Thursday, 31 December 2015
Wall Street was lower on Wednesday as Brent crude slid back towards the 11-year low it hit last week and Apple weighed on all three major indexes.
Crude oil gave up its gains from Tuesday after forecasts of a short winter in North America and Europe piled pressure on the oversupplied commodity.
The S&P 500 energy sector led nine of the 10 major S&P sectors lower with a 1.14 percent decline. Shares of Exxon were down 0.8 percent at $78.56, while Chevron was down 1.2 percent at $90.11.
The energy sector has fallen 23.54 percent for the year, easily the worst performer on the index, followed by a 9.17 percent decline in materials, caused by a rout in commodities.
Trading volumes are expected to remain thin on the last trading days of the year.
"The next few days, you're not going to get a lot of action here," said Jeff Kravetz, regional investment director at U.S. Bank Wealth Management in Phoenix, Arizona.
"Traders are ready to tie a bow on 2015 very happily, because it was one of those years when most asset classes didn't work," he said.
At 11:06 a.m. ET (1606 GMT), the Dow Jones industrial average was down 31.42 points, or 0.18 percent, at 17,689.56, the S&P 500 was down 5.26 points, or 0.25 percent, at 2,073.1 and the Nasdaq Composite index was down 16.42 points, or 0.32 percent, at 5,091.52.
Apple was the biggest drag on all three indexes, falling 1.3 percent to $107.31. Concerns about potentially soft iPhone sales have hit the stock in recent weeks.
The S&P 500 stayed in positive territory for the year, up a marginal 0.52 percent, while the Nasdaq Composite was up 7.33 percent. The Dow Jones industrial average, however, was down 0.91 percent in 2015.
Data showed pending home sales fell 0.9 percent in November, after inching up 0.2 percent in October. Economists had expected a 0.5 percent rise in November.
Pep Boys was down 3 percent at $18.38. Carl Icahn agreed to buy the auto parts maker for about $1.03 billion, after Japan's Bridgestone said it would not counter his offer. Icahn Enterprises was down 1.5 percent at $60.60.
Fairchild Semiconductor was up 3.3 percent at $20.68 after it received a revised offer from the Party G Group, with new terms on termination fees if the takeover fails to secure regulatory approvals.
Declining issues outnumbered advancing ones on the NYSE by 1,814 to 1,049. On the Nasdaq, 1,635 issues fell and 987 rose.
The S&P 500 index showed 13 new 52-week highs and no new lows, while the Nasdaq recorded 35 new highs and 31 new lows.
Reference: ABHIRAM NANDAKUMAR
Wednesday, 30 December 2015
The U.S. dollar gained against the euro on Tuesday after greater risk appetite hurt demand for the shared currency and new pressure from short sellers likely weighed, while the Russian rouble recovered on higher oil prices.
Investors sought riskier assets, including stocks and emerging market currencies, after a recovery in oil prices boosted sentiment. The greater risk appetite hurt the euro, which traders view as a safer funding currency, given its low yield.
"We’ve had a turnaround in risk appetite today," said Greg Anderson, global head of FX strategy at BMO Capital Markets in New York. "Euro longs are getting squeezed out of the market."
The euro hit $1.09090, its lowest since Dec. 24. The U.S. dollar index, which measures the greenback against a basket of six major rivals, rose to 98.371 from a nearly two-week low early Tuesday of 97.799.
Traders may have also reinitiated short bets against the euro, said Sebastien Galy, currency strategist at Deutsche Bank in New York.
Traders who had reversed short bets after the European Central Bank's smaller-than-expected stimulus move early this month may have begun shorting the currency again, Galy said, given the likelihood that higher rates in the United States will continue to boost the dollar.
“It may well be that some investors have started putting back some (euro) short bets on," Galy said. "People are expecting yields to be appealing in the United States, and that drives demand for dollar cash."
In their latest projections earlier this month, Federal Reserve policymakers indicated they expected four rate hikes next year.
The greater risk appetite led the dollar to slip against emerging market currencies such as the Mexican peso and Brazilian real. The dollar hit a nearly one-week low against the Mexican peso of 17.15 pesos, and reached a more than two-week low against the real of 3.8387 reais.
The dollar slipped against the Russian rouble after hitting a more than one-year high against the currency of 72.84 roubles. The rouble rebounded on the gains in oil prices since Russia is an exporter of the commodity. Brent crude rose nearly 3 percent.
The euro was down 0.26 percent against the dollar at $1.09370. The dollar was mostly flat against the yen at 120.420 yen.
On Wall Street, the benchmark S&P 500 stock index jumped nearly 1 percent.
Reference: SAM FORGIONE
Tuesday, 29 December 2015
"However, volumes are very low throughout the region, even lower than the pre-Christmas trade last week, so it is difficult to read too much into them," he added.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.1 percent. But it remained on track to mark a loss of around 12 percent for 2015, a year that saw it log a more than seven-year high in April.
China's blue-chip CSI300 index added 0.7 percent, while the Shanghai Composite Index was up 0.5 percent, as the central bank vowed to maintain reasonable credit growth and keep the yuan stable.
Both indexes had skidded more than 2 percent in the previous session as weak industrial profit data and a looming revamp of how companies will be listed, weighed on the market.
Japan's Nikkei erased earlier losses and ended up 0.6 percent, while South Korea's KOSPI was up 0.1 percent.
Australian stocks rallied 1.2 percent, gaining for the eighth consecutive session after reopening following a four-day long holiday weekend.
Crude oil futures stabilized after both Brent and U.S. crude prices dropped more than 3 percent on Monday. Brent edged up about 0.1 percent a barrel to $36.67, though it was still not far from an 11-year low of $35.98 struck last week, while U.S. crude added about 0.2 percent to $36.89.
Their overnight tumble sent U.S. energy shares down 1.8 percent, the worst performing of the major S&P sectors. Wall Street marked modest losses after trading resumed following the Christmas break, with this week's activity expected to remain thin until after the long New Year holiday weekend.
Spot gold rose 0.5 percent to $1,073.80 an ounce after falling overnight in line with crude.
"Over the short-term, the precious metal will likely trend sideways, as funds look to close out the year and contemplate heading into next year with a fresh slate," said INTL FCStone analyst Edward Meir.
In currencies, the dollar edged down about 0.1 percent to 120.32 yen, within striking distance of a two-month low of 120.05 struck late last week.
The greenback has been sapped by profit taking after the Federal Reserve this month hiked interest rates for the first time in nine years. Investors are waiting for the Fed to send fresh signals about when the second rate hike could take place in 2016 to determine the dollar's near-term direction.
The euro nudged up 0.1 percent to $1.0976.
The dollar edged down against its Canadian counterpart to C$1.3873 after the loonie slipped overnight in line with weakening crude oil prices. The Canadian unit plumbed an 11-year low of C$1.4003 against the dollar earlier this month.
"We are looking for USD/CAD to break 1.40 and head toward 1.45 in the first half of 2016. The oil industry is experiencing its biggest downturn since the 1990s and prices could fall another $10 a barrel before bottoming," wrote Kathy Lien, managing director at BK Asset Management.
The Australian dollar gained about 0.2 percent to $0.7265 while the New Zealand dollar rose 0.3 percent to $0.6868.
China's yuan briefly touched its weakest level in 4-1/2 years against the greenback on strong dollar demand, following the central bank's lowest midpoint fix since June 2011.
Reference: LISA TWARONITE AND SHINICHI SAOSHIRO
2016 could prove to be the year that the price of bitcoin surges again. Not because of any dark-web drug-dealing or Russian ponzi scheme, but for an altogether less sensational reason - slower growth in the money supply.
Bitcoin is a web-based "cryptocurrency" used to move money around quickly and anonymously with no need for a central authority. But despite being championed by some as the digital money of the future, it is often dismissed as a currency that is too volatile to invest in.
The reason 2016 looks set to be different is that bitcoin's price is likely to be driven in large part by similar factors to a traditional fiat currency, following the age-old principles of supply and demand.
