Wednesday, December 13, 2017

Market update: Federal Reserve hikes short-term rates by 0.25% (13 December 2017)

  • As expected, the Fed decided to raise the fed funds target range by 25 basis points on Wednesday to 1.25%-1.50%. The central bank also released projections for future interest rates, which showed that the median FOMC member still anticipates three rate hikes in 2018 and two in 2019--unchanged from the projections released in September.
  • Charts 2 days later:

As expected, the Federal Open Market Committee raised the fed funds target range by 25 basis points to 1.25%-1.50% on Wednesday, marking the third rate hike of 2017. Chicago Fed President Evans and Minneapolis Fed President Kashkari--the FOMC's two most dovish members--dissented, saying they preferred to keep the target range unchanged.

The Fed's so-called "dot plot" revealed that the median FOMC member still anticipates three rate hikes in 2018 and two in 2019. Both figures were unchanged from the projections released in September, even though the central bank acknowledged that overall inflation and core inflation have declined this year and are running below 2.0%.

U.S. Treasuries rallied in a curve-flattening trade, underpinned by both the Fed's policy statement and a smaller-than-expected increase in the core Consumer Price Index for November (+0.1% actual vs +0.2% consensus). The yield on the benchmark 10-yr Treasury note tumbled five basis points to 2.35%, while the 2-yr yield slipped two basis points to 1.79%.

The flattening of the yield curve weighed heavily on the financial sector, which is second only to technology in terms of weight, representing nearly 15.0% of the broader market. The financial space dropped 1.3%, mitigating gains registered in most other areas.

In total, seven of eleven sectors finished in the green, but gains were limited; no group advanced more than 0.5%.

Tuesday, December 12, 2017

Bitcoin and cryptocurrencies : US-based trading

While bitcoin advocates call it a currency, the Commodity Futures Trading Commission (CFTC) views it as a commodity. Skeptics view it as a commodity without any intrinsic value, with demand driven by novelty and the scarcity imposed by bitcoin's software protocols, which will cap its production. Some analysts think it will trade more like a volatile stock, while others expect it to develop into a new asset class entirely.

Bitcoin normally trades on a network of unregulated exchanges, which have their own prices for the digital currency -- and a long history of problems that range from service crashes to hacks and thefts.

For traders, bitcoin offers an entirely new landscape to navigate. One hallmark of bitcoin trading is unpredictable price swings, a stark contrast to the eerie calm that's settled over other financial markets, including U.S. equities.

Live quotes:
Futures contracts: Cboe Global Markets, CME Group, Nasdaq 
Three of the largest U.S. exchange companies, all overseen by the Commodity Futures Trading Commission (CFTC), are debuting bitcoin futures contracts. Cboe is getting its contract to market first. CME will begin offering a competing product on Dec. 18. Nasdaq Inc. is planning to introduce bitcoin futures next year. The other major U.S. exchange player, Intercontinental Exchange Inc., has not yet announced any plans to do so.

Futures contracts — which derive their value from some underlying thing like corn, wheat, or in this case, a digital currency — oblige a buyer to pay for something at an agreed-upon price at a certain date in the future. They can be used to make a bet on which way the market for a product is going to move. They can also be used to short a market, or bet that prices will fall.

Bitcoin ETFs
There have been more than a dozen different filings for a bitcoin ETF. Most plan on using bitcoin futures.
  • Winklevoss Bitcoin Trust ETF (COIN):  Filing Status: Filing made on 7/1/2013; Denied by the SEC on 3/10/2017; SEC currently reconsidering. Strategy: Will use actual bitcoin
  • VanEck Vectors Bitcoin Strategy ETF:  Filing Status: Filing made on 8/11/2017; Withdrawn on 9/27/2017; Refiled on 12/11/2017. Strategy: Will use bitcoin futures.
  • REX Bitcoin Strategy ETF and REX Short Bitcoin Strategy ETF.   Filing Status: Filing made on 8/23/2017; Withdrawn on 10/5/2017; Refiled on 12/8/2017. Strategy: Will use bitcoin futures.
  • Evolve Bitcoin ETF. Filing Status: Filing made on 9/22/2017. Strategy: Will use bitcoin futures.  Toronto-based Evolve Funds has filed for its own bitcoin ETF to be traded on the Toronto Stock Exchange in Canada.
  • ProShares Bitcoin ETF and ProShares Short Bitcoin ETF. Filing Status: Filing made on 9/28/2017. Strategy: Will use bitcoin futures.
More about bitcoin mining
  • The amount of bitcoin rewarded for a successfully mined block slowly decreases over time via a known methodology, becoming zero in 2140. 
  • Miners also receive transaction fees, which would be the continuous incentive for miners after the reward ends in 2140. 
So-called miners perform a crucial function within the blockchain, or the decentralized ledger technology that underpins all crryptocurrencies, by solving complex computational problems to validate transactions on the network, In exchange for this function, which powers the blockchain, miners are rewarded with bitcoins.

