Dow Hits All-Time High As “Short Interest” Drops To A 10-Year Low

Posted on | by Todd | Leave a Comment on Dow Hits All-Time High As “Short Interest” Drops To A 10-Year Low

As both the Dow Jones 30 and the S&P 500 rose to new all-time highs this week, daily trading volume was 20% lower than the 3-month average and “short interest” in stocks fell to the 2007 lows.

Short interest is defined as the total Dollar value of stocks which investors have “sold short”, which they don’t own, with the idea of making a profit after buying them back at a lower price.

The combination of seeing the Dow and SP 500 rise to new highs on lower volume, and contracting short interest, is an illustration of a technical “short covering” rally.

Seeing index prices at new highs on lower volume suggests that “new money” is not coming into the market and that stock prices will revert lower after “short sellers” have taken their losses.

This technical combination doesn’t always trigger an immediate sell off in stocks. However, the market condition of “higher highs on lower volume” is often cited after a material correction in the market occurs.

As US earnings season goes into full swing next week, we’ll continue to watch the price/volume correlation and the potential impact on the market.

 

SYD, TCL And GPT Show Upside On Rate Reversion

Posted on | by Todd | Leave a Comment on SYD, TCL And GPT Show Upside On Rate Reversion

Over the last two weeks, yield sensitive names like SYD, TCL and GPT have all dropped over 10% from recent highs.

One of the main drivers has been the change in interest rate expectations from G-7 central bankers and the subsequent rise in short-term paper.

Moving forward, we see more likelihood of G-7 rates reverting lower within the year’s range and providing upside potential in the stocks above.

Other stocks we like on the basis of lower local rates are: AMC, WOW and MPL.

We see reasonable upside potential in the names and will employ the derivative overlay strategy (selling covered calls)  to enhance the portfolios returns.

Transurban

Sydney Airport

General Property Trust

 

US Earnings Preview: JP Morgan, Citi and Wells Fargo

Posted on | by Todd | Leave a Comment on US Earnings Preview: JP Morgan, Citi and Wells Fargo

Before the US market opens later today, JP Morgan, Citigroup and Wells Fargo will report their Q2 results.

After last year’s post-election rally, these stocks and others in the financial sector have been trading in wide ranges.

However, over the last few weeks, bank stocks have rallied after the results of the FED’s “stress tests”, a push higher in short-term rates and hopes of further government de-regulation.

For Q2, JP Morgan is expected to report earnings of $1.57 per share, up 2 cents from last year on revenue of $24.8 billion. Wells Fargo is expected to report earnings of $1.02 per share, which is up 1 cent from last