Instead of being controlled by a central bank, bitcoin relies on so-called "mining" computers that validate blocks of transactions by competing to solve mathematical puzzles every 10 minutes. In return, the first to solve the puzzle and thereby clear the transactions is currently rewarded with 25 new bitcoins, worth around $11,000.
But when it was invented in 2008 by the mysterious "Satoshi Nakamoto", who has yet to be identified, the bitcoin program was designed so that the reward would be halved roughly every four years, in order to keep a lid on inflation. The next time that is due to happen is July 2016.
Bitcoin was also designed to emulate a commodity by having a finite supply of 21 million bitcoins, which will be reached in around 125 years, up from around 15 million today. Hence, also, the use of the term "mining".
Daniel Masters, co-founder of Jersey-based Global Advisors' multi-million dollar bitcoin hedge fund, started his career as an oil trader at Shell in the mid-1980s and spent 30 years trading commodities before crossing over to bitcoin.
Now he reckons the price of bitcoin could test its 2013 highs of above $1,100 next year and then pick up speed to rise to $4,400 by the end of 2017.
That would be due to a number of factors, Masters said, including an increased acceptance of payments in bitcoin by big companies and authorities, rapidly growing interest and investment in the "blockchain" technology that underpins bitcoin transactions, and also more demand from China as its currency weakens and the economy slows.
But taken in isolation, the halving of the mining reward will increase the price of bitcoin by around 50 percent from where it is now, Masters reckons. That is despite the fact that the halving of the reward has always been inevitable - a factor that would already have been accounted for in pretty much every other market.
"If OPEC (Organization of the Petroleum Exporting Countries)came out tomorrow and said, 'in six months' time we're going to halve oil production', the oil price would instantaneously react. But the bitcoin market is still in its infancy, and I don't think that factor is discounted into the price fully," he said.
DECENTRALISED DIGITAL ASSET
Bitcoin's price has already almost doubled in the last three months, putting it on track for its best quarter in two years. It hit $500 last month for the first time since August last year, with Chinese demand for a pyramid scheme set up by a Russian fraudster cited as a reason for the price surge.
But Bobby Lee, the chief executive of one of the leading bitcoin exchanges in China, BTCC, reckons there is scope for the cryptocurrency to go much further. He thinks the price could increase by as much as eight times in the time up to the reward halving, taking it as high as $3,500 by next summer.
"Today the worth of bitcoin is $1 per capita in the world (population)," Lee said, referring to the value of all the bitcoins in circulation, around $6.5 billion. "For such an innovative, decentralized digital asset, I say 'boy, are we undervaluing it'. But it takes a while for people to realise that."
The mining reward has already been halved once before, in November 2012, from 50 to 25 bitcoins. The stakes were much lower then, with one bitcoin worth around $12, but nevertheless the price increased by about 150 percent in the preceding seven months - roughly the time left before the next halving.
Monday, 28 December 2015
China's central bank said on Monday that it would "flexibly" use various policy tools to maintain appropriate liquidity and reasonable growth in credit and social financing.
The People's Bank of China will keep the yuan basically stable while forging ahead with reforms to help improve its currency regime, it said in a statement summarizing the fourth-quarter monetary policy committee meeting.
The PBOC said it would maintain a prudent monetary policy, keeping its stance "neither too tight nor too loose". The prudent policy has been in place since 2011.
"We will improve and optimize financing and credit structures, increase the proportion of direct financing and reduce financing costs," it said.
The central bank said it would closely watch changes in China's economy and financial markets, as well as international capital flows.
Top leaders at the annual Central Economic Work Conference pledged to make China's monetary policy more flexible and expand its budget deficit in 2016 to support a slowing economy as they seek to push forward "supply-side reform".
The PBOC has cut interest rates six times since November 2014 and lowered banks' reserve requirements, or the amount of cash that banks must set aside as reserves.
But such policy steps have yielded limited impact on the economy, as the government has been struggling to reach its growth target of about 7 percent this year.
President Xi Jinping has said China must keep annual average growth of no less than 6.5 percent over the next five years to hit a goal of doubling gross domestic product and per capita income by 2020 from 2010.
As 2015 draws to a close, the fortunes of the last few trading days of the year may be dictated by the direction of the financial sector.
The financials have risen more than 6 percent this quarter, with investors expecting the sector to be one of the main beneficiaries of the first interest rate hike by the U.S. Federal Reserve in nearly a decade last week.
However, the potential exposure of banks to the energy-dominated U.S. high-yield corporate bond markets has unnerved investors, and caused financial and energy shares to stall during the two trading sessions that followed the hike. Stocks in both those sectors have been closely correlated in recent weeks.
"That trade, the oil-financials, it is going to be with us for quite some time," said Peter Kenny, equity market strategist at Kenny & Co LLC, in Denver.
The benchmark S&P 500 index .SPX has rallied nearly 3 percent this week, buoyed by a jump of nearly 5 percent in the energy sector .SPNY as oil prices LCOc1 bounced off multi-year lows. Financial stocks, meanwhile, have surged more than 3 percent this week.
In recent weeks, energy stocks have been tightly correlated to the price of crude at 0.95, which means they have moved in sync with each other, and financials have not been far behind. The 20-day correlation between the financial sector .SPSY and U.S. crude CLc1 is 0.75.
Should oil prices fail to stabilize and energy shares continue to fall, that could be reflected in the financials.
"The influx of money and capital into the financials over the last six months in anticipation of this move by the Fed was justified, but boy, this oil trade has turned that upside down," Kenny said.
IN TANDEM, FOR NOW
The slump in oil prices has resulted in a drop of more than 20 percent in the energy sector this year, but while signs of stabilization in the commodity has helped the sector rally, it has also reduced its influence among the broader index.
According to Standard & Poor's, as of Nov. 30, the energy sector held a 7.1 percent weighting in the benchmark index. In contrast, financials hold a 16.6 percent weighting, second among the 10 major sectors and making them more influential in dictating the direction of the S&P 500.
Financials have a forward price-to-earnings ratio of 13.7, according to Thomson Reuters data, making them relatively cheap compared to the 16.5 for the broad S&P 500.
Meanwhile, as major U.S. banks have raised the rates they charge borrowers in the wake of the Fed hike, that could bump up earnings for the sector.
Even if financials manage to decouple from oil, some market participants are not expecting any out sized benefits for the sector from the change in Fed policy, which is expected to be a gradual tightening of interest rates.
"Interest rates are going to stay here and this trade that led people to believe the banks were going to be substantially helped is just not going to happen," said Stephen Massocca, Chief Investment Officer, Wedbush Equity Management LLC in San Francisco.
"They are probably fairly valued here and they are very dis-interesting."
With a shorter trading week ahead as well due to a holiday for New Year's, the economic calendar is light and trading volume is expected to be muted, which could result in exaggerated moves in equities.
Reference: CHUCK MIKOLAJCZAK
Friday, 25 December 2015
Basic Trading Concepts Defined
There are over 5800 listed stocks that investors and traders can choose to trade. Often retail traders use various stock recommendation services but that is the worst way to find stocks to trade. The reason recommended stocks are not ideal for trading is that these stocks have already run up for many months before they are chosen for recommendation lists.
For the average retail trader, buying even a small lot of 100 shares of a high priced stock is a huge capital drain. In addition big blue chip stocks are prone to smaller lot activity intraday and day to day, which makes them more volatile. They can be a higher risk trade given the price, and the risk of sudden profit taking. Therefore they also require extensive experience to trade successfully.
Many traders are lured to the higher priced stocks over $100.00, because these stocks move 10-30 points in a single day. The problem is that the same stock can quickly reverse and move down 10-30 points. This causes many retail traders substantial losses that did not need to happen.
On the other side of the price equation, many retail traders who have very small capital bases try to swing trade under $10.00 or even under $5.00 stocks. These stocks however do not usually have strong swing trading style price action, and their patterns are frequently choppy rather than momentum action.
