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How Tough Has Trading Been?

 

How Tough Has Trading Been?

Thanks to a savvy trader for this graphic of the Soc Gen Short Term Trading Index, which is the composite results of the largest diversified futures funds holding positions for less than 10 days.  Even the longer track record is net negative.  Interestingly, hedge fund performance was positive for the first quarter of 2017, but the performance of CTAs was negative over that same period.  These results mirror my own experience working with trading firms:  those trading short-term and those trading in a momentum/trend style have been performing worst.  Those performing best in Q1 were ones focused on Asia, as well as activist funds and funds trading volatility strategies.

In other words, those market participants with specialized strategies have been outperforming the generalists.  Working at a number of funds as a performance coach, I can tell you that–on average–those placing directional bets on interest rates in Q1 greatly underperformed those trading relative value strategies.  Even among day trading firms, uniqueness of strategy has been an important predictor of success thus far in 2017.  Those traders day trading big liquid instruments have underperformed those finding unique opportunities in carefully selected individual stocks.

I’m not so sure this is all that different from the dynamics in the broader business world.  If new participants enter a crowded space, they are less likely to be successful than if they find unique niches.  This is an important challenge for those aspiring to trading success.  The risk tolerance of most trading firms does not permit long holding periods for directional positions.  This tends to throw everyone in the short-term camp depicted above.  You’re not going to win by playing the same game as everyone else, just as you’re not likely to find gold if you prospect the hills that have been well picked over by previous miners.

It’s not enough to learn how to trade; it’s critical to trade uniquely.  It’s not enough to trade with rules and discipline; one must also find opportunity creatively.  The firms achieving the results depicted above are trading trends in liquid markets in a disciplined fashion.  A great approach to success would be to research strategies that made money during months when those other participants were performing worst.  There is no guarantee that future returns will mirror backtested ones, but digging for gold in well-mined fields is a poor risk/reward proposition.

Further Reading: Creativity and Innovation in Trading

Published at Sat, 15 Apr 2017 10:06:00 +0000

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Yext: The newest $1 billion tech company

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Confide makes the internet less permanent
Confide makes the internet less permanent

Yext: The newest $1 billion tech company

  @byHeatherLong

Like most New Yorkers, Howard Lerman talks quickly and dresses in black.

The 37-year-old is CEO of Yext, which just had one of the biggest public debuts ever for a startup born in the Big Apple.

Yext(YEXT) stock started trading on the New York Stock Exchange Thursday, surging 22%. The company is now worth over $1 billion.

“I’m an East Coast guy,” Lerman told CNNMoney.

Lerman grew up in northern Virginia, just as AOL was exploding on the scene. He went to Duke University and just couldn’t see himself in Silicon Valley.

“When you’re starting a company, you need to rely on people around you to work for free for a long time,” Lerman says. He met Yext’s chief operating officer, Tom Dixon, in middle school. He still remembers the day Dixon brought a Pentium chip to class. It was the beginning of a long friendship, fused with a common love of tech.

“They were scary bright kids,” remembers Vern Williams, their math teacher at Longfellow Middle School in Falls Church, Virginia. “They didn’t like routine or textbooks. They wanted to push their creative juices.”

Yext is one of five companies Lerman has founded so far. It’s basically a 21st Century version of the phone book (Yext actually stands for “next Yellow pages.”)

Companies like McDonald’s(MCD), one of Yext’s clients, need the addresses, hours and contact info for its many restaurants up to date on sites as diverse as Google Maps, Yelp, Facebook, Bing, etc. Yext provides the software for companies to update their information on all of those sites with one click.

“We’re pioneering a new market,” Lerman, who co-founded the company in 2006, says.

But for all its success, the company still isn’t profitable. Like many young tech companies, there’s still a lot of risk about how much Yext will grow in the coming years and whether it will be able to generate bigger sales.

Yext has over 600 employees with offices in the U.S. and Europe. Lerman speaks German and is currently learning Chinese, perhaps foreshadowing Yext’s next move.

“I think being an entrepreneur is the intersection of two things: Being able to see how the world should be and then doing something about it,” he says. “A lot of people can do one of those two things.”

howard lerman yext nyse bell
Howard Lerman, center in the black suit, celebrates as Yext debuts on the New York Stock Exchange.

Lerman has been compared to iconic techCEOs like Marc Benioff of Salesforce for his ability to rally crowds,and Apple cofounder Steve Jobs for his love of black turtlenecks, which he wears every day.

In addition to Yext, Lerman also created the secret messaging app Confide. It’s gotten a lot of media attention lately after news broke that White House staffers were using it to chat confidentially with each other, and journalists. Confide markets itself as a secure app “military-grade end-to-end encryption,” although some have questioned whether that’s a fair statement.
Published at Thu, 13 Apr 2017 21:50:03 +0000

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Wall Street slips as geopolitical risks gather, earnings loom

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 Wall Street slips as geopolitical risks gather, earnings loom

By Yashaswini Swamynathan

U.S. stocks edged lower on Wednesday as investors assessed uncertainty stemming from rising geopolitical tensions and the upcoming corporate earnings season.

The United States launched missiles at a Syrian airfield last week to retaliate a deadly chemical attack on civilians. The strikes pushed President Donald Trump, who came to power in January calling for warmer ties with Syria’s ally Russia, and his administration into confrontation with Moscow.

Also, Chinese President Xi Jinping called on the U.S. for a peaceful resolution with North Korea, which has warned it would launch a nuclear attack if provoked by the United States, as a U.S. Navy strike group headed toward the western Pacific.

The S&P 500 fell below its 50-day moving average, while the price of gold and VIX .VIX, Wall Street’s fear gauge, rose to their highest levels since November.

At 10:57 a.m. ET, the Dow Jones Industrial Average .DJI was down 52.9 points, or 0.26 percent, at 20,598.4, the S&P 500 .SPX was down 7.27 points, or 0.31 percent, at 2,346.51 and the Nasdaq Composite .IXIC was down 19.45 points, or 0.33 percent, at 5,847.32.

Earnings are likely to be the next catalyst for the market.

The big banks, which have outperformed in a post-election rally since November, are of particular interest as investors fret over valuations amid a lack of clarity on Trump’s ability to deliver on his pro-growth policies of tax and regulatory cuts.

Financials were the worst hit on Wednesday. The S&P 500 financial index .SPSY tumbled 0.91 percent, setting it up to post the fourth straight day of decline.

“Technically, we are due for a breather and if the earnings season disappoints, it could provide the correction that we need,” said Josh Jalinski, president of Jalinski Advisory Group.

JPMorgan (JPM.N), Citigroup (C.N) and Wells Fargo (WFC.N) are scheduled to report results on Thursday, which will be the last trading day of the week on Wall Street ahead of the Good Friday holiday. Seven of the 11 major S&P sectors were lower.

Utilities .SPLRCU, real estate .SPLRCR and consumer staples .SPLRCS, defensive sectors with slow but predictable growth, rose. Chipmaker Qualcomm (QCOM.O) dropped 2.8 percent to $53.81 after it was asked to refund Canada’s BlackBerry (BBRY.O) $814.9 million in an arbitration settlement.

Delta Air Lines (DAL.N) was up 3.5 percent at $46.90, boosted by a quarterly profit beat.

Declining issues outnumbered advancers on the NYSE by 1,869 to 846. On the Nasdaq, 1,832 issues fell and 776 advanced.

The S&P 500 index showed nine 52-week highs and no new lows, while the Nasdaq recorded 40 highs and 24 lows.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Sriraj Kalluvila)
Published at Wed, 12 Apr 2017 15:34:05 +0000

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Investors flock to ‘macro’ hedge funds, but not only the old guard

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Investors flock to ‘macro’ hedge funds, but not only the old guard

“Macro” hedge funds are back in favor with investors seeking to take a view on U.S. President Donald Trump’s economic policies, European elections, or interest rates, but it is start-up funds rather than established players which are attracting cash.

Some of the main beneficiaries of the macro revival are managers who cut their teeth at the big macro firms such as Moore Capital Management, Brevan Howard and Tudor Investment Corp, which made their names for outperformance in 2007-2009.

Eric Siegel, head of hedge funds at Citi Private Bank (C.N), said in general that macro strategies are likely to thrive. “With volatility coming back and monetary supply tightening, we believe it could be a great environment for macro managers,” Siegel said.

Macro funds bet on macroeconomic trends using currencies, bonds, rates and stock futures. They outperformed the broader industry during the financial crisis and amassed tens of billions of dollars between 2010 and 2012. But they lost most of those assets between 2013 and 2014 and also in 2016 for a variety of reasons, including performance.

But macro is back in vogue and was the most popular hedge fund strategy among investors in the fourth quarter of 2016 and the first two months of this year, according to industry data providers Preqin and eVestment.

Moore Capital’s Louis Moore Bacon, Alan Howard, who co-founded Brevan Howard, and Paul Tudor Jones of Tudor Investment were among the macro stars after years of delivering double-digit returns.

But during the lean years, when macro was less in favor, they had to cut fees and in some cases staff.

Now newcomers, such as Moore Capital spin-out Stone Milliner, are pulling in cash and producing some strong returns.

Stone Milliner’s discretionary global macro closed to new money last year after taking in over $4 billion in the previous two years.

Moore Capital’s assets have fallen slightly from $15 billion in 2012 to $13.3 billion as of Dec. 31 2016, filings with the U.S. Securities and Exchange Commission (SEC) showed.