Mining is a very energy-intensive process; by one estimate, bitcoin requires 215 kilowatt-hours of energy for each transaction. According to Morgan Stanley data, the total energy consumption of the bitcoin network consumes as much electricity as 2 million U.S. homes.

Mining becomes a magnitude more difficult and energy-draining the closer miners get the 21 million maximum number of bitcoin that will ever exist, a level that is calculated to be reached in 2140. Presently, the number of bitcoins in existence is roughly about 16.8 million since the first block of bitcoin was mined March 2009.

dollar vs. bitcoin  (inflation)

Friday, October 6, 2017

Market outlook : 6 Oct 2017 - NASDAQ 100 ($NDX)

The bullish ascending triangle pattern has cleared on the NDX:

Momentum is just beginning to accelerate from its launch near centerline support.  The top of the triangle is at 6000 and the initial low in the pattern was approximately 5750.  That difference, 250 points, is the measurement, which is added to the breakout level at 6000 to establish an initial target of 6250.  Expect to see that rather quickly.  To the downside, the two key support levels will now be the breakout level and rising 20 day EMA at 6000 and 5962, respectively.  Look to those levels to hold and for buyers to re-emerge during any short-term period of selling.

Friday, August 18, 2017

Market update (18 August 2017)

According to Thompson's Reuters, 460 of the companies represented in the S&P 500 have reported earnings with almost 74% beating expectations. This is 10% above the long term average and helps explain why the market has been so strong, at least until last week when we saw some deterioration.

There's no guarantee the market will keep falling but for sure the bears now have the technical advantage.  It's quite possible the S&P could now test its 200 day moving average, currently at 2346.

Wednesday, August 16, 2017

Market update: minutes from the July FOMC meeting (16 Aug 17)

  • The minutes from the July FOMC meeting showed increasing concern among several policymakers about softer than expected inflation readings. Despite the concern about slowing inflation, most Fed officials remain in favor of announcing a balance sheet move at the upcoming policy meeting. The FOMC will kick off its next two-day meeting on September 19.

Friday, August 4, 2017

Energy stocks seen getting help from lower dollar

The dollar’s retreat this year may lead to a rebound in U.S. energy stocks, according to Jim Paulsen, Leuthold Group Inc.’s chief investment strategist. Paulsen compared the U.S. Dollar Index, which fell 9.6 percent for the year through Wednesday, with the ratio between the S&P 500 Energy Index and the S&P 500 in a report Monday. The dividend-adjusted ratio dropped last week to its lowest level since January 2004. “Energy stocks could be market leaders again for a period” as long as the dollar declines further, he wrote.

Wednesday, July 26, 2017

Market update: FOMC announcement of no rate hike (26 July 2017)

July 26, 17:  2:00 PM FOMC Rate Decision

Fed says stimulus wind down to begin 'relatively soon,' leaves rates unchanged

  • The FOMC unanimously voted to keep the fed funds target range at 1.00%-1.25%. 
  • Regarding the central bank's $4.5 trillion balance sheet, the Fed indicated that it expects to begin the paring process "relatively soon", which has been largely interpreted as September. 
  • The CME FedWatch Tool now points to the March FOMC meeting (from December) as the most likely time for the next rate-hike announcement with an implied probability of 55.1%.