When a stock seldom moves even 1 point in a day, the risk of swing trading rises inordinately in relation to the capital required to trade. That means that the risk of a whipsaw on an attempted swing trade is very high, because price doesn't move sufficiently to create enough profits to offset trading costs, fees, and your time. Remember that you must consider your time as a cost factor for trading. Just because you make a tiny gain of a few pennies on a trade doesn't mean the trade was profitable.
You must consider all of the costs of trading.
The middle price range stocks tend to be the best for swing trading, because these are not too expensive and they also run better with more points in a run. When setting your swing trading rules and parameters, one of the first tasks is to select your personal price range that you will use to trade. This is a step that many novice and new swing traders do not realize they must do before they begin trading.
Choosing the price range for your swing trading requires some forethought about several areas of your personal trading including, risk tolerance, capital base, and experience. Your price range will define many aspects of your swing trading, including personal criteria for scans and sorts. Establishing a price range also will help you find better picks faster.
Reference: Martha Stokes
Global investors cut their equity holdings in December and raised their exposure to bonds, a Reuters poll of fund managers showed on Tuesday, as worries about a global economic slowdown and uncertainty about the pace of Fed tightening persisted.
Equity holdings fell to 47.9 percent, the lowest since September, while bond holdings rose to 37.9 percent, the highest since December 2014, reflecting a generally cautious mood among asset managers.
"Risks are still in high leverage in China and some other emerging markets and also in uncertainty around the U.S. tightening cycle and its impact on the U.S. dollar," said Joost van Leenders, chief economist in the multi-asset solutions team at BNP Paribas Investment Partners.
Within their equity portfolios, asset managers trimmed their exposure to U.S. stocks by two percentage points to 38 percent, the lowest level since September. Euro zone equities were cut back to 18 percent, the lowest since January 2015.
Early in December the European Central Bank failed to meet the market's expectations for all-out monetary easing, triggering a sell-off in European equities. The FTSE Eurofirst index is down almost 7.7 percent month-to-date.
Investors raised their Japanese equity allocation to 20.6 percent, the highest level since November 2014, following a decision by the Bank of Japan to reorganise its massive stimulus programme in an attempt to boost investment.
"With cash yields close to zero almost everywhere, we feel that markets still offer much better investment prospects ...as we head into 2016," said Steven Steyaert, a senior portfolio specialist at NN Investments.
"Resilience in developed markets' domestic demand will remain a steady anchor for the global economy in the coming quarters."
Within their bond portfolios, investors trimmed exposure to the U.S. to 38.2 percent, the lowest since August, and euro zone holdings to 26.1 percent, the lowest since September.
Asset managers raised their UK bond holdings to 12.8 percent, the highest level since December 2014. The U.S. rate rise was broadly interpreted as clearing the way for a similar move by the Bank of England, albeit not right away.
UK interest rates have been at a record low 0.5 percent since 2009. The next Bank of England rate announcement is due on Jan. 14.
SIGNS OF CAPITULATION
Investors remained split over whether it made sense to return to emerging markets in 2016 following a terrible performance in equities this year.
The benchmark emerging stocks index has sold off by almost 17 percent year-to-date and asset managers cited worries about a worsening economic picture in China and rising political risk, such as tensions between Russia and Turkey.
At the same time commodity prices have collapsed, undermining the economies of the big commodity exporters.
Oil prices are down at around $36 a barrel - the lowest in more than 11 years - following OPEC's decision to maintain production at its December meeting.
Meanwhile, copper slipped to a 6 1/2-year low in November before rebounding slightly in December.
"There are signs of capitulation in commodities and emerging markets, though these remain an investment only for (those) with a high risk/reward tolerance," said Rob Pemberton, investment director at UK-based HFM Columbus.
But Nadege Dufosse, head of asset allocation at Candriam, said they had become more positive on Asian countries. "We think that the slowdown in growth is integrated in expectations and the bottoming out of commodities should help the improvement of global sentiment," she said.
Reference: CLAIRE MILHENCH
Thursday, 24 December 2015
Front-month West Texas Intermediate (WTI) crude futures CLc1 were trading at $37.82 per barrel at 0749 GMT (2.49 a.m. ET), up 32 cents on the day and set for the biggest weekly gain since early October.
With internationally traded Brent futures LCOc1 trading at $37.79 a barrel, U.S. crude defended a small premium which it regained this week for the first time in around a year.
The strengthening U.S. market is a result of falling stocks, reduced drilling activity, and looming exports following the lifting of a 40-year old ban of most U.S. crude exports.
"We continue to see the front month WTI-Brent spreads widen... It will reach $0.50," Singapore-based Phillip Futures said on Thursday
On the production front, Baker Hughes reported that U.S. oil drillers cut rigs for a fifth week out of six.
"The current rig count is... pointing to U.S. production declining sequentially between 2Q15 and 4Q15 by 320,000 barrels per day," Goldman Sachs said.
In storage, U.S crude inventories fell 5.88 million barrels to 484.78 million, still near record highs, the Energy Information Administration (EIA) said.
The tightening physical market came just as U.S. energy group Enterprise and oil trader Vitol raced to exploit the end of the ban on most U.S. crude exports, loading a 600,000-barrel cargo of domestic light crude oil scheduled for the first week of January, reportedly heading for Europe, though Asian buyers might also be interested in U.S. cargoes.
"Judging from the strong production (despite the falling rig count) as well as inventories in the U.S., it may not be surprising to see the U.S. playing a bigger role in exporting," Phillip Futures said.
Despite this week's bull-run of U.S. crude, overall market conditions remain weak due to a global overhang in production that sees between 0.5 and 2 million barrels of crude produced every day in excess of demand, and analysts said it would take time for the glut to be worked down.
"Energy prices are likely to rise slightly as production slips, which will ease the current supply versus demand gap. Demand growth should remain solid, but inventories will remain an overhang to markets for much of the year," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.
U.S. crude prices have fallen over 10 percent since the beginning of the month and remain almost two-thirds below mid-2014 when prices began to tumble.
An index of Asian shares climbed to 2-1/2-week highs on Thursday, heartened by gains on Wall Street and a recovery in crude oil prices in thin markets ahead of the Christmas holiday.
European markets are expected to open higher on a half-day of Christmas Eve trading. Financial spreadbetters at IG expected Britain's FTSE 100 .FTSE and France's CAC .FCHI to rise 0.1 percent each.
MSCI's broadest index of Asia-Pacific shares outside Japan .Nikkei was up 0.6 percent, after U.S. stocks posted their third straight session of gains.
Australian shares jumped 1.3 percent in a shortened holiday session.
But China's blue-chip CSI300 index .CSI300 and the Shanghai Composite Index .SSEC were both more than 1 percent lower after regulators tightened rules for insurers investing in listed firms.
U.S. crude futures CLc1 added 0.7 percent at $37.77 a barrel while Brent crude futures surged 1 percent to $37.74. Both had added more than a dollar a barrel on Wednesday in thin trading, a day after Brent had touched its lowest level since July 2004.
"A sharp decline in weekly crude oil inventories also helped reinforce yesterday's rebound but the rally also needs to be set into the context of thinning pre-holiday volumes as traders look at making a start on various end of year book keeping and position adjustments as markets wind down for the long Christmas break," Michael Hewson, chief analyst at CMC Markets in London, said in a note to clients.
"It is these sorts of end of year adjustments that helps explain to some extent why the biggest risers over the past couple of days have come from the sectors that have seen some of the biggest losses year to date."
Japan's Nikkei .N225 erased early gains and slipped 0.5 percent as the yen edged higher in thin trade.
Japanese Prime Minister Shinzo Abe's cabinet approved on Thursday a record fiscal 2016 budget that counts on higher growth and tax revenue to achieve Abe's aim of reviving the economy and reining in public debt.
Minutes of the Bank of Japan's November rate review released earlier in the session showed that many policymakers complained of slow wage and capital expenditure growth, but were optimistic that companies will start to boost spending once emerging economies improve.
Now that this month's U.S. Federal Reserve interest rate hike is out of the way, investors were left to ponder how much tightening the Fed has in store for 2016, as well as the impact of the hike on the rest of the world.
Mixed U.S. data released overnight provided no solid directional clues, as new orders for U.S. manufactured capital goods fell last month while personal income rose, and consumer sentiment hit a five-month high in December.