Anglo-Swiss firm Stone Milliner, set up in 2012 by former Moore Capital portfolio managers Jens-Peter Stein and Kornelius Klobucar, averaged returns of 8.3 percent between 2014 and 2016, a source told Reuters, while Moore Capital Management averaged 3.4 percent, a second source said.

London-based Gemsstock, set up in January 2014 by Moore Capital trader Darren Read and his co-founder Al Breach, made 12.8 percent on average over the same period, documents seen by Reuters showed.

Chris Rokos, a Brevan Howard alumnus, raised another $2 billion in February after returns of 20 percent in 2016.

EDL Capital made gains of 18.4 percent last year after ex-Moore Capital trader Edouard De Langlade launched the firm in September 2015, according to a source close to EDL Capital. It has amassed assets of $450 million to date, he said.

Ben Melkman, who also formerly worked at Brevan Howard until May 2016, raised over $400 million for his launch in March, SEC filings showed.

Brevan Howard’s firm-wide assets fell to $14.6 billion in 2017, from $37 billion in 2012. [here]

 

RUSH FOR MACRO

But the old guard are fighting back. Some have been cutting fees and offering alternatives.

Howard, Brevan Howard’s co-founder, last month launched a new fund managed solely by him, which sources said has already amassed more than $3 billion.

Tudor Investment lowered its management fees to 1.75 percent and performance fees to 20 percent in February after a reduction last year and Moore Capital cut the management fee on its Moore Macro Managers fund to 2.5 percent from 3 percent.

Tudor Jones laid off 15 percent of staff in August. The firm’s main Tudor BVI Global Fund started 2017 down 0.6 percent to March 3 after gaining 0.9 percent in 2016.

Brevan cut its management fees to zero for some current investors in its Master Fund and its Multi-Strategy fund last September after a similar move from Caxton Associates.

But for both the old and new macro funds, it is still to be determined what 2017 will hold.

Even though macro funds are flat on average for the first two months of 2017, making gains of just 0.38 percent, according to Hedge Fund Research, the popularity of macro strategies is not in doubt.

A Credit Suisse survey in March of more than 320 institutional investors with $1.3 trillion in hedge funds showed macro was set to be the favorite strategy of 2017.

Preqin data showed that after pulling assets out of macro for three back-to-back quarters, investors added $6.4 billion to the strategy in the fourth quarter of 2016 after Trump’s win.

eVestment data showed that macro funds have pulled in $4.4 billion in the first two months of 2017, demonstrating a turnaround from 2016 when investors took $9.8 billion out of macro after withdrawing $10 billion in 2013 and $19.1 billion in 2014.

“I don’t think macro is dead. Managers who can be nimble and are able to look outside the large liquid asset classes can still find great opportunities,” Erin Browne, head of Global Macro Investments at UBS O’Connor, said.

Representatives at Tudor did not immediately respond to a request to comment. Moore Capital had no comment. A spokesman at Brevan declined to comment.

(Editing by Jane Merriman)
Published at Sun, 09 Apr 2017 10:08:23 +0000

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Stock Market

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What is the ‘Stock Market’

The stock market refers to the collection of markets and exchanges where the issuing and trading of equities (stocks of publicly held companies), bonds and other sorts of securities takes place, either through formal exchanges or over-the-counter markets. Also known as the equity market, the stock market is one of the most vital components of a free-market economy, as it provides companies with access to capital in exchange for giving investors a slice of ownership.

How Does the Stock Market Work?

The stock market can be split into two main sections: the primary market and the secondary market. The primary market is where new issues are first sold through initial public offerings (IPOs). Institutional investors typically purchase most of these shares from investment banks; the worth of the company “going public” and the amount of shares being issued determine the opening stock price of the IPO. All subsequent trading goes on in the secondary market, where participants include both institutional and individual investors. (A company uses money raised from its IPO to grow, but once its stock starts trading, it does not receive funds from the buying and selling of its shares).

Stocks of larger companies are usually traded through exchanges, entities that bring together buyers and sellers in an organized manner where stocks are listed and traded (although today, most stock market trades are executed electronically, and even the stocks themselves are almost always held in electronic form, not as physical certificates). Such exchanges exist in major cities all over the world, including London and Tokyo.

In terms of market capitalization, the two biggest stock exchanges in the United States are the New York Stock Exchange (NYSE), founded in 1792 and located on Wall Street (which colloquially is often used as synonym for the NYSE), and the Nasdaq, founded in 1971. The Nasdaq originally featured over-the-counter (OTC) securities, but today it lists all types of stocks. Stocks can be listed on either exchange if they meet the listing criteria, but in general technology firms tend to be listed on the Nasdaq.

The NYSE is still the largest and, arguably, most powerful stock exchange in the world. The Nasdaq has more companies listed, but the NYSE has a market capitalization that is larger than Tokyo, London and the Nasdaq combined.

Who Regulates the Stock Market?

The Securities and Exchange Commission (SEC) is the regulatory body charged with overseeing the U.S. stock markets. A federal agency that is independent of the political party in power, the SEC states its “mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” (Learn more about it in Policing The Securities Market: An Overview Of The SEC.)

Stock Trading

Two general types of securities are most frequently traded on stock markets: over-the-counter (OTC) and listed securities. Listed securities are those stocks traded on exchanges. These securities need to meet the reporting regulations of the SEC as well as the requirements of the exchanges on which they are listed.

Over-the-counter securities are traded directly between parties, usually via a dealer network, and are not listed on any exchange, although these securities may be listed on pink sheets. Pink sheet securities often do not meet the requirements for being listed on an exchange and tend to have low float, such as closely held companies or thinly-traded stocks. Companies in bankruptcy are typically listed here, as are penny stocks, loosely defined as those that trade below $5 a share.

OTC securities do not need to comply with SEC reporting requirements, so finding credible information on them can be difficult. The lack of information makes investing in pink sheet securities similar to investing in private companies.

The number of stocks that exchanges handle daily is called volume. Market makers are required to buy and sell stocks that don’t interest other investors.

Who Works on the Stock Market?

There are many different players associated with the stock market, including stockbrokers, traders, stock analysts, portfolio managers and investment bankers. Each has a unique role, but many of the roles are intertwined and depend on each other to make the market run effectively.

Stockbrokers, also known as registered representatives in the U.S., are the licensed professionals who buy and sell securities on behalf of investors. The brokers act as intermediaries between the stock exchanges and the investors by buying and selling stocks on the investors’ behalf. (Learn more in Evaluating Your Stock Broker.)

Stock analysts perform research and rate the securities as buy, sell or hold. This research gets disseminated to clients and interested parties to decide whether to buy or sell the stock. Portfolio managers are professionals who invest portfolios, collections of securities, for clients. These managers get recommendations from analysts and make buy/sell decisions for the portfolio. Mutual fund companies, hedge funds and pension plans use portfolio managers to make decisions and set the investment strategies for the money they hold.

Investment bankers represent companies in various capacities such as private companies that want to go public via an IPO or companies that are involved with pending mergers and acquisitions.

The Performance Indicators

If you want to know how the stock market is performing, you can consult an index of stocks for the whole market or for a segment of the market. Indexes are used to measure changes in the overall stock market. There are many different indexes, each made up of a different pool of stocks (though there may be overlap among them). In the U.S., examples of indexes include the Dow Jones Industrial Average, NASDAQ Composite Index, Russell 2000, and Standard and Poor’s 500 (S&P 500).

The Dow Jones Industrial Average (DJIA) is perhaps the best-known. The Dow is comprised of the 30 largest companies in the U.S., and the daily Dow shows how their stocks perform on a given day. The Dow average is a price–weighted average, meaning its number is based on the price of the stocks. The S&P 500 is comprised of the 500 largest capitalization stocks traded in the U.S.

These two indexes  are the most followed measurements of the U.S. stock market, and as such, the most generally accepted representatives of the American overall economy. However, there are many other indexes that represent mid- and small-sized U.S. companies, such as the Russell 2000. (For more on indexes and their function, check out The History Of Stock Market Indexes.)

Why is the Stock Market Important?

The stock market allows companies to raise money by offering stock shares and corporate bonds. It lets investors participate in the financial achievements of the companies, making money through the dividends (essentially, cuts of the company’s profits) the shares pay out and by selling appreciated stocks at a profit, or capital gain. (Of course, the downside is that investors can lose money if the share price falls or depreciates, and the investor has to sell the stocks at a loss.)

In the U.S., the indexes that measure the value of stocks are widely followed and are a critical data source used to gage the current state of the American economy. As a financial barometer, the stock market has become an integral and influential part of decision-making for everyone from the average family to the wealthiest executive.

Is the Stock Market Rigged?

Which is not to say that everyone is equal when it comes to trading. Technically speaking, the stock market is not rigged. One of the whole points of an open exchange is to provide transparency and opportunity for all; furthermore, laws and governing bodies such as the SEC exist to “level the playing field” for investors. However, there are undeniable advantages that institutional investors and professional money managers have over individual investors: timely access to privileged information, full-time researchers, huge amounts of capital to invest (which results in discounts on commissions, transactional fees and even share prices), political influence and greater experience. While the Internet has been somewhat of an equalizing factor, the reality is that many institutional clients get news and analysis before the public does, and can act on information more quickly.

History of the Stock Market

It can be difficult for investors to imagine a time when the stock market in general, and the NYSE in particular, wasn’t synonymous with investing. But, of course, it wasn’t always this way; there were many steps along the road to our current system of exchange. In fact, the first stock exchange thrived for decades without a single stock actually being traded.

