 8-point trailing stop. 

Due to the intraday nature of these models, they indicate closing any open trades at 3:50pm and remaining flat into the session close. 



NOTE: Remember that a "trailing stop" works differently from the traditional stop-loss order. Please bear in mind that the trailing stop's trigger level would keep changing throughout the session (click here to read on the conceptual workings of a trailing-stop). 


IMPORTANT RISK DISCLOSURES AND NOTICES - READ CAREFULLY:

(i) This article contains personal opinions of the author and is NOT representative of any organization(s) he may be affiliated with. This article is solely intended for informational and educational purposes only. It is NOT any specific advice or recommendation or solicitation to purchase or sell or cause any transaction in any specific investment instruments at any specific price levels, but it is a generic analysis of the instruments mentioned.

(ii) Do NOT make your financial investment or trading decisions based on this article; anyone doing so shall do so solely at their own risk. The author will NOT be responsible for any losses or loss of potential gains arising from any investments/trades made based on the opinions, forecasts or other information contained in this article.

(iii) Risk Warning: Investing, trading in S&P 500 Index – spot, futures, or options or in any other synthetic form – or its component stocks carries inherent risk of loss. Trading in leveraged instruments such as futures carries much higher risk of significant losses and you may lose more than you invested in them. Carefully consider your individual financial situation and investment objectives before investing in any financial instruments. If you are not a professional trader, consult a professional investment advisor before making your investment decisions.

(iv) Past performance: This article may contain references to past performance of hypothetical trades or past forecasts, which should NOT be taken as any representation or promise or guarantee of potential future profits. Past performance is not indicative of future performance.

(v) The author makes no representations whatsoever and assumes no responsibility as to the suitability, accuracy, completeness or validity of the information or the forecasts provided.

(vi) All opinions expressed herein are subject to change at any time, without any notice to anyone.

Monday, January 14, 2019

TODAY IN THE MARKET - MON 01/14



























Note: Our daily "S&P 500 Outlook, Forecast, and Trading plan for Tuesday, 01/15" will be posted around 8:30am EDT, Tuesday.

THE GIST (“THE WHAT”)



Fears of a slowing global economy were revived following a surprise drop in China’s exports and imports for the month of December. China’s trade surplus with the U.S. hit a multi-year high, raising concerns of how this might impact the second round of U.S. - China trade negotiations due to take place at the end of this month. 

While semiconductor stocks that generate significant amount of their revenue from China were the worst impacted by recession jitters, banks stocks outperformed after Citigroup Inc. issued a brighter outlook for the industry. Taking a leg lower at the open, the S&P 500 index bounced off the day’s low of 2570.41 as bank stocks provided a much needed support.

Trading within a tight range for most part of the session, the index closed off of session lows at 2582.61, down 13.65 points and losing 0.53% over the previous session’s close. Excluding Financials, all the other ten primary sectors closed the session lower. Today’s price action tested the upper bound of our models’ trading range several times throughout the session, registering the day’s high under 2 points above it at 2589.32. (Read the full text/outlook published before the market open).


THE DETAILS (The "How & Why"):


Leading the index lower in today’s broad based sell-off was PG&E Corp, plunging dramatically by 52.36% after the struggling utility company announced bankruptcy seeking protection from significant liabilities close to $30 billion from the California wildfires. Utilities sector was the worst performing sector of the session, down 2.23% with all of its components trading lower for the day. 

Dragging the Technology sector lower by 0.92% were semiconductor stocks that earn significant amount of their revenues from Chinese markets, broadly lower on concerns of an economic slowdown in China. Western Digital Corp., Qorvo Inc., Microchip Technology Inc. and Micron Technology Inc. were among the worst performers of the session, declining 4.92%, 3.94%, 3.75% and 3.72%, respectively.

Excluding Facebook Inc. that gained 1.11%, all the other FAANG stocks were sold-off. Health Care also shed 1.16%, giving up some of its recent strong gains on the back of profit-taking.

In a biggest deal in the gold mining industry’s history, Newmont Mining Corp. announced a $10 billion buy-out deal of its rival Goldcorp Inc., driving its stock price lower by 8.89% on concerns that it might be overpaying for this competitive advantage. The broader Materials sector closed the session lower by 0.77%.

Among the other notable decliners were Consumer Discretionary, Consumer Staples and Real Estate, all lower by 0.68%, 0.49% and 0.30%, respectively. Oil prices also extended its previous session’s decline on renewed recession jitters, dragging the Energy sector lower by 0.19%.

Amid this broad-based sell-off, the only sector supporting advances was Financials, up 0.73% on the back of the brighter industry outlook portrayed by Citigroup Inc. Kick starting the earnings season; the blue-chip bank rose 4.06% intraday despite missing fourth-quarter earnings estimates but predicted a solid rise in its lending revenues for 2019, boosting other bank stocks. JP Morgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. all rose ahead of their earnings release this week.



RESULTS of MODEL TRADES for MON 01/14



Results of Published Model Entries and Exits for Mon 01/14


Our medium-term models stayed out of the market today with no trades triggered. Our aggressive intraday models realized a net loss of 11.68 index points on one short and one long trade. 

Below, you will find the detailed tracking of our models' trading plans for today, as well as the results for the last month:

Trading Plan/Forecast Published In the Morning - Medium-term Models 

"For today, Monday 01/14, our medium-term models indicate trading off of the broad 2606-2548 band - going long on a cross above 2606 and going short on a cross below 2546 - with a 12-point trailing stop on both trades. If these levels are not crossed during the regular session hours, the models would stay flat(click here to read the full forecast and/or verify this claim). 


Trading Plan Results/Outcome: 

Mon 01/14: No trades triggered

The index traded between 2570.41 and 2589.32 today, well within the range of the medium term models (2606-2548). Consequently, no trades were triggered today, and the models stayed flat throughout the session.