The dollar index .DXY, which tracks the greenback against a basket of six rival currencies, edged down 0.2 percent to 98.139, below its two-week high of 99.294 set on Thursday last week after the Fed's rate hike.
The dollar slipped about 0.3 percent against the yen to 120.56 yen JPY=, down from its Friday high of 123.49.
The euro added about 0.3 percent to $1.0938 EUR=.
Spot gold XAU= rose 0.4 percent to $1,074 an ounce after languishing for two straight sessions of losses. Gold prices are still down more than 9 percent for the year, weighed by positioning that took place ahead of the Fed's widely-anticipated policy move.
Reference: LISA TWARONITE
Wednesday, 23 December 2015
Basic Trading Concepts Defined
The new Flash Boys book has captured the imagination of everyone who invests or trades in the stock market. The fear that the market is "rigged" is everywhere. The CEO of IEX is of course hoping his new exchange will benefit from all the news media hype and panic.
However, most investors and retail traders do not need to worry. If your investments for your long term portfolio are with a large to giant mutual fund or pension fund, then these funds are using Dark Pools which are off the exchange transaction the HFTs can't see and front run.
If you are a retail trader, remember that most of the orders placed with online brokers for retail traders are filled from that online broker inventory. So your orders never make it to the exchanges. If you are using an Electronic Communication Network ECN, most of those orders are not sent to the exchanges either.
Here are 5 Tips to Avoid Front Running by HFTs:
- Study your stock charts using volume large lot accumulation/distribution indicators. These are uptick/downtick based indicators that track the larger lot meaning 50,000 - 500,000 shares, against the smaller lots which are usually 100 shares to as high as 5000 shares. Entering with the giant buying keeps you out of the HFT order flow, because the Dark Pool orders are hidden from HFTs.
- Remember that any order 10,000 shares and above is considered a "Large Lot" order and these tend to be sent more often to exchanges if inventories for your online broker are too low.
- If you are a day trader, you must accept that HFT activity is going to interfere with your trading. There is just no way of getting around it intraday. HFTs trade 1000-3000 times per second, YOU can only trade on the minute scale by law and by circumstance. Most retail traders could not afford a million dollar HFT trading setup of hardware and software.
- Do not use "At Market Orders." An At Market order tells your broker to fill the order at the market price. This can set up an opportunity for slippage and wider spreads which will give you a higher cost entry. In addition, At Market Orders send a message to the online broker and market in general that you are not an educated, experienced investor or trader. At Market Orders are rarely used by experts and professionals. There are only rare specific purposes for such orders.
- Do not use a simple "Limit Order." Limit orders are the most common reason why retail traders, especially day and swing traders have constant losses. Professionals stopped using Limit Orders years ago and have switched to more complex, multi-tiered controlled bracketed orders. You need to learn these new types of orders if you plan to swing or day trade so that you can avoid getting swept into an HFT downdraft or huge gap.
Huge HFT activity is usually a one day event in a stock based on news, arbitrage from another market or instrument, hedging, retail cluster orders caused by retail traders all using the same trading systems, strategies, MACD or Stochastic indicators, and some technical set ups.
One of the huge advantages you as a retail trader using technical analysis and stock charts is that you can see the activity of the HFT, Dark Pool, Smaller Fund, Corporate Buybacks, and many more patterns that tell you who is controlling price and thus how price will behave thereafter.
One final tip is that HFTs rarely shift the trend, so do not start selling short right after a huge HFT down day.
Reference: Martha Stokes, CMT Chartered Market
U.S. stock indexes held on to small gains in early afternoon trading on Tuesday as crude oil prices recovered slightly and data showed that the U.S. economy grew at a fairly healthy clip in the third quarter.
Trading volumes are expected to be relatively light this week, with U.S. stock markets operating a shortened session on Thursday and closing on Friday for Christmas.
Brent crude prices were up marginally, a day after they slid to their lowest levels since mid-2004, but gains were limited due to global oversupply concerns and tepid demand for heating oil in what is likely to be the warmest winter on record.
The S&P energy sector was up 1.58 percent, leading the 10 major sectors on the index. The sector has been the worst performer in 2015, falling about 24 percent so far this year.
Chevron shares were up 1.1 percent at $90.27, while Exxon was up 0.7 percent at $77.74.
"I think the main thing that markets are going to be looking at today is the whole deal with oil," said Matthew Tuttle, chief executive, Tuttle Tactical Management in Stamford, Connecticut.
The U.S. Commerce Department trimmed third-quarter GDP growth to a 2 percent annual pace from the 2.1 percent estimated earlier.
At 12:23 p.m. ET (1723 GMT), the Dow Jones industrial average was up 80.07 points, or 0.46 percent, at 17,331.69, the S&P 500 was up 6.92 points, or 0.34 percent, at 2,028.07 and the Nasdaq Composite index was up 0.04 points, or 0 percent, at 4,968.97.
"It feels like there's not a whole lot going on today in the world of trading," said Kim Forrest, senior equity research analyst, Fort Pitt Capital Group in Pittsburgh.
Forrest said energy and materials stocks were most likely higher due to bargain hunting.
Caterpillar was up 4.2 percent and provided the biggest boost to the Dow. The stock has shed more than a fourth of its value this year.
Chipotle Mexican Grill was down 4.4 percent at $499.26 after Federal authorities said they were investigating a new strain of E. coli linked to the burrito chain.
Ford was up 2.7 percent at $14.13 after Automotive News reported that the automaker was in talks with Google to help build self-driving cars.
Advancing issues outnumbered decliners on the NYSE by 1,917 to 1,039. On the Nasdaq, 1,457 issues fell and 1,252 advanced.
The S&P 500 index showed three new 52-week highs and six new lows, while the Nasdaq recorded 26 new highs and 48 new lows.
Reference: ABHIRAM NANDAKUMAR
Tuesday, 22 December 2015
The European Central Bank should reach its inflation target "without undue delay" after easing its policy this month, and there are no limits to what it can do to stimulate price growth if necessary, its president said on Monday.
With inflation hovering just above zero, the ECB has been loosening monetary policy this year to fuel price growth, fearing that delays in achieving its target rate for inflation of just below 2 percent could damage its credibility.
ECB President Mario Draghi defended the bank's latest package of measures, which included a deposit rate cut and an extension of its asset-buying programme but fell short of market expectations.
"After the recalibration of our tools carried out by the Governing Council earlier this month, we expect inflation to reach our target without undue delay," Draghi said in Bologna, Italy.
Draghi said there was no limit to what the ECB could do, within its mandate, to bring inflation to its target of almost 2 percent.
"Within our mandate, there are no restrictions to our choice of which tools we use or how," Draghi said.
"We can always bring inflation to our objective, we must do it, and will do it."
Reference: Reuters FXExpert
Asian shares edged higher on Tuesday, taking solace from Wall Street gains and some stability in recently weak crude oil prices, though gains were capped by caution ahead of this week's holidays.
Financial spreadbetters at IG expected Britain's FTSE 100 to open 0.4 percent higher. Germany's DAX was seen 0.6 percent higher, while France's CAC 40 was seen gaining 0.6 percent.
"While European markets were able to post gains last week, they still remain well below the levels that we saw at the beginning of the month which means any prospect of a Santa rally at this point is about as likely as getting a white Christmas," Michael Hewson, chief analyst at CMC Markets in London, said in a note to clients.
MSCI's broadest index of Asia-Pacific shares outside Japan was 0.4 percent higher in afternoon trade, after Wall Street logged solid gains overnight. Australia's S&P/ASX 200 index added 0.2 percent.
China's CSI300 index was slightly higher, erasing earlier losses, while the Shanghai Composite was off its lows and down 0.1 percent after the previous day's rally.
Japan's Nikkei stock index ended down 0.2 percent, though above its early session lows.
"The mood will likely depend on moving oil prices for now," said Yutaka Miura, a senior technical analyst at Mizuho Securities in Tokyo.