The First Stock Exchange – Sans the Stock

Belgium boasted a stock exchange as far back as 1531, in Antwerp. Brokers and moneylenders would meet there to deal in business, government and even individual debt issues. It is odd to think of a stock exchange that dealt exclusively in promissory notes and bonds, but in the 1500’s there were no real stocks. There were financier partnerships that produced income like stocks do, but there was no official share that changed hands.

All Those East India Companies

In the 1600’s, the Dutch, British, and French governments all gave charters to companies with East India in their names. On the cusp of imperialism’s high point, it seems like everyone had a stake in the profits from the East Indies and Asia except the people living there. Sea voyages that brought back goods from the East were extremely risky – on top of Barbary pirates, there were the more common risks of bad weather and poor navigation.

In order to lessen the risk of a lost ship ruining their fortunes, ship owners had long been in the practice of seeking investors who would put up money for the voyage – outfitting the ship and crew in return for a percentage of the proceeds if the voyage was successful. These early limited liability companies often lasted for only a single voyage.

When the East India companies formed, they changed the way business was done. These companies had stocks that would pay dividends on all the proceeds from all the voyages the companies undertook, rather than going voyage by voyage. These were the first modern joint stock companies. This allowed the companies to demand more for their shares and build larger fleets. The size of the companies, combined with royal charters forbidding competition, meant huge profits for investors.

A Little Stock With Your Coffee?

Because the shares in the various East India companies were issued on paper, investors could sell their holdings to other investors. Unfortunately, there was no stock exchange in existence, so the investor would have to track down a broker to carry out a trade. In England, most brokers and investors did their business in the various coffee shops around London. Debt issues and shares for sale were written up and posted on the shops’ doors or mailed as a newsletter.

The South Seas Bubble Bursts

The British East India Company had one of the biggest competitive advantages in financial history – a government–backed monopoly. When the investors began to receive huge dividends and sell their shares for fortunes, other investors were hungry for a piece of the action. The budding financial boom in England came so quickly that were no rules or regulations for the issuing of shares. The South Seas Company (SSC) emerged with a similar charter from the king and its shares, and the numerous re-issues, sold as soon as they were listed. Before the first ship ever left the harbor, the SSC had used its newfound investor fortune to open posh offices in the best parts of London.

Encouraged by the success of the SSC – and realizing that the company hadn’t done a thing except issue shares – other “businessmen” rushed in to offer new shares in their own ventures. Some of these were as ludicrous as reclaiming the sunshine from vegetables or, better yet, a company promising investors shares in an undertaking of such vast importance that they couldn’t be revealed – something known today as a blind pool.

Inevitably, the bubble burst when the SSC failed to pay any dividends off its meager profits, highlighting the difference between these new share issues and the British East India Company. The subsequent crash caused the government to outlaw the issuing of shares – a ban held until 1825.

The New York Stock Exchange

The first stock exchange in London was officially formed in 1773, a scant 19 years before the New York Stock Exchange. Whereas the London Stock Exchange (LSE) was handcuffed by the law restricting shares, the New York Stock Exchange has dealt in the trading of stocks since its inception. The NYSE wasn’t the first stock exchange in the U.S.: That honor goes to the Philadelphia Stock Exchange (1790). But it quickly became the most powerful.

Formed by brokers under the spreading boughs of a buttonwood tree, the New York Stock Exchange made its home on Wall Street. The exchange’s location, more than anything else, led to the dominance that the NYSE quickly attained. It was in the heart of all the business and trade coming to and going from the United States, as well as the domestic base for most banks and large corporations. By setting listing requirements and demanding fees, the New York Stock Exchange became a very wealthy institution.

The NYSE faced very little serious domestic competition for the next two centuries. Its international prestige rose in tandem with the burgeoning American economy in the 20th century, and it was soon the most important stock exchange in the world. London emerged as the major exchange for Europe, but many companies that were able to list internationally still listed in New York. Other countries, including Germany, France, the Netherlands, Switzerland, South Africa, Hong Kong, Japan, Australia and Canada, developed their own stock exchanges, but these were largely seen as proving grounds for domestic companies to inhabit until they were ready to make the leap to the LSE and from there to the big leagues of the NYSE.

The NYSE had its share of ups and downs during the same period, too. Everything from the Great Depression to the Wall Street bombing of 1920 left scars on the exchange (in the last case, literally: marks remain on the buildings from the blast, which left 38 people dead). After the Stock Market Crash of 1929, less literal scars came in the form of stricter listing and reporting requirements, and increased government regulation.

Still, the NYSE suffered relatively little disruption during the world wars and didn’t have the prolonged declines that many of the European and Asian markets experienced in the late 1940s. Reflecting the economic dominance of the U.S. throughout the world, it was arguably the most powerful stock exchange domestically and internationally, despite the existence of stock exchanges in Chicago, Los Angeles and Philadelphia.

In 1971, however, an upstart emerged to challenge the NYSE hegemony.

The New Kid on the Block

The Nasdaq was the brainchild of the National Association of Securities Dealers (NASD), now called the Financial Industry Regulatory Authority (FINRA). From its inception, it has been a different type of stock exchange. It does not inhabit a physical space, as does the NYSE at 11 Wall Street. Instead, it is a network of computers that execute trades electronically.

The introduction of an electronic exchange made trades more efficient and reduced the bid-ask spread – a spread the NYSE wasn’t above profiting from. The competition from Nasdaq has forced the NYSE to evolve, both by listing itself and by merging with Euronext (created in 2000 from the merger of the Amsterdam, Brussels and Paris stock exchanges) in 2007 to form the first trans-Atlantic exchange. With this merger, the influence of movements on the NYSE truly became global in scope. (To learn more, check out The Tale Of Two Exchanges: NYSE And Nasdaq and The Global Electronic Stock Market.)

A Newer Kid on the Block

For years, the Nasdaq was the second-largest equity U.S. exchange, after the NYSE. In the 21st century, however, it was superseded – in terms of market share, at least – by another electronic exchange, currently known as BATS Global Markets. (Nasdaq is still number two in terms of market capitalization.) Founded in 2005, BATS (which stands for “Better Alternative Trading System”) now runs four domestic stock exchanges, representing 20.5% of the U.S. equities markets, and has also branched out into forex​, options, European equities and ETFs; in fact, it’s the largest ETF exchange in the country.

The Bottom Line

Once upon a time, “stock market” was synonymous with “stock exchange” – a place where people literally gathered to buy and sell securities. In this era of computerized trading and electronic communication networks (ECNs) like those run by Nasdaq and BATS, that’s no longer true. And the human element has been reduced even further by the advent of high-speed or high frequency trading, automated trading platforms which use computer algorithms to transact a large number of orders at extremely high speeds – millions of orders in a matter of seconds, in fact. High-frequency trading became popular when exchanges started to offer incentives for companies to become market makers in stocks, thus providing liquidity to the market. For example, after the subprime mortgage crisis of 2008 and the failure of broker-dealers like Lehman Brothers, the NYSE launched a program that pays firms a per-transaction fee or rebate for actively trading securities.

While physical exchanges of paper are now rare, and actual trading floors may continue to dwindle, the concept of a stock market remains intact. Be it literal or figurative, societies, companies and individuals all like the idea of an open, public forum for raising, investing and making money.

‘Stock Market’

Published at Fri, 07 Apr 2017 21:05:00 +0000

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Stocks Give Up Ground Amid Slowing Job Growth

 

Stocks Give Up Ground Amid Slowing Job Growth

By Justin Kuepper | Updated April 7, 2017 — 6:22 PM EDT

The major U.S. indexes moved largely lower over the past week, as a better-than-expected manufacturing report early in the week was offset by lower-than-expected employment data. Non-farm payrolls rose just 98,000 in March – compared to a consensus of 175,000 – although investors were comforted by a sharp 0.2% drop in the unemployment rate and strong job gains in the manufacturing sector that drives middle-class spending. Of course, the Syrian air strike has also weighed on the market as concerns mount over Trump’s long-term plans.

International markets were mixed over the past week. Japan’s Nikkei 225 fell 1.3%; Germany’s DAX 30 fell 0.71%; and, Britain’s FTSE 100 rose 0.31%. In Europe, the Eurozone reported its best period of economic activity since the 2011 sovereign debt crisis with HIS Markit’s survey reaching a six-year high. In Asia, investors will be anxiously watching President Trump’s meeting with Chinese President Xi Jinping that began on Thursday in Mar-a-Lago where the two are likely to discuss trade policy and North Korea.

The S&P 500 SPDR (ARCA: SPY) fell 0.23% over the past week. After moving off of its 52-week high, the index has been hovering around its pivot point at $135.54. Investors should watch for a rebound toward R1 resistance at $239.48 or a breakdown from its 50-day moving average at $233.82 to S2 support at $227.87. Looking at technical indicators, the RSI recovered but remains neutral at 51.17, while the MACD remains in a bearish downtrend that dates back to early March — although it could see a bullish crossover in the near-term.

The Dow Jones Industrial Average SPDR (ARCA: DIA) rose 0.02% over the past week, making it the best-performing major index. After moving off its 52-week high, the index has traded in a narrow range just below its pivot point at $207.11. Traders should watch for a rebound to R1 resistance at $210.41 or a breakdown below its 50-day moving average at $205.46 to S2 support at $199.74. Looking at technical indicators, the RSI appears neutral at 49.22 while the MACD remains in a bearish downtrend that could soon reverse.