        
Past results this month:
Our medium-term models started the month of December with indeterminate state and stayed out of the markets throughout the first half of the month.

Mon 12/17: Booked +20 index points in profit on a short
Tue 12/18: Booked +9.25 index points in profit on a short
Wed 12/19: Booked +26 index points in profit on a short
Thu 12/20: Booked +26.5 index points in profit on two shorts
Fri 12/21: No trades
Mon 12/24: No trades
Wed 12/26: Booked +14.75 index points in profit on a short
Thu 12/27: Long entered at 2455, carried to Friday
Fri 12/28: Booked +28.75 index points in profit on a long
Mon 12/31: Booked +56 index points in profits on two shorts and two longs.
Wed 01/02: Booked +13.75 index points in profits on three longs and two shorts.
Thu 01/03: Booked +47.53 index points in profits on three shorts and two longs
Fri 01/04: Booked +9.70 index points in profits on one long
Mon 01/07: Booked +18.00 index points in profits on one long
Tue 01/08: Booked -5.18 index points in losses on one long
Wed 01/09: Booked -12.20 index points in losses on two longs
Thu 01/10: No trades triggered
Fri 01/11: No trades triggered
Mon 01/14: No trades triggered

Trading Plan/Forecast Published In the Morning - Aggressive Intraday Models


"For today, Monday 01/14, our aggressive intraday models indicate going long on the index crossing above 2588 and going short on a break below 2572 during regular session hours - with an 8-point trailing stop" (click here to read the full forecast and/or verify this claim). 


Trading Plan Results/Outcome: 

Fri 01/11: No trades triggered

The index broke below 2572 within the first five minutes of opening the regular session, triggering a short entry with 8-point trailing stop. Within the next few minutes, it registered the session low at 2570.41, pulling the trailing stop trigger to 2578.41 which was hit in the following few minutes (around 9:40am EST), closing the short with a loss of 6.41 points. 

The index broke above 2588 around 1:20pm triggering a long position with an 8-point trailing stop. It reached the session high of 2589.32 by 1:45pm, lifting the trailing stop to 2581.32. The long survived the trailing stop till 3:50pm, when - due to the intraday nature of the models - the position was closed (at 2582.73) with a loss of 5.27 points. 

Thus, the aggressive intraday models booked a net of -11.68 index points in losses today.  
    
Past results this month: Our aggressive intraday models mostly stayed out of the market in early December.


Mon 12/10: Booked +31.25 points in profit on two shorts
Tue 12/11: Booked +0.50 points in profit on a long
Wed 12/12: No trades
Thu 12/13: Booked -2.25 points in loss on a short
Fri 12/14: Booked +14.25 points in profit on a short
Mon 12/17: Booked +51.75 points in profit on a short
Tue 12/18: Booked +15.25 points in profit on three shorts
Wed 12/19: Booked +41.00 points in profit on two shorts
Thu 12/20: Booked +26.5 points in profit on two shorts
Fri 12/21: Booked -2.00 points in loss on two shorts
Mon 12/24: Booked +50 points in profit on two shorts
Wed 12/26: Booked +9.25 points in profit on a long
Thu 12/27: Booked +62.00 points in profit on three short trades and one long trade
Fri 12/28: Booked +10 points on profit one short and two longs
Mon 12/31: Booked +56 points in profits on two shorts and two longs.
Wed 01/02: Booked +14.75 points in profits on two longs and three shorts.
Thu 01/03: Booked +33.50 points in profits on a total of seven trades (five shorts and two longs).
Fri 01/04: Booked +11.70 index points in profits on one long
Mon 01/07: Booked +23.00 index points in profits on one long
Tue 01/08: Booked +3.54 index points in profits on one short and two longs
Wed 01/09: Booked -1.17 index points in losses on three long trades
Thu 01/10: Booked +10.89 index points in profits on two short and two long trades
Fri 01/11: No trades triggered
Mon 01/14: Booked -11.68 index points in losses on one short and one long


NOTE: Remember that a "trailing stop" works differently from the traditional stop-loss order. Please bear in mind that the trailing stop's trigger level would keep changing throughout the session (click here to read on the conceptual workings of a trailing-stop). 


IMPORTANT RISK DISCLOSURES AND NOTICES - READ CAREFULLY:

(i) This and other articles in the blog contain personal opinions of the author and is NOT representative of any organization(s) he may be affiliated with. This article is solely intended for informational and educational purposes only. It is NOT any specific advice or recommendation or solicitation to purchase or sell or cause any transaction in any specific investment instruments at any specific price levels, but it is a generic analysis of the instruments mentioned.

(ii) Do NOT make your financial investment or trading decisions based on this article; anyone doing so shall do so solely at their own risk. The author will NOT be responsible for any losses or loss of potential gains arising from any investments/trades made based on the opinions, forecasts or other information contained in this article.

(iii) Risk Warning: Investing, trading in S&P 500 Index – spot, futures, or options or in any other synthetic form – or its component stocks carries inherent risk of loss. Trading in leveraged instruments such as futures carries much higher risk of significant losses and you may lose more than you invested in them. Carefully consider your individual financial situation and investment objectives before investing in any financial instruments. If you are not a professional trader, consult a professional investment advisor before making your investment decisions.

(iv) Past performance: This article may contain references to past performance of hypothetical trades or past forecasts, which should NOT be taken as any representation or promise or guarantee of potential future profits. Past performance is not indicative of future performance.

(v) The author makes no representations whatsoever and assumes no responsibility as to the suitability, accuracy, completeness or validity of the information or the forecasts provided.

(vi) All opinions expressed herein are subject to change at any time, without any notice to anyone.