U.S. and most European markets will close on Friday for Christmas. While Christmas is not a public holiday in Japan, markets will be closed on Wednesday to observe the emperor's birthday.
U.S. crude futures extended early gains and added about 0.9 percent to $36.14 a barrel, pulling above a 2009 low of $33.98 hit in the previous session.
Brent crude oil futures added 0.7 percent to $36.62 after skidding to $36.04 on Monday, their lowest since July 2004, as demand for heating oil slipped on warmer-than-normal temperatures.
In addition to a supply glut, crude prices have weakened in line with the dollar's appreciation ahead of the U.S. Federal Reserve's widely anticipated interest rate hike earlier this month. Oil is priced in dollars, so any rise in the greenback makes it more expensive for buyers holding other currencies.
"The price of oil could fall below $30 a barrel but we do not see much weakness beyond that, and by the end of the year we expect prices to settle closer to $40," said Kathy Lien, managing director of FX strategy for BK Asset Management in New York, adding, "when the dollar peaks, commodities will bottom."
In the long run, she said in a note to clients, "China's focus on domestic demand should be positive for energy prices."
The dollar index, which tracks the greenback against a basket of six rival currencies, edged up about 0.1 percent to 98.485, but remained below a two-week high of 99.294 marked on Thursday.
The dollar added about 0.1 percent to 121.25 yen, while the euro was slightly down from late North American levels at $1.0908.
The euro rose on short covering on Monday following a weekend election in Spain, even after no party won a clear mandate in the euro zone's fourth biggest economy.
Spot gold took a breather from its recent gains and was steady at $1,077.98 an ounce after rising 1.2 percent on Monday and 1.4 percent on Friday as investors covered short positions ahead of the holidays.
Reference: LISA TWARONITE
Monday, 21 December 2015
Basic Trading Concepts Defined
Trading has been good to me for over two decades. It is my pleasure to teach and in this article I will share with you some of my FOREX trading secrets to help get you into profitability as soon as possible.
Of course a single article like this is not going to be enough. However, you have to start somewhere and this lesson is a great place to start.
Keep in mind that these suggestions, although extremely effective for trading profits, are not the only game in town.
The forex trading tip is to always start your analysis with a time frame that is higher than the time frame you will use to time and enter your trade. This higher time frame will be used to determine the TREND, which you absolutely should do first.
Suppose that you want to trade off the 10 minute chart. Start first with the 60 minute or even the 240 minute chart to determine what direction you should take trades on the 10 minute chart.
For this example we will use the 10 minute chart as our trading time frame.
Start by looking at the 240 minute chart. Add a MACD and set to 7,21,7. Be sure to display the histogram graph with this indicator. Also add a slow Stochastic and set to 5,5,3. On the 10 minute chart, also add a 10ema (Exponential Moving Average) and 21ema.
If the MACD histogram is above the zero line and in its upward climb, look for the Stochastic to also be indicating a bullish direction. Keep in mind that the Stochastic is only used to support the MACD, not the other way around. This would indicate a bullish trend for you to look only for buys on the 10 minute chart.
If the MACD histogram is below the zero line and in its downward dive, look for the Stochastic to support this bearish indication. This would indicate a bearish trend to look for only sells on the 10 minute chart.
There is little room to teach how to read a Stochastic in this lesson so I recommend additional study if you are new to this common indicator.
When the MACD histogram is above the zero line, it is still considered bullish even if starting to move down towards the zero line. When below the zero line and moving up towards it, that is still considered a bearish trend. However, until you get the hang of using this, I suggest focusing on when this indicator is moving from the zero line away from it, either up or down.
Now that you know whether to only trade buys or sells, you go to the 10 minute chart.
Your buy signal will start with where the 10ema is in respects to the 21ema. When the 10 is above the 21, look for the MACD histogram to be crossing above the zero line. As it crosses, enter the buy. Always use a stop-loss below the previous price bar low (if lower than the current low, otherwise use the current low). If the histogram forms a declining bar (towards the zero line), move your stop-loss just below the low of the last price bar.
If you are taking sell signals, be sure the 10ema is below the 21ema. Look for the MACD histogram to crossing below the zero line as your sell signal and place your initial stop-loss above the high of that bar or the prior bar, whichever one is higher.
If the histogram forms a bar towards the zero line, move your stop-loss just above the high of the last price bar.
Keep doing this until you are stopped out of the trade. The key here is that you are trading with the TREND and taking advantage of MOMENTUM. You should also get used to monitoring the Exponential Moving Average lines as they provide good clues as to whether you have a good short-term trend or something more sideways (not good to trade). This is usually indicated by the separation of these two lines and the angle of ascent or descent.
For longer time frame trading, you can adapt to using the weekly chart for determining the trend and then making your trades on the daily chart. This is something I do quite often in relation to my other timing methods.
The method described above should help you get started. Experiment with this using simulated trading (most platforms offer this) and feel free to fine-tune it to your own comfort level.
Do you want to be a profitable trader or investor? The key to low risk and high profit potential is TIMING! The FDates Market Timing Membership is all about TIMING. Know when the next top or bottom in the market is going to happen with greater precision.
By Rick Ratchford
The dollar drifted lower in light Asian trading on Monday amid doubts about how far and fast the Federal Reserve would raise U.S. interest rates next year.
The dollar eased to 121.20 yen and further away from Friday's brief peak of 123.59. The euro edged up to $0.0867 and the dollar was a shade weaker against a basket of major currencies at 98.680.
The yen held gains made after Friday's decision by the Bank of Japan to merely tweak its stimulus campaign rather than outright expand the amount of assets it buys.
The resulting shakeout of long dollar positions was eerily reminiscent of the reaction to the European Central Bank's policy easing early in the month, which also disappointed the market's lofty expectations.
"Policy divergence relative to other major central banks remains, but the BOJ and, to a lesser extent, the ECB are already near the limits of what they can credibly deliver," Barclays analyst Antonio Garcia Pascual wrote in a note.
"We see persistently weak core inflation as a global phenomenon and expect it to encourage a cautious stance at the Fed."
Barclays predicts the Fed will raise rates by no more than 75 basis points next year compared to the 100 basis points assumed by the FOMC.
A Reuters poll of 120 economists found the Fed would hike rates again in March, but probably would not move as quickly next year as policymakers have suggested.
Investors have reacted by pairing back what had become a very crowded wager on further gains in the dollar.
Net long positions in dollars fell to their lowest since early November, according to Reuters calculations and data from the Commodity Futures Trading Commission.
Policy uncertainty also clouds the outlook for sterling.
One of the more hawkish board members at the Bank of England told the Daily Telegraph that the factors pushing down on inflation had "become a bit more prolonged" which offered "breathing space" before tightening.
Martin Weale was one of two BoE rate-setters who pushed in vain in late 2014 for higher borrowing costs, so his concession suggested there was little risk of a hike near term.
The reluctance of the BoE to move has been pressuring the pound for several months now. On Monday, it was pinned at $1.4912 and just above an eight-month trough of $1.4862.
Reference: WAYNE COLE AND LISA TWARONITE
Friday, 18 December 2015
Basic Trading concepts Defined
This is probably one of the critical problems that beginning e-mini traders face. Undercapitalization leaves a trader with very little "wiggle room" for errors while learning to trade. I've seen traders start with $2000 in the e-mini futures trading account and successfully build the account to a more workable size, but that is an extremely rare exception. No matter how much coaching and mentoring provided, e-mini trading is still an intensely personal road of discovery. What resonates with me may not resonate with you. It's important to find your style within the proper framework of the trading style you are studying.
Some expenses to consider might be:
1. Data Feeds: When you open an e-mini trading account it is not uncommon for your brokerage to provide you with a free data feed. The quality of "house feeds" range in quality from quite good to horrible. While it may seem expedient to stick with the crappy house you would be making a mistake because many of these feeds have problems like: locking up, lagging the market and some are very hard to set up.
I Trade with a paid data feed and you can expect to pay, including the exchange fees, are $150 a month for a high quality data fee. I also want my feed to include the NYSE tick, an indicator that can be pretty handy.