The PowerShares QQQ Trust (NASDAQ: QQQ) fell 0.31% over the past week. After briefly touching trend line and R1 resistance at $133.61, the index has traded sideways just above its pivot point at $131.51. Traders should watch for a breakout to R2 resistance at $134.85 or a move below trend line support to S1 support or its 50-day moving average at $129.64. Looking at technical indicators, the RSI appears a bit lofty at 59.79 while the MACD remains in bearish territory but could see a bullish crossover.

The iShares Russell 2000 Index ETF (ARCA: IWM) fell 1.42% over the past week, making it the worst-performing major index. After briefly rising above its pivot point, the index moved lower to nearby its lower trend line support. Traders should watch for a breakout toward the upper end of its price channel at $142.00 or a breakdown lower to S2 support at $128.72. Looking at technical indicators, the RSI appears neutral at 47.68 while the MACD remains depressed, but could see a bullish crossover in the near-term.

The Bottom Line

The major U.S. indexes moved largely lower over the past week with the exception of the Dow Jones Industrial Average that posted a modest gain. Most indexes have neutral technical indicator readings, which provides few hints as to future price movements. Next week, traders will be several economic indicators including Janet Yellen’s speaking engagement on April 10, consumer sentiment on April 13, and retail sales data on April 14. Investors will also be closely monitoring the situation in Syria for signs of escalation.

Note: Charts courtesy of StockCharts.com. As of the time of writing, the author had no holdings in the securities mentioned.
Published at Fri, 07 Apr 2017 22:22:00 +0000

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How To Trade Realized Volatility

 

How To Trade Realized Volatility

by THE MOLEAPRIL 6, 2017

I wonder what thoughts were triggered in your head when you saw the featured image above. The notion of a brewing storm is rather ominous and usually is associated with inconvenience, discomfort, and sometimes outright destruction of property. But I chose it very carefully to make a point which I’ll try to convey below. Let’s look at some charts:

2017-04-06_ES_volatility

In case you are new here, the indicator on the bottom of this chart is a slightly altered version of the ATR with a simple Bollinger slapped on top of it. When creating it the intent was to visualize discrete cycles of realized volatility (RV), which I subjectively believe it does fairly well. If nothing else it does show us the wide range that RV can take and how it affects price movements.

The little boxes I drew on the chart highlight periods in which volatility had slowed down considerably, thus producing a very narrow Bollinger bubble. Chartists often refer to this as a ‘pinched Bollinger’ and the associated rule is that an expansion of the underlying is at hand. Since we are measuring realized volatility we are thus looking at moments in time that depict abnormally high contraction of RV (i.e. the ‘pinch’), which in many (but not all) cases results in an expansionary cycle. So far so clear.

What often is forgotten however is that realized volatility (RV), unlike implied volatility (IV), is agnostic to direction, it only cares about velocity (remember: average true range). While IV represents the expectation of future volatility RV shows us the volatility that already has happened in the past. And since the vast majority of traders or investors view rising prices as a positive and falling prices as a negative rising IV is associated with the anticipation of falling prices. Meanwhile RV is a direct derivative of price and as such happily swings in both directions. Which means a drop in price will have (almost) the same impact on RV than falling prices. I said almost because in order to make it the same you would have to normalize the price series but that’s a topic for another day

When a storm arrives we are often inconvenienced as for example driving in ‘bad weather’ makes things more dangerous for us. But let’s not forget that there’s nothing inherently ‘bad’ about rain and wind in, in particular if it presents itself in relative moderation. Flowers and plants for example wouldn’t pollinate and grow for one and without rain we would be forced to drink saltwater and that’s no fun.

Now there is a reason for my lengthy treatise on volatility and its analogy to weather. Because when I suggest that a storm may be brewing then my inference is not that prices may necessarily fall. It’s easily possible that we are going to see a resolution to the upside, of course most likely not without luring a few bears into placing bets to sweeten the pot a little. Noblesse oblige.

If you take another look at the chart above you will see that the very last box I drew on the very right is also the most rectangular. What does that mean? It means that RV contracted on the E-Mini to a historically low level and remained in that range for an extended amount of time. Not surprisingly that contraction accompanies the juicy rally we enjoyed all the way until my leave to Tenerife. Once again sorry for having spoiled the party.

What Comes Next?

Expansion, which is what we already have been perceiving over the past month. You may also have noticed that the current Bollinger bubble, although being in the process of expanding, continues to be positioned relatively low in comparison with at least the past year of pricing action. Which bodes the question: do the odds support a rise or a further drop and thus a renewed contraction? Just like you I don’t have a crystal ball but at least the limited sample size shown on the chart points toward expansion. And that expansion may actually come in the form of a spike higher followed by a fast drop lower, or the inverse. We. Just. Don’t. Know. But what we do know are our trading and system rules and they should tell us that realized volatility demands a adjustment in stop and campaign management. For me personally that means WIDER stops and SMALLER position size, which incidentally are mutually dependent – see for yourself.

But there is more and we’ve only touched the surface…

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Please login or subscribe here to see the remainder of this post.

Summary

Properly interpreting realized volatility can lead you to placing better discretionary trades and/or develop more effective systems tailored to exploit specific price behavior. What should have become clear now is that the underlying characteristics of various price series can differ substantially. Nevertheless it is rare to find discussions on this most basic attribute of price propagation in popular trading books or tutorials, the one big exception being the quant sector (for obvious reasons). Short of spending the next 15 years studying to become a quant trader I hope that this post will help you read your charts more effectively going forward.
Published at Thu, 06 Apr 2017 13:42:07 +0000

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Is NVIDIA Topping Out?

by NeuPaddy from Pixabay

Is NVIDIA Topping Out?

By Alan Farley | April 4, 2017 — 12:20 PM EDT

NVIDIA, Corp. (NVDA) outperformed major indices and the broad tech universe in 2016, more than tripling in price to a lofty high in triple digits. However, the stock has struggled since the calendar flipped to January and is now trading in the red for 2017. The sideways pattern carved since December could signal a major top, but it’s too early for short sellers to do victory laps because remaining bulls are fighting hard to reinstate the uptrend.

Stocks that lead the market in one year often lag badly in the following year, following the long-held market wisdom that the bigger the move, the broader the base. In this incarnation, NVDA’s bullish long-term story remains fully intact but may be discounted in the current stock price, raising odds it will head into an intermediate correction that tests last year’s outsized gains.

NVDA Long-Term Chart (1999-2017)

NVDA

The company came public at $1.83 (post four splits) in January 1999, right at the height of the tech bubble. It established support just below $1.40 and took off in a strong uptrend that continued into the January 2002 high at $24.22, ahead of a steep decline that coincided with the final and most brutal phase of the Dot.com bear market. Selling pressure finally ended in October at a 3-year low, just one point above the 1999 low.

The stock carved a double bottom reversal into 2005 and took off in a strong trend advance, lifting in multiple rally waves that reached $39.67 in October 2007, right at the bull market top. It held up relatively well during the 2008 economic collapse, losing more than 80% of its value but holding above the 2002 and 2004 lows. A two-legged recovery into 2011 came up short, stalling at the 50% bear market retracement level in the mid-20s.

Volatility and interest then died, dropping price into a 15-point range that persisted for more than four years, ahead of an enthusiastic rally driven by growing interest in virtual reality gaming technologies. The stock exploded through resistance at the 2007 high in May 2016 and went parabolic, lifting in a high volume uptick that posted minor pullbacks into its December high at $119.93.

NVDA Short-Term Chart (2015-2017)

NVDA

The stock eased into a shallow uptrend in 2012, with the weak angle of attack continuing into July 2015 when price rate of change began to escalate. It rallied above the 2011 recovery high in October, setting off a round of buying signals, but the broad market decline into the first quarter of 2016 limited gains until February when it ejected into a market-leading breakout and trend advance.

A Fibonacci grid stretched across the 2016 rally places a continuation gap at the 50% level, raising odds the uptrend has now come to an end. More importantly, a February breakout attempt failed, triggering a decline that eventually found support in the mid-90s while the subsequent bounce got sold aggressively at the 50-day EMA. This increases danger substantially because a selloff to the red line will now complete a bearish head and shoulders top, with a measured move target at $70.

On Balance Volume (OBV) tracked price higher in 2016, signaling major institutional and retail sponsorship. It peaked in December and failed to post a new high in February, even though the stock hit an all-time high at $120.92. The indicator is now pointed lower, but there’s no evidence that shareholders are abandoning ship or taking profits. This marks a two-edged sword because, while offering a tailwind, it also denotes a huge supply of bagholders if the stock breaks support.

The Bottom Line

NVIDIA is trading in the red for 2017 after failing two attempts to break resistance at $120. Price action during this period has drawn the outline of a potential topping pattern, telling observant market players to focus on price action in the mid-90s, where head and shoulders neckline support may determine the stock’s long-term fate.

(Why?)
Published at Tue, 04 Apr 2017 16:20:00 +0000

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Three Tech Stocks to Buy for the Second Quarter

 

Three Tech Stocks to Buy for the Second Quarter

By Alan Farley | March 31, 2017 — 12:30 PM EDT

The Nasdaq-100 led broad benchmarks in the first quarter, driven higher by widely held tech stocks that underperformed through most of 2016. While the most popular plays have rallied into lofty levels that could trigger sizable second quarter pullbacks, secondary tech names could gain traction as market players take profits and look for lower-risk buying opportunities.

Fiber optics, semiconductors and software providers look like sweet spots in the hunt for second-quarter tech winners but it’s hard to make bad choices because the rising market has been floating all boats. Even so, first-quarter earnings season is likely to shake out a few bad apples so keep one finger on the exit button until your new positions prove their worth with solid results.

RHT

Linux software provider Red Hat, Inc. (RHT) beat fourth-quarter revenues while guiding fiscal year 2018 above consensus in this week’s earnings confessional, triggering a 4-point gap and high percentage rally to a 17-year high at $87.91. It’s been filling the gap while testing new support near $84.50 in the last three sessions and should bounce soon in a healthy follow-through rally.

The uptick has finally confirmed a breakout above the 50% retracement level of the 2000 to 2002 bear market decline between $151 and $2.40, opening the door to the .618 retracement in the mid-90s. Price action between that level and triple digits will likely attract selling interest in a two sided tape, so keep stops tight until the stock trades comfortably above $100. Once settled above that level, it can set its sights on the much larger challenge of rallying into the Dot.com high.

ADI

Apple, Inc. (AAPL) supplier Analog Devices, Inc. (ADI) broke out above the 2004 high at $52.37 in 2015 and tested new support for more than 18-months, ahead of a strong trend advance that reached with 22-points of the 2000 all-time high at $103. The rally stalled in the lower 80s in mid-February, giving way to a narrow trading range that’s still in force as we head into the second quarter.

The slow grind is approaching intermediate support at the 50-day EMA, with round number 80 likely to trigger a bounce that tests the February high at $84.24. More dynamic upside may wait until the stock mounts the 4-month rising trendline (blue line), currently near $87. At that point, a momentum crowd could choose to buy high and sell higher, triggering a vertical rally into triple digits and a major test at the 17-year-old high. The company reports earnings on May 18.

FLIR

Flir Systems, Inc’s (FLIR) technological and military orientation offers a twin benefit to market players, given the Trump administration’s commitment to higher defense spending. It stalled just above $37 in 2011 at the tail end of a 2-year recovery wave and failed a breakout attempt at that level in 2014. The stock returned for a third visit at the end of 2016 and dropped into a sideways pattern that’s holding close to that resistance level.

This coiling action predicts a multiyear breakout that tests the 2008 all-time high at $45.49. The sky’s the limit once that level gets mounted, favoring a rapid advance that could offer outsized gain to well-timed long positions. Early trade entry ahead of a breakout makes perfect sense because the narrow trading range supports relatively tight stop losses in case of an unexpected downturn. The company reports earnings on April 26.

The Bottom Line

Big tech stocks have led the first quarter advance, with the most widely held names now overbought and in need of multiweek pullbacks. This technical positioning should generate a rotation into second tier sector components that have attracted less public attention than their more popular peers.
Published at Fri, 31 Mar 2017 16:30:00 +0000

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Schedule for Week of Apr 2, 2017

by Unsplash from Pixabay

Schedule for Week of Apr 2, 2017

by Bill McBride on 4/01/2017 08:11:00 AM

The key report this week is the March employment report on Friday.

Other key indicators include the March ISM manufacturing and non-manufacturing indexes, March auto sales, and the February Trade Deficit.

Also the Q1 quarterly Reis surveys for office and malls will be released this week.

—– Monday, Apr 3rd —–

ISM PMI10:00 AM: ISM Manufacturing Index for March. The consensus is for the ISM to be at 57.1, down from 57.7 in February.Here is a long term graph of the ISM manufacturing index.

The ISM manufacturing index indicated expansion at 57.7% in February. The employment index was at 54.2%, and the new orders index was at 65.1%.

10:00 AM: Construction Spending for February. The consensus is for a 1.0% increase in construction spending.

—– Tuesday, Apr 4th—–

U.S. Trade Deficit8:30 AM: Trade Balance report for February from the Census Bureau.This graph shows the U.S. trade deficit, with and without petroleum, through January. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The consensus is for the U.S. trade deficit to be at $44.5 billion in February from $48.5 billion in January.

Early: Reis Q1 2017 Mall Survey of rents and vacancy rates.

Vehicle SalesAll day: Light vehicle sales for March. The consensus is for light vehicle sales to decrease to 17.4 million SAAR in March, from 17.5 million in  February (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the February sales rate.

10:00 AM: Manufacturers’ Shipments, Inventories and Orders (Factory Orders) for February. The consensus is a 1.0% increase in orders.

—– Wednesday, Apr 5th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.8:15 AM: The ADP Employment Report for March. This report is for private payrolls only (no government). The consensus is for 170,000 payroll jobs added in March, down from 298,000 added in February.

Early: Reis Q1 2017 Office Survey of rents and vacancy rates.

10:00 AM: the ISM non-Manufacturing Index for March. The consensus is for index to decrease to 57.0 from 57.6 in February.

2:00 PM: FOMC Minutes for the Meeting of March 14 – 15, 2017

—– Thursday, Apr 6th —–

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 250 thousand initial claims, down from 258 thousand the previous week.
—– Friday, Apr 7th —–

8:30 AM: Employment Report for March. The consensus is for an increase of 178,000 non-farm payroll jobs added in March, down from the 235,000 non-farm payroll jobs added in February.The consensus is for the unemployment rate to be unchanged at 4.7%.

Year-over-year change employmentThis graph shows the year-over-year change in total non-farm employment since 1968.

In February, the year-over-year change was 2.35 million jobs.

A key will be the change in wages.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for February.

3:00 PM: Consumer credit from the Federal Reserve.  The consensus is for a $15.0 billion increase in credit.

Published at Sat, 01 Apr 2017 12:11:00 +0000

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How To Trade Break Out Formations

 

How To Trade Break Out Formations

This is going to be a bit of quickie as I find myself short on time ahead of the opening bell. But if you have been around the block a few times then you know that quickies can be quite fun. And we both you know you’re easy!

Today’s formation on the E-Mini is a great study piece as it paints a textbook break out formation which often can successfully be leveraged as an entry opportunity. For some reason however many retail ratlings seem to repeatedly be missing out as they are unsure as to where exactly to enter. Let’s set the stage:

2017-03-30_spoos_question

Quite frankly this is as textbook as it comes. Clearly what we have here is a touch of the lower 25-day SMA, which at first sight looked like weak technical context and thus was not suggested as an entry opportunity by yours truly earlier this week. Nevertheless I’m already positioned long since Monday after a speculative entry signal courtesy of the Zero indicator (you ARE a sub right? If not read this).

As a sidenote, since then I have received several inquiries as to whether it is too late to go long here and/or if I am still holding my position. Answers: NO, and YES – so rejoice!

Now I can already hear your little rodent brain rattling. “Is this a good entry opportunity?”, “Is it too late to enter?”, “Do I wait for a retest lower?”, “Do I wait for a breach of the recent spike high?”.

And here are the respective short answers: YES, NO, YES, YES.

I can understand how this may be confusing to you and I promise I’ll explain this in exhausting detail below – in the subscriber section. Sorry I cannot give it all away for free as the lair doesn’t run itself and those damn sharks in our moat need a new set of laser beams.

2017-03-30_copper_update

Now if that ticks you off then this will most likely push you over the edge. Here’s an update on our copper entry from last Tuesday. And yes it was (drum rolls) posted to the subscriber only section. Well we were hoping for a drop toward 2.62 and actually snagged it – just barely. By the way as a rule if you’re not being filled after a quick spike below your threshold then it’s usually okay to chase it up a few ticks. Yes, it may come back down and you missed a better fill but often you wind up missing out on a good campaign, especially on thinner contracts like HG. For me entry thresholds are ranges – not exact price points.

Anyway, let’s advance our trailing stop to < 2.653 – be generous – you  know make that < 2.65. We are now in very good shape here and don’t want to get shake out too early.

2017-03-30_crude_update

Still here? Well, then how about crude, which I didn’t get a fill on but I’m sure that some of the subs did. And what a beauty it has turned into. If you’re long this puppy then move your stop to < 48.27, which is the most recent spike low.

Alright, here’s the solution to today’s puzzler in all its glory:

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Please login or subscribe here to see the remainder of this post.

So which one do you pick? Well actually you can run with all three scenarios and this way scale yourself into the position slowly. In case you missed it – I wrote a pretty nice post on the subject which shows you the math involved. Have fun but keep it frosty.

(Why?)
Published at Thu, 30 Mar 2017 13:48:22 +0000

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Trading Divergences With The Zero Indicator

 

Trading Divergences With The Zero Indicator

by THE MOLEMARCH 29, 2017

Yesterday I received a series of follow up questions regarding what now appears to have been yet another prescient tweet this time depicting a bullish divergence on the Zero. If you are new here and are unfamiliar with the Zero indicator then I recommend that you point your browser to the introduction, the tutorial, and most importantly the video section where you can enjoy dozens of recaps of past E-Mini trading sessions.

Let’s take a step back and talk about the basic premise of why I came up with the Zero indicator and why it continues to be favored by an overwhelming percentage of my subscribers. Some of you have been using it continuously for many years and I think the most loyal subs goes back all the way to 2009! Clearly the Zero seems to be useful but what exactly differentiates it from the myriad of indicators you get for free in your trading platform?

Some History

Many of you enjoy swing trading the E-Mini futures and I am no exception. But even for skilled traders doing so without a deeper understanding of what is driving equity markets can quickly lead you to a series of frustrating losses. Technically speaking the average retail trader of today has direct access to capabilities and execution speeds that our forefathers could only have dreamed of.

However we are all also suffering from a major disadvantage. The increasing proliferation of electronic trading over the past few decades has gradually separated us from what some may call the physical aspects of trading. These days there is very little opportunity to actually expose yourself to a floor of traders and base trades on participation and changes in apparent sentiment among fellow participants.