2. Many firms offer a stripped down trading platform that will not give you the flexibility to trade with real time indicators; contrary to what many trading gurus espouse, I like a wealth of real time information on my chart and this takes a platform that has programs that are written for platforms that have an open source API.
You can expect to pay around $50/month for a high quality platform that has many features you will want to utilize. I've signed up trading accounts that had a platform with 6-10 indicators and were buggy and executed trades poorly. You can only be a good as the tools you utilize.
3. Your trading account: I get a plethora of young traders who try to start to trade e-mini contracts with an initial deposit of $1500. I am not going to say that you can't build this account to a magnificent size, but that scenario is the rare exception. More often, a few bad or poorly thought about trades can decimate an undercapitalized trader and he/she will have to add more money to their accounts to keep trading. Undercapitalized accounts are often the problem beginning trading run into.
A more proper capitalization figure would be $5000-10000 or more. This will allow you to make mistakes and not have a decimating effect upon your e-mini trading account. Of course, the better capitalized you can remain, the greater advantage a trader holds, as he/she can wait for a trade to develop properly. I get a real chuckle out of trading rooms that try to get big gains out of trades with very tight stops. One thing is for certain; at higher Average True Range levels you don't have a chance of winning if you stops are extremely tight. Time and time again studies have shown that the widest stops that remain in the comfort zone of the trader result in higher profits.
4. How will you learn to trade? There many books that offer advice on how to trade; but these books are usually stuffed with trading with the traditional lagging indicators, basic stuff you can pick up on an internet site. No, there is much more trading than reading about the MACD, whose author Gerald Appel, unequivocally states that it is a poor scalping indicator; yet it is not uncommon to see this indicator presented in trading books as the Holy Grail.
My advice is to find a qualified teacher and get some time in his/her trading room and one on one mentoring where you will learn some of the stuff they don't teach in the books; information only experienced traders can share. These programs run as low as $1595(for one of the best ones) to $25000. In my opinion there is little difference in the quality of the courses. One of the most expensive is laughable in scope, but people seem willing to pay exorbitant prices for mundane e-mini trading instruction.
In summary I have tried to give a realistic view of what a new trader faces from a financial standpoint. I should also point out that under capitalization is probably one of the leading cause of beginning trader failure; you simply not afford to blow these $1500 accounts in succession and stay in the game. Don't trade without a properly capitalized trading.
By David S. Adams
The Bank of Japan maintained its money printing drive at the current rate on Friday, but reorganized its massive stimulus program to advance premier Shinzo Abe's plans to prod reticent companies into boosting wages and investment.
As widely expected, the central bank kept intact its "quantitative and qualitative easing" target of increasing or cash and deposits in circulation by 80 trillion yen ($660 billion) and the pace at which it buys government bonds and trust funds investing in stocks and property.
But it decided to extend the duration of the Japanese government bonds (JGBs) it buys from 10 to 12 years from 2016 and set up a 300-billion-yen fund to buy exchange-traded funds (ETFs) that specifically target firms actively spending on capital expenditure and wages.
BOJ Governor Haruhiko Kuroda said the new steps do not amount to expanded monetary easing.
"We've taken steps to supplement QQE so that we can expand the program without hesitation if needed," Kuroda told a news conference after the decision.
"Companies and households are shifting away from a deflationary mindset," he said. "But there are discrepancies among sectors, so we want to broaden the positive momentum. We wanted to do whatever we can to support this drive."
Friday's moves underscore the BOJ's resolve to aid Abe's efforts to pressure companies into diverting more of their record profits to wage hikes and new investment, which are crucial to sustainably pull the economy out of deflation.
But the new policy emphasis also underscores the BOJ's concerns over how long it could keep buying assets at the current rate, having already gobbled up 30 percent of JGBs on issue.
The central bank said after its December monetary policy meeting it would initially target ETFs that track the JPX-Nikkei 400 index which features companies that promote transparency and good governance.
The BOJ also said it would start selling from April next year the shares it had bought from financial institutions, giving it the power to buy shares of companies that meet its wage and investment standards and sell shares of those that don't.
The central bank said it would expand and extend a loan scheme by a year for companies with high potential.
Tokyo stock prices initially surged on the announcement but quickly pared gains as markets saw the new steps as a return to the incremental policy style BOJ Governor Haruhiko Kuroda said he had abandoned when launching his QQE program in 2013.
"The BOJ had never imagined that it would need to continue with QQE for this long," said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley. "Today's step marks a shift from shock therapy to a long drawn-out struggle in its efforts to achieve 2 percent inflation," she said.
The BOJ's characterization that the new measures were aimed at supplementing the effects of QQE suggests they were not directly spurred by the U.S. Federal Reserve's decision on Wednesday to raise interest rates.
But even Friday's modest measures found three dissenters on the BOJ's nine-member board, suggesting that Kuroda may struggle to win enough votes if he were to propose expanding stimulus, some analysts say.
"This is the type of incremental move that Kuroda previously said he opposes," said Hiroshi Shiraishi, senior economist at BNP Paribas Securities. "It suggests that the BOJ has reached the limit of its current quantitative easing and that it cannot expand easing by a large amount."
Reference: LEIKA KIHARA
Thursday, 17 December 2015
Britain's top share index is set to rise nearly 13 percent by the end of 2016 from current levels, according to analysts polled by Reuters in the past week, although the latest forecasts are sharply lower than those made just three months ago.
Strategists cut forecasts for the commodity-heavy British share index because of lingering concerns about the mining sector's outlook following a slump in commodity prices, the likely start of a U.S. rate hike cycle and uncertainties about whether Britain will leave the European Union.
A Reuters poll of nearly 40 traders, fund managers and strategists gave a median forecast for the benchmark FTSE 100 index of 6,250 points by the end of 2015, 6,400 points by mid-2016 and 6,700 points by the end of next year.
In early October, a poll produced a median forecast for the FTSE 100 to end 2015 at 6,500 points, rising to 6,700 by June 2016 and advancing to 6,989 by the end of 2016.
The index, which finished 2014 at 6,566.09 points, is down more than 9 percent so far this year, having closed on Friday at 5,952.78.
"I am cautiously optimistic for 2016. We have got some tailwinds like an encouraging economic climate and improving consumer spending, but the FTSE 100's heavy reliance on commodities and 'Brexit' concerns could limit its gains," Securequity senior trader Jawaid Afsar said.
A Reuters poll published last week forecast Britain's economy would produce solid growth next year, although the outlook was also clouded by doubts over Britain's EU membership.
British Prime Minister David Cameron has promised to hold a referendum on a possible "Brexit" before the end of 2017. With the last few opinion polls showing a slim majority wanting to leave, Britain's membership is on a knife edge.
Analysts said mining and energy stocks, which account for more than 20 percent of the FTSE 100, could come under further pressure because of a bleak outlook for metals prices in the wake of worries about the pace of economic growth in top consumer China.
The UK mining index has slumped about 50 percent this year as prices for metals and other commodities have hit multi-year lows, while the oil and gas index is down around 25 percent.
"The heavy mining contingent is likely to continue to make life difficult for the FTSE 100, and buying the index as a whole looks to be a relatively unpromising idea," IG analyst Chris Beauchamp said.
"Instead, the European markets look more attractive, as the European Central Bank's quantitative easing programme continues and the euro continues to weaken."
The poll predicts the broader STOXX Europe 600 index will gain nearly 14 percent by the end of 2016.
Reference: ATUL PRAKASH
World stock markets jumped on Thursday as investors chose to take the first hike U.S. interest rates since 2006 as a mark of confidence in the world's largest economy, also lifting the dollar but piling on the pain for oil prices.
After solid gains in Asia, European shares followed with Britain's FTSE 100 .FTSE 1.7 percent higher in early deals. Germany's DAX .GDAXI rose 1.8 percent and France's CAC 40 .FCHI almost 2 percent. [.EU]
China allowed its currency CNY=CFXS slip for a 10th straight session to hit its lowest since June 2011. The steady decline puts pressure on other Asian currencies to depreciate to stay competitive.