Although this may sound completely alien to you today, several generations of very successful traders actually never looked at single technical indicator in their entire life and purely based their trading activities on the ‘action’ they perceived among them. The vast majority of these oldtimers didn’t have a clue about charts or technical analysis (it barely even exited at the time) and mostly relied on their intuition and people reading skills (and of course the occasional ‘tip’) to place their positions.

So it’s fair to say that the way our grandparents were trading was fundamentally different. Unlike today everything was happening manually and thus an analog basis. Which meant filling out paper slips or calling your broker who happily would do it for you. These slips then physically were handed to the floor brokers who then would settle small as well as very large trades by shouting at other brokers in combination with a complicated series of hand signals. Watch the clip above for a pretty accurate historical review of how trading was done back in the ‘good ole’ days’.

Stock Tickers

So how did market information get disseminated across the nation and even the rest of the world? After the turn of the 20th century and the establishment of a nationwide electric grid the common practice was to run glorified bucket shops in key locations across the United States (and to some extent in Europe) which were equipped with a slightly modified version of the telegraph.

stock_ticker

It was called the stock ticker and it was a simple mechanical device that received analog electric signals from the exchanges or relay stations and then printed them on a thin roll of paper. What was being printed of course were stock symbols on the first row and their current bids on the second.

ticker_tape

At the end of a trading day cleaning crews would come in and actually clean off all the ticker tape which had accumulated during the session. Sometimes mountains of the stuff were being re-used in ticket tape parades (hence the name), so don’t ever think our grandparents didn’t care about recycling 😉

ticker_tape_parade

One of the intrinsic aspects of running a stock ticker was that it made a lot of noise. We are not talking laser printers here folks, but a rather crude early 20th century mechanical device that at times produced quite a racket. So if young Jesse Livermore was dropping by his local bucket shop he most certainly was able to hear their stock ticker rattle like crazy when there happened to be a lot of trading activity. And even if he showed up late he most likely would have been able to judge the recent amount of activity simply by the heaps of ticker tape that had accumulated on the floor (I’m however uncertain if those were routinely cleaned). So even thousands of miles away in Los Angeles or Seattle an aspiring stock trader would be able to actually get a good glimpse of the floor action all the way over in New York. Of course nothing beats the real thing which meant actually being right there on the floor and being elbowed and pushed aside while fellow traders were screaming on top of each other.

So if you think you have so much better today – think again. Yes, everything is a lot more convenient and quiet these days. Many of us have entered or closed out positions early in the morning in our pijamas or whilst sitting on the toilet (please make sure you scrub your screen with soap afterwards). But all that convenience comes at a price. We are physically removed from observing the ‘action’ – all we are given are dancing candles on a screen. Which ain’t bad and I’m sure Jesse would have given one of his limbs being able to do that in real time. But I’m equally sure he would have missed ‘listening’ to the tape in order to gauge participation, price momentum, a shift in sentiment among participants, the response to an urgent news report, etc..

Visualizing Participation And Momentum

Now pondering all that sometime in late 2008 I experienced some sort of an epiphany and inspired I immediately went to work. My goal was to merge various meta market measures (my secret sauce so don’t ask) into a visual indicator that ‘made a lot of noise’ when there was a surge in participation and remained quiet when there was none. In addition it was also supposed to provide me with sense of market direction: basically how does buying pressure align with selling pressure?

In the following two years it went through a few optimizations and small changes but the core algorithm driving the Zero has remained practically unchanged since its inception. I could think of a few improvements here and there but the basic concept has remained valid since then and has survived many years of some of nastiest and volatile tape in trading history. Short of listening to a floor of traders or a rattling ticker I am able to watch the Zero and still get a pretty good sense of what the market is doing and most importantly if price may be lying to me. I have written many tutorials on the subject and if you are curious to learn more then I once again encourage you to follow the links I posted in the beginning of this article.

Back To The Future

Over the years there have been countless times when the Zero literally saved my butt from either being lured into a losing position or alerted me early to a change in short term market direction. Monday was not unique but it’s a good example of how to asses price action and get positioned accordingly:

Here’s the tweet I posted early that day as well as in the blog’s comment section. I’m actually rather selective before making ‘calls’ like that. For one it’s public and nobody wants to wind up making a series of bad calls. Secondly my readers will most likely take my tweets or comments in consideration and as such I only post it when I myself am ready to pull the trigger. I usually refrain from confusing or haphazard comments which could be misinterpreted. The format of these calls is usually:

  • This is what I see.
  • Why it matters.
  • How/when/where I am going to place a trade.

In general I expect my subscribers to become familiar with the Zero, watch it for a few weeks, and then start interpreting the signals in the context of their own trading activities. I do not know if you’re trading a 5-min, 60-min, daily, or weekly chart. I have no idea what your trading horizon is. I also do not know what your campaign or exit rules are. So when I post my POV on the Zero it is mainly geared toward my own trading activities. Of course if yours happens to be compatible then have at it. Bullish or bearish divergences can become the springboard for short term or long term campaigns. It’s up to you to watch the Zero and interpret it accordingly. It doesn’t tell you when and where to buy – it’s an oscillator that shows you market momentum and participation.

With that in mind let’s take another look at two panels at that moment in time. What stands out in my opinion is the rather pronounced bullish divergence on the hourly (left) panel. The smoothed version is pointing up while price was gapping and still falling. On the 5-min (right) panel we are seeing very little participation which of course can also mean nobody is interested in buying.

Time For Action

What happened in the following hour was some continuation higher followed by a little spike low which didn’t even touch VWAP. Which is where I grabbed a small position – only 0.25% as it was still speculative. Some of you have mentioned that a relatively flat signal usually means sideways tape but that’s not exactly true. A few observations I have gathered over the years you may want to internalize:

  • If price starts moving hard despite low participation (i.e. a flat signal) then it’s most likely driven by institutions. Remember that the Zero only shows you what the tape does (price) and how it’s correlated to momentum and participation (signal). It’s our job to analyze this type of information as building a system around that is extremely difficult (but probably not impossible). For example attempt to define a signal divergence and the right moment to act upon it. Not that easy even for me and that’s just one single type of entry opportunity.
  • When there is low participation and very little movement then odds have it we’re going to see a range bound session. That seems intuitive – when there is no mojo then playing the ranges may actually be most profitable. Why? Because there is less resistance in both ways.
  • On the other hand if the tape drops or ramps hard on a weak signal then fewer participants are driving the tape and there appears to be less resistance against moves in either direction.
  • A ramp or drop on a strong signal is the most reliable and suggests a trend day, especially when it kicks off the day. Often a strong spike on the open is the point of recognition that participants are ready to rock & roll.  It is also when leading divergences are most valuable as a drop in ‘mojo’ with the tape advancing suggests later comers which are ripe for the taking.

Clearly there are a ton of variations in between which is why I have often produced demonstration videos to explain my thinking. But I hope that after reading this post you have a better understanding of the purpose of the Zero indicator and why many of us find it imperative when trading equity ETFs and in particular the futures.

Shameless Plugs Department

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.
Published at Wed, 29 Mar 2017 13:00:48 +0000

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Micron Gets Six Price Target Hikes on Stellar Q2

Photo

Micron Gets Six Price Target Hikes on Stellar Q2

By Shoshanna Delventhal | March 26, 2017 — 4:08 PM EDT

Shares of U.S.-based DRAM and NAND chip market leader Micron Technology Inc. (MU) hit a multiyear high on Friday, closing up 7.4% at a price of $28.43 per share.

As the Boise, Idaho-based semiconductor manufacturer’s stock reflects an approximate 174% increase year over year (YOY), a wave of analysts issued bullish notes on the chip maker, upgrading shares and lifting their price targets after fiscal Q2 earnings and guidance blew past expectations.

‘The Sun, the Moon and the Stars …’

Analyst Betsy Van Hees at Loop Capital, who maintains a buy rating and lifts her price target on MU from $30 to $25, indicates “the sun, the moon and the stars remain aligned for Micron as it benefits from the sweet spot of the memory cycle.” MKM Partners, Deutsche Bank, Credit Suisse, Nomura, Barclays, Pacific echoed this sentiment.

Barclays’ Blayne Curtis, with an overweight rating on Micron’s shares, lifted his price target from $26 to $35, noting “favorable supply/demand dynamics continue to support healthy pricing and the company improves cost.” Curtis also noted the magnitude of outperformance​ as attributable in part to Micron’s recent integration of Taiwanese Inotera Memories and new technologies ramp up. The analyst concluded, “we remain cognizant that the environment could eventually reverse.” (See also: Micron Closes $4.0 billion Inotera Deal.)

Joining the Bandwagon

MKM Partners, with a buy rating on Micron stock, increased its price target from $34 to $38, as Deutsche Bank, also with a buy rating, lifted its price target from $35 to $30.

John Pitzer of Credit Suisse, with an outperform rating on Micron’s shares and a new $40 price target says, “while MU is clearly benefiting from better cyclical pricing, the more important drivers seem more sustainable—mix, cost-downs and scale efficiencies.”

Nomura’s Romit Shah reiterated a buy rating on Micron and lifted his price target 33% to $40, applauding Micron’s record FQ3 annual earnings guidance of $6.

“Micron is benefiting to an almost comical degree from strong memory trends,” said Pacific Crest analyst Weston Twigg, with a sector weight rating on shares of the DRAM and NAND chip market leader. (See also: Micron Soars on Another Upbeat Earnings Report.)

 
Published at Sun, 26 Mar 2017 20:08:00 +0000

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Post-Fed boost for small-cap stocks may be limited

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 Post-Fed boost for small-cap stocks may be limited

By Caroline Valetkevitch| NEW YORK

Small-cap stocks benefited from a dovish lining to the U.S. Federal Reserve’s decision to raise interest rates this past week, but strategists warn it will take more to make these pricey stocks outperform their larger brethren in the long haul.

The Fed on Wednesday raised rates by a quarter of a percentage point, as expected, but did not flag any plan to accelerate the pace of monetary tightening. A less aggressive monetary policy may benefit small-caps, which tend to get hit harder as borrowing costs increase when rates rise.

Stocks in the small-cap space rallied after the Nov. 8 election that put Donald Trump in the White House as investors bet Trump’s plans to cut back on regulations and taxes would especially help small companies.

That hasn’t panned out in the new year, as they have underperformed the S&P 500 year-to-date. Their near-term performance hinges on how much the profit picture improves, but so far small-cap earnings have yet to rebound in the same way that large caps have.

Investors consider small-cap stocks comparatively expensive.

“We’re in a show-me state for small caps,” said Steve DeSanctis, equity strategist at Jefferies. “We’ve gotten (price-to-earnings) multiple expansion, so you need earnings growth.”

Fourth-quarter earnings for companies in the small-cap S&P 600 .SPCY were down 1.0 percent from a year ago, while the benchmark S&P 500’s earnings .SPX rose 7.8 percent, Thomson Reuters data show.

Analysts expect profit growth for the S&P 600 in the first quarter of 2017, but at a rate still well below that of the S&P 500.

The S&P 600 is up just 1.4 percent since Dec. 31, after rising 24.7 percent in 2016. The S&P 500 by comparison has gained 6.2 percent since the start of the year.

At 20.4 times forward earnings estimates, the S&P 600 looks expensive compared with its long-term average of 17, Thomson Reuters data showed. The S&P 500 trades at about 17.8 times forward earnings, also above its long-term average.

The Russell 2000 , a widely used gauge for small-caps, has a forward price-to-earnings ratio of 25.4, brushing against its highest level since 2009. Its 10-year average sits at 20.7.

“Growth and the interest rate trajectory are going to be two key factors,” said Dan Suzuki, senior U.S. equity strategist at Bank of America Merrill Lynch in New York. He thinks small caps may have more room to gain in the short run, especially if earnings surprise to the upside, but that valuations remains a negative.

On the flip side, rising rates also tend to boost the U.S. dollar, which would have a bigger negative impact on large-cap multinationals as a stronger dollar weighs on offshore revenues when they are translated into the U.S. currency.

Investors also worry that any tax reductions under the Trump administration may not come for many months, or even until 2018.

“Small-caps generally pay more in terms of U.S. corporate taxes,” said Nicholas Colas, chief market strategist at Convergex, a global brokerage company based in New York.

“You can somewhat view small-caps as a bit of a proxy for confidence in the tax reduction piece of the Trump economic plan.”

(Reporting by Caroline Valetkevitch; Editing by Daniel Bases and Leslie Adler)
Published at Sat, 18 Mar 2017 05:26:42 +0000

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Will Airline Stocks Recover from Winter Storm Stella?

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Will Airline Stocks Recover from Winter Storm Stella?

By Justin Kuepper | March 15, 2017 — 12:26 PM EDT

Winter storm Stella grounded more than 5,000 flights on Monday and Tuesday, which has taken a toll on an already-struggling airline industry.

United Continental Holdings Inc. (UAL) and Delta Air Lines Inc. (DAL) fell 7.5% and 2.5% over the past week, respectively. The U.S. Global Jets ETF (JETS) – which tracks the larger airline and parts industries – fell around 2.85% over the past week.

The industry has already been struggling with struggling unit revenue that led Delta, American Airlines, and Southwest Airlines to lower their forecasts for the first quarter of 2017. Rising fuel costs and adverse weather conditions were two of the causes cited by the airlines in their downgrades. Labor costs are also on the rise as unions negotiate new deals at higher costs while the revised travel ban announced by president Trump could hurt revenue.

Despite these concerns, Warren Buffett has been an avid buyer of American Airlines Inc. (AAL), Delta, Southwest Airlines Inc. (LUV), and United Continental. The billionaire investor is betting that the consolidation since 2005 will help control costs and avoid trade wars, while improving metrics like passenger revenue per available seat mile (“PRASM”) over the long-term.

On a technical level, United Continental could see significant support at around $61.50 and its 200-day moving average at $58.77. The Moving Average Convergence Divergence (MACD) remains in a bearish downtrend, but the Relative Strength Index (RSI) stands at highly oversold levels at 34.08. Traders should watch for a rebound from trend line support to re-test its highs of around $75.00 to $77.50 or a breakdown below these support levels.

Delta Airlines could similarly see support at its 200-day moving average at 43.04 or trend line support at around $42.00. Looking at technical indicators, the RSI appears oversold at 39.58 but the MACD remains in a long-term bearish downtrend.

Traders should watch airlines stocks for a rebound or breakdown from these key upcoming support trend lines. With the winter storm ending, airlines are likely to see a rebound from oversold conditions, but the long-term picture remains a little more cloudy.

Stock charts courtesy of StockCharts.com. Author holds positions in stocks mentioned via mutual funds and ETFs.
Published at Wed, 15 Mar 2017 16:26:00 +0000

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Buy Pullbacks on These Defense Stocks

 

Buy Pullbacks on These Defense Stocks

By Alan Farley | March 15, 2017 — 1:10 PM EDT

Defense stocks have pulled back following strong trend advances, underpinned by prospects for higher U.S. military spending during the Trump administration. Many of these issues are approaching or have reached support levels where committed buyers are likely to reload positions. Even so, sidelined investors should take a deep breath and play for the long haul because significant upside may wait until new spending parameters have been finalized.

Dow component Boeing Co. (BA) offers an exceptionally strong sector play, but its diverse operations could dilute this strategy’s objectives. In addition to military aircraft, the aerospace giant produces a broad range of non-military designs that could face increased headwinds if tariffs and border adjustment taxes become the law of the land. As a result, lesser-known plays with more-lopsided defense exposure could offer stronger returns.

NOC

Virginia blue-chip Northrop Grumman Corp. (NOC) broke out above the 2007 high at $77.30 in 2013 and entered a powerful trend advance that’s tripled the stock’s price in the last four years. It eased into a broad rising channel in 2015, holding those narrow boundaries in the last two years while signaling broad institutional and retail sponsorship that may continue through the rest of the decade.

The stock gapped up after the presidential election and stalled at channel resistance in December, ahead of a pullback that got bought at the 50-day EMA a few days later. A second test at that support level in January found willing buyers as well, with the stock now consolidating about 10-points under resistance. The next rally should break that barrier, ahead of an intermediate reward target at channel resistance between $265 and $270.

TDY

Southern California’s Teledyne Technologies Inc. (TDY) broke out of a 4-year cup and handle pattern with resistance at $66.50 in 2013 and entered an uptrend that’s posted a long series of all-time highs. The rally stalled near $110 in the fourth quarter of 2014, giving way to a triple top pattern that broke to the downside in August 2015 during the mini flash crash. The stock continued to lose ground into the first quarter of 2016, finally bottoming out at a 3-year low in the mid-70s.

It returned to resistance in September, pulled back and broke out after the November election, lifting to $129.36 in December. A broad consolidation pattern into February got bought after the company issued strong fiscal year guidance, with the rally posting an all-time high at $135.89 on March 1st, ahead of a pullback that’s now sitting on the 50-day EMA. Support at this level should offer a low-risk buying opportunity.

COL

Iowa’s Rockwell Collins Inc. (COL) has underperformed the broad defense sector in recent years, but that could change in coming months. It rallied above the 2007 high at $76 in 2014, yielding an uptick that reached the upper-90s in May 2015, ahead of a trading range that’s still in play nearly two years lower. Three tests in the lower-80s have generated strong support while the stock has now reached range resistance and the psychological $100 level.

Straight up action since mid-January has set off overbought technical signals at the same time that rising price has reached range resistance, raising odds for a final downturn that shakes out overeager bulls. However, it makes sense to let price be the guiding force for trade decisions, buying a breakout into triple digits or waiting for a pullback to fill the February 27th gap between $94.50 and $95 (red line).

The Bottom Line

Defense contractors have been pulling back in recent weeks, working off overbought technical conditions following strong post-election breakouts and rallies. Many of these blue chips have now approached or reached price levels that should trigger bounces that continue their developing uptrends.
Published at Wed, 15 Mar 2017 17:10:00 +0000

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Investor Group Lobbies for Indexes to Exclude Snap

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Investor Group Lobbies for Indexes to Exclude Snap

By Eric Volkman | March 6, 2017 — 5:55 PM EST

Last week’s IPO of hot messaging-app purveyor Snap (NYSE: SNAP) was a runaway success for many investors. Others, however, are not happy about how it was effected, and are taking their grievance to the owners of the most influential stock indexes.

The Council of Institutional Investors (CII), a group that represents a number of investment funds and other active stock buyers, is lobbying S&P Global (NYSE: SPGI) unit S&P Dow Jones Indices and MSCI (NYSE: MSCI) to exclude Snap from their indexes.

These investors are uncomfortable with the fact that the Snap stock distributed in the IPO carries no voting rights for their shareholders. This prevents those investors from influencing matters such as the company’s strategic direction, and its executive compensation packages.

Last month, CII sent Snap a letter requesting that the company reconsider its plan to sell only non-voting shares. In response, Snap Chairman Michael Lynton quoted his company’s S-1 IPO registration form saying that such a structure, “which prolongs our ability to remain a founder-led company, will maximize our ability to create stockholder value.”