The Federal Reserve's 25-basis-point increase was almost a decade in the making and one of the most telegraphed policy moves in history. So there was some relief that, after months of waiting and several false starts, the deal was finally done and dusted.
"They delivered what was the world's worst-kept secret," said Neil Williams, chief economist at fund manager Hermes in London.
"It was extremely well telegraphed which I think is a sign of things to come. Central banks now have a lot of skin in the game because of their huge bloated balance sheets. So if they take markets off guard they get hurt themselves."
Markets were soothed by Fed Chair Janet Yellen's assurance that future tightening would be gradual and dependent on inflation finally moving higher, as long forecast.
The rate forecasts, or dot points, from Fed members were a little higher than many expected, with 100 basis points of hikes penciled in for next year and a terminal rate of 3.5 percent.
Fed fund futures <0#FF:> dipped in response, yet the December 2016 contract implies a rate of only 0.83 percent, well below the 1.25 to 1.5 percent favored by the central bank.
Moves in the Treasury market were also modest. While yields on two-year notes US2YT=RR hit their highest since April 2010, they were only up four basis points in all at 1.009 percent.
Still, that did widen the premium over German yields DE2YT=RR to 134 basis points, close to the biggest since late 2006 and a positive draw for the dollar.
The dollar added 0.9 percent to 98.794 against a basket of major currencies .DXY, and looked set for another test of stiff resistance around the 100.00 mark.
The euro dropped to $1.0860 EUR=, having fallen as low as $1.0832 from $1.1000 in the wake of the Fed's statement. The dollar advanced to 122.40 yen JPY=.
Richard Franulovich, a currency strategist at Westpac, noted that historically the dollar tended to soften at the start of Fed tightening cycles. Yet he doubted it would last given most other major central banks were very much in easing mode.
"A follow-up Fed hike could come as soon as March, aided and abetted by favorable oil price base-effects that will lift inflation almost a percentage point and a potentially mild winter," said Franulovich.
"We should see a resumption of the dollar's longer-term uptrend as 2016 progresses."
Another sustained rise in the dollar could spell further trouble for commodities, by making them more expensive when measured in other currencies.
Copper CMCU3 slipped 0.3 percent and is down 27 percent for the year so far.
Oil prices were hurting again too, having resumed their decline on Wednesday to lose as much as 5 percent after U.S. government data showed an unexpected big build in inventories.
Brent LCOc1 eased another 40 cents to $36.98 a barrel, after shedding $1.16 on Wednesday. U.S. crude CLc1 lost 41 cents to $35.12 having already suffered a loss of 4.9 percent the day before. [O/R]
The sigh of relief that the Fed had finally delivered pushed MSCI's main emerging market stocks index .MSCIEF up 1 percent and almost 4 percent since the start of the week.
It is still down almost 17 percent for the year though. The prospect of higher Fed rates is seen as a negative for emerging markets because one of their main appeals is that they pay relatively higher interest rates than places like the U.S.
A stronger dollar also makes it more expensive for EM countries and firms to pay off dollar debt, and it comes alongside persistent worries about China's economy and the impact of the slump in commodity prices on producer states.
"Our stance remains for a stronger dollar /Asia FX outlook, with further depreciation in the yuan adding another layer of pressure," analysts for Barclays said in a note.
They added that a credit rating downgrade to 'junk' for Brazil on Wednesday could see investment grade-only investors forced to offload $1.6 billion of Brazilian assets.
Reference: MARC JONES
Eight years after a devastating recession opened an era of loose U.S. monetary policy, the Federal Reserve was set on Wednesday to raise rates for the first time since 2006, in a sign the world's largest economy had overcome most of the wounds of the global financial crisis.
A decision will be released at 2 p.m. (1900 GMT), with markets prepared for an initial 25 basis point "liftoff" that would move the Fed's target rate from the zero lower bound to a range of between 0.25 and 0.50 percentage points. It is to be followed by a news conference by Fed Chair Janet Yellen to elaborate on the central bank's latest policy statement.
A Dec. 9 Reuters poll showed the likelihood of a hike on Wednesday was 90 percent with economists forecasting the federal funds rate to be 1.0-1.25 percent by end-2016 and 2.25 percent by end-2017.
Markets set a positive stage for the Fed's potentially historic turn as U.S. stock futures rose ahead of the market open on Wednesday and bond markets and the dollar were steady. Analysts said that after weeks of preparation a surprise decision not to hike would be the more disruptive choice.
"It is a foregone conclusion that the Fed is going to raise rates," said Kully Samra, a managing director at U.S. focused investment manager Charles Schwab in London.
The rate hike will separate the Fed from major central banks in Tokyo, Frankfurt, Beijing and elsewhere that are all battling to stimulate their economies and generate growth. There were signs that the underlying strength of the U.S. consumer-led economy would continue even after a rate rise.
A hike on Wednesday would still leave U.S. policy extremely loose, and Fed officials have signaled they will act cautiously from that point forward to nurture a tepid recovery.
Markets and analysts will focus on the exact language the Fed uses in its statement to justify the hike and describe how it will evaluate the timing of subsequent steps.
Analysts at TD Securities said they expected the statement and updated economic forecasts from policymakers to take a hawkish tilt that emphasizes every meeting will be "live" for a possible hike.
As of September, Fed officials expected perhaps four rate hikes next year.
"The statement...should be relatively hawkish. The Fed will look to project confidence," the analysis said.
Though modest, the Fed's token first step remains fraught.
In the days to come the Fed will have to prove that a new set of tools for managing interest rates will work as expected; see how higher U.S. rates affect domestic and global financial conditions; and hope that weak world demand and commodity prices do not lead to an overall bout of deflation and force the Fed to reverse course.
To be considered a success, the Fed needs its rate hike to be followed next year by continued U.S. growth, continued low unemployment, and, perhaps most in doubt, a turn higher in inflation.
For all the talk of abnormal times and changes in underlying economic fundamentals, the Fed is pinning its hopes on a very conventional premise - that the U.S. consumer will keep spending at recent strong rates, encouraged by low unemployment and the apparent beginnings of higher wages.
"The American consumer is in full gear and there is nothing but tailwind...They are right to be confident," said Mark Zandi, chief economist with Moody's Analytics.
The turn toward higher rates has been months in the making.
The Fed under Yellen has carefully stripped its policy statement of most future-oriented promises to keep rates low, along with ending crisis-era asset purchase programs.
With unemployment falling steadily through the year, there has been less justification for crisis-era policy, and a sense among policymakers that they could balance the higher rates sought by "hawks" with a slow pace of subsequent increases.
Still, opinion is not unanimous. Some Fed policymakers have said they worry the world economy is too weak for the Fed to successfully march off on its own. Labor groups on Tuesday said pockets of employment and wage growth overall are still too weak to warrant tighter financial conditions.
"There’s no reason to think that the pace of economic growth today is excessive and needs to be slowed because of incipient inflation," Josh Bivens, research director at the Economic Policy Institute, said in calling on the Fed not to hike.
"Right now, lower unemployment that boosted wage and price growth would be an affirmatively good thing. Wages and prices are clearly growing too slowly."
Reference: HOWARD SCHNEIDER
Wednesday, 16 December 2015
Investors in Asian stocks and the world over are stepping into unfamiliar territory as they await perhaps the most anticipated U.S. monetary policy decision in the Federal Reserve's history.
After months of hand-wringing speculation, the Fed is poised to raise interest rates for the first time in almost a decade on Wednesday.
The expected move will be an unprecedented event for both the Fed and global markets: never before has the U.S. central bank faced the challenge of starting to unwind such a massive amount of stimulus, nor have rates in the United States been so low for so long.
Add to this the backdrop of relatively slower U.S growth than in past tightening cycles, and diverging Fed policy from other major central banks for the first time in over two decades, and you have a recipe for uncertainty and volatile asset markets.
"This period we're in now, it isn't like anything we've seen before because of all the moving parts," said Kay Van-Petersen, global macro strategist at Saxo Capital Markets.
Stirring the investment pot further is China's ascent as a major economic power, the outsized impact it has on financial markets as the world's second-biggest economy and Chinese authorities' tendency to intervene in their markets.
"The last few times we had a cycle with an interest rate hike in the U.S., nobody cared about China," said Olivier D'Assier, Asia-Pacific managing director at risk management firm Axioma in Singapore.
"The data we have today is a bit noisy, and there's so much regulatory intervention. That's making people a bit nervous," he said.
A case in point is the recent markets turmoil.
The MSCI Asia Pacific ex-Japan index tumbled 27 percent between an April high and a September trough, hurt in part by wild swings in Chinese stocks which in turn were influenced by Beijing's botched attempts to stave off a collapse.
Even the 13 percent rally between then and October was primarily due to fading fears of China's "hard landing," said Sean Taylor, Asia-Pacific chief investment officer at Deutsche Asset & Wealth Management. The index has since surrendered most of those gains.
TO BUY OR SELL?
As China's economy slows to its weakest pace in a quarter of a century and with a commodities rout rippling through financial markets, the Fed's policy path will take on even more significance compared with previous cycles, analysts and fund managers say.
Although most market watchers predict a dovish Fed tone, expectations for regional stocks varied in a reflection of the uncertainty ahead.
Deutsche's Taylor forecasts a "slow grind higher that could be faster than expected if the Fed language suggests the rate hike profile is lower for longer."
Saxo's Van-Petersen and Credit Suisse's Sakthi Siva predict an initial rally, followed by renewed declines. Others like Timothy Moe, chief Asia-Pacific strategist at Goldman Sachs, expect the reverse.
When the Fed unexpectedly started raising rates in 1994 - the last time the U.S. central bank's policy departed from other major central banks - Asia stocks slid 23 percent in the following year as U.S. borrowing costs increased 3 percentage points.
But back then, and over other past cycles, Asian currencies were more closely tied to the U.S. dollar, leading the region to import U.S. monetary policy, Moe said.
"This is the first time in modern history we're seeing this difference in terms of the Asian cycle versus the U.S. cycle," he said.
Central banks including Indonesia and Thailand are expected to ease policies in 2016, while the Bank of Japan is seen adding to its already massive stimulus and markets are counting on more easing from China.
U.S. growth in 2016, forecast at 2.4-2.5 percent, is also slower than during tightening cycles in the 1990s and early 2000s, when the world's biggest economy was expanding at between 3.8 percent and 4.7 percent.
"History doesn't help us much this time," said Axioma's D’Assier.
"We can speculate all we want but the fact is this time it is really different."
Reference: NICHOLA SAMINATHER
Wall Street was on track for a second day of gains on Tuesday as energy stocks rose in tandem with recovering oil prices, and a day before a widely expected interest-rate hike by the Federal Reserve in nearly a decade.
Traders see an 83 percent chance of a liftoff this week, according to the CME Group's FedWatch program, but investors are concerned about the pace of future rate hikes.
"Investors seem to be at the crossroads of optimism and concern, with sentiment today leaning toward optimism," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis.
Bank stocks rose on the expectation of improving interest income from higher rates, with Goldman Sachs' 2.6 percent rise providing the biggest boost to the Dow.
JP Morgan, Morgan Stanley, Citigroup and Bank of America were up about 2.5 percent.
Scott Brown, chief economist at Raymond James in St. Petersburg, Florida, said he expects trading to be slightly volatile as traders set up positions ahead of the Fed's statement, adding that a rate hike was largely priced in.
"It will really be a shock to the market if (the Fed) didn't move," Brown said.
At 10:53 a.m. ET (1553 GMT), the Dow Jones industrial average was up 203.64 points, or 1.17 percent, at 17,572.14, the S&P 500 was up 25.32 points, or 1.25 percent, at 2,047.26 and the Nasdaq Composite index was up 62.03 points, or 1.25 percent, at 5,014.26.
Nine of the 10 major S&P sectors were higher, with the energy sector's 2.2 percent rise leading the advancers.
Exxon powered the S&P 500, with a 2.4 percent rise, while Chevron rose 2 percent after crude prices recovered from their steep fall on Monday.
A rout in commodity prices has also rattled the junk bond market over the past week, with some high-profile funds halting redemptions.
Valeant shares were up 14.2 percent at $107.50 after the Canadian drugmaker signed a distribution deal with Walgreens.
Micron was up 4.7 percent at $14.31 after the chipmaker said it would buy the rest of Taiwan's Inotera Memories for about $3.2 billion.
3M was down 4.4 percent at $150.67 after cutting its 2015 profit outlook.
Advancing issues outnumbered decliners on the NYSE by 2,351 to 656. On the Nasdaq, 1,952 issues rose and 711 fell.
The S&P 500 index showed eight new 52-week highs and three lows, while the Nasdaq recorded 18 new highs and 79 new lows.
Reference: ABHIRAM NANDAKUMAR
Tuesday, 15 December 2015
Basic Trading Concepts Defined
Winning at trading is much like winning at anything else. You must dedicate yourself to the task rather than trying to take short-cuts.
If you put in the time and effort to master trading, you will be greatly rewarded. If you go into this with the "get rich quick" mind-set, you are destined for failure.
I have spent nearly three decades at the craft of trading. I did not get the results I wanted until I realized that time and effort was required of me and I put it in. Now when I take a trade, I do so with the greatest amount of confidence a trader could hope for.
There is no way that you can master the art of winning trades by just reading a single article like this one. Rather, this article has been produced to get you moving in the right direction as to how I see it.
Naturally I can only point you in a way that is based on my own personal experience. The direction I give you will be what I have found works and a warning about that which I have found to be a waste of time.
If you want to someday master the art of winning trades, you must first focus on understanding market direction. In other words, for whatever time-frame reference you are interested in trading, you must learn to identify what direction it is moving in and then focus on only trading in that direction. When you have determined that the overall direction is changing, you must decide to then trade only in that direction. In other words, you must learn to determine the overall trend and force yourself not to trade against that direction.
One of the simplest ways I have learned for trend determination, and one of the basics you really should learn as soon as possible, is that which is taught by W. D. Gann. The method requires that you identify the swing tops and bottoms using the 1-bar, 2-bar and 3-bar swing method. From there, you can determine the trend direction based on whether you have higher swing bottoms (bull trend) or lower swing tops and bottoms (bear trend).
W. D. Gann called this method the "Trend Indicator". There is no room to discuss it now, so I encourage you to put in the effort to search for it and to learn it. Apply this to every chart you use and learn the patterns. In no time you will see the logic to this method and it will be a big boost towards mastering the art of winning trades.
Let me say that winning trades is a regular part of my trading life because I have put in the time to learn these basics. Having a different psychological make-up than Gann, I take smaller risks and make a humble profit in comparison. But the obvious benefit for me is that when I take a trade, I have a great amount of confidence in that it will bring me a profit of some amount. When it does not, the loss is usually quite small and insignificant.
Mastering the art of winning trades also requires that you know what to do with the knowledge about swings and the trend you have identified. Once you have learned what the trend is based on swing analysis, you then need to learn to trade only when a trend 'correction' is ending. For example, if the trend is determined to be bullish (higher swing bottoms), you want to be sure to trade long only from those higher swing bottoms and not to short the swing tops which would be against the trend.
To do this you must learn a timing method. There are dozens of ways in which you can time the end of a correction. My suggestion is not to waste too much time on charting indicators but learn all you can about market cycles. You can learn this from Gann, Bayer, Hurst to name a few but significant contributors on the subject.
Once I moved from fundamentals to technical to cycle analysis, my timing became incredibly precise. With precise timing comes the opportunity of entering those higher swing bottoms or lower swing tops on the very day they are formed, thereby risking very little and getting in at the beginning of a new move. This is what you want, right?
I have just given you the best advice anyone can possibly give you to start towards mastering the art of winning trades. Of course there will be those who will not agree, and that is fine. It is up to you now to decide what you want to do.
Do you want to be a profitable trader or investor? The key to low risk and high profit potential is TIMING! The F-Dates Market Timing Membership is all about TIMING.
By Rick Ratchford