In an interview with Reuters, CII Deputy Director Amy Borrus said of Snap, “They’re tapping public markets but giving public shareholders no say.”

“What we would like to see at the least is for the indexes to exclude new no-vote companies,” Borrus said in the interview.

Meetings with both companies have been set for later this week. S&P runs the S&P 500, arguably the most influential large-cap stock index on the U.S. market. MSCI operates a host of popular indexes that track the world’s debt and equity markets.

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Eric Volkman has no position in any stocks mentioned.
Published at Mon, 06 Mar 2017 22:55:02 +0000

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‘Green’ funds flush with new cash, challenges as Trump era dawns

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By David Randall| NEW YORK

Environmentally conscious investors are using their pocketbooks to protest President Donald Trump’s plans to slash environmental regulations, fueling a rally in funds that only invest in companies that meet progressive criteria for sustainability.

From the start of November to the end of January, investors poured $1.8 billion into actively managed equities funds in the “socially responsible” category, according to Lipper data. In the same period, there was a net outflow of $133 billion from funds that do not have environmental or social mandates.

Trump was elected president on Nov. 8.

Investors worried that Trump’s policies may imperil causes they believe in are hoping an influx of flows will help keep companies alive.

“If clients see the federal government withdrawing from a space they think is important, they may actually be more active in wanting to enforce their views through the dollars allocated,” said Vincent Reinhart, chief economist at Standish Mellon Asset Management.

The inflows are a boon for fund managers but also a challenge, requiring them to find companies whose share prices have a chance to climb despite less favorable federal policies.

For instance, shares of solar energy companies took a beating after the election, sliding 11 percent by year end on concerns the future of U.S. tax credits under a Trump administration, though they have recovered somewhat since then.

Still, cautious fund managers from Fidelity, New Alternatives, Calvert Investments and others are scrutinizing water technology and wind power shares, which should benefit from new federal infrastructure spending and a push by states such as California toward more renewable power generation.

Managers say water technology stocks should see an uptick from Trump’s campaign promise to spend $1 trillion on repairing and improving the country’s infrastructure. Wind stocks are attractive as that energy source is proving more cost-effective in growing areas of the country like California, which plans to get half its energy from renewable sources by 2030.

“If you look at where the policy is changing the fastest, it’s at the state level, and we see places like California continuing on that trend regardless of what is happening on the federal level,” said Kevin Walenta, who manages the Fidelity Select Environment and Alternative Energy portfolio. He has been adding to his positions in Spanish wind energy company Iberdrola SA (IBE.MC) and US-based water and plumbing company Comfort Systems USA Inc (FIX.N).

BETTING ON STATE POLICIES

Trump has not yet called for ending tax credits for solar and other renewable energy, though he has expressed doubt about the role of solar energy, bemoaned the loss of coal-mining jobs and blamed wind turbines for ruining picturesque landscapes.

Ahead of the election, power companies had already started to pivot away from solar and invest more in wind, with companies including Southern Co (SO.N), NextEra Energy Inc (NEE.N) and Xcel Energy Inc (XEL.N) announcing plans to expand wind-generating capabilities at a time when technology has helped lower its cost.

Wind power costs average between $32 and $62 per megawatt hour before subsidies, compared with an average between $49 and $61 per megawatt hour for utility-scale solar arrays without subsidies, according to a December 2016 report from Lazard. Coal power, which Trump has pledged to revive, costs between $60 and $143 per megawatt hour, the report notes.

With that cost structure, along with the potential increase in jobs from building and maintaining wind turbines, even solidly Republican states should continue to invest in renewables, said Murray Rosenblith, co-portfolio manager of the New Alternatives Fund (NALFX.O).

Rosenblith has been adding to his positions in wind companies Vestas Wind Systems (VWS.CO) and Gamesa Corporacion Tecnologica SA (GAM.MC), both of whose shares are up 10 percent or more since the start of the year.

“These are growing industries in states that are bringing back jobs,” he said. “Even if Trump wants to pull tax credits back as a political gesture he’s not going to find a lot of support in the party at large.”

(Reporting by David Randall, Ross Kerber and Nichola Groom; Editing by Jennifer Ablan and David Gregorio)
Published at Fri, 03 Mar 2017 20:00:58 +0000

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Snap Stock Soared 44% in Its First Day of Trading

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Snap Stock Soared 44% in Its First Day of Trading

By Eric Volkman | March 3, 2017 — 9:38 AM EST

Snap‘s (NYSE: SNAP) first day as a publicly traded stock was a smashing success. After its IPO price was set at $17, the company’s shares rose by 44% on the day to close at $24.48 per share.

Snap’s stock market debut is the highest-profile, and most expensive, IPO so far this year; it well eclipses the previous No. 1, Invitation Homes, which came to market in January. And with its share pop, Snap has at one stroke reached a value close to that of many famous names on the exchange. Its closing price gives it a market capitalization of over $28 billion, comparable to companies such as Target and CBS.

Snap is the owner of Snapchat, a short video and image messaging service popular with young users. As per the long-standing tradition of tech IPOs, the company has posted explosive revenue growth, but remains deeply in the red on the bottom line. In 2016, the company booked a loss of nearly $515 million on revenue of $404 million; those figures for 2015 were almost $373 million and just under $59 million, respectively.

In its IPO prospectus, the company said that on average, in the final quarter of 2016, its service had 158 million daily average users. Collectively, these people created 2.5 billion “Snaps” on a daily basis. That DAU count was up from 143 million at the end of June.

The company’s IPO was a major undertaking. It sold 200 million shares in the issue, which was underwritten by big-time financiers such as Morgan Stanley, Goldman Sachs, JPMorgan Chase unit J.P. Morgan, and Deutsche Bank.

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Eric Volkman has no position in any stocks mentioned.
Published at Fri, 03 Mar 2017 14:38:06 +0000

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The bump isn’t just Trump: What’s driving the stock rally

Photo: Richard Drew /Associated Press

The bump isn’t just Trump: What’s driving the stock rally

STAN CHOE, ASSOCIATED PRESS

NEW YORK — The stock market is hitting new heights, and yes, excitement about President Donald Trump’s policies is part of the reason for it. But it’s not the only one, analysts say.

Even if Trump had lost the election, many professional investors and analysts say they still would have expected stocks to rise, just perhaps not to the same degree. The Standard & Poor’s index has leapt 11.6 percent since Election Day, packing more gains into four months than it’s had in five of the last six full years. It dipped a bit Thursday, but it’s still close to its record set a day earlier.

Here’s a look at some of the factors behind the strong run for stocks:

Trump bump: The first reaction for markets to Trump’s win of the White House was confusion. Many investors had been expecting a victory for Hillary Clinton, and markets around the world tumbled on election night as the result became apparent. But they reversed course within hours. The reason: Investors are expecting the Trump White House to push through tax cuts for businesses and to loosen regulations on them.

Lower tax bills for companies should lead to an immediate rise in earnings, and stock prices tend to track profits over the long term. Easier regulations should also help businesses, the thinking goes, particularly big banks and other financials that have been under restrictions imposed following the financial crisis.

Financial stocks have been the best-performing sector by far of the 11 that make up the S&P 500 since the election. Besides the hope for looser regulations, analysts are also excited about the prospect for bigger profits given recent gains in interest rates, which will make lending money more profitable.

Improving economy: Growth has been frustratingly slow since the end of the Great Recession, but the job market is picking up steam. The unemployment rate in January was 4.8 percent, and economists see the economy as close to full employment. A report on Thursday showed that the fewest number of workers applied for unemployment benefits last week since Richard Nixon was in the White House.

Improvement was underway before Trump entered the White House, but his election has spurred things along. Optimism among small businesses, for example, spiked higher after the election and is now at its highest level since 2004, according to surveys from the National Federation of Independent Business.

Confidence also jumped for regular households following the election, and consumer confidence is at its highest level since the summer of 2001. If that translates into more purchases at stores and elsewhere, it should drive even more economic growth.

Other economies around the world are also improving, raising expectations for profits of big U.S. companies, which do a lot of their business overseas.

Investor confidence: Confidence has spread even to regular investors.

After years of hiding out in bonds and other safer investments, retail investors began creeping back into stock mutual funds and exchange-traded funds following the election. Investors plugged $20.7 billion into U.S. stock funds in November, the biggest month in nearly two years. They’ve followed that up with more purchases. That buying has helped to bid up stocks even more.

Corporate profits: Big businesses are finally earning bigger profits again.

Earnings per share for companies in the S&P 500 were nearly 6 percent higher last quarter than a year earlier, with nearly all of the companies reporting, according to S&P Global Market Intelligence. It’s a sharp turnaround from a year ago, when low oil prices and other factors were pulling down profits for S&P 500 companies. Profit growth was particularly strong for technology and financial companies. Microsoft’s earnings rose on stronger sales of business software, for example, and investment banks reported a strong quarter for their trading operations.

But just as each of these pillars has helped to lift stocks in recent months, a weakening of any one of them could remove some support. If tax cuts come later than expected, or if they end up being only minor ones, it could mean a drop for stocks.

Critics also worry that that stock prices have run up at a time when they were already looking overpriced relative to their earnings. One popular way to measure whether the stock market is expensive or not is to compare the S&P 500’s level against its earnings over the prior 10 years, adjusted for inflation. By that measure, which was popularized by Nobel-winning economist Robert Shiller, the S&P 500 is close to its most expensive level since the dot-com bubble was deflating in 2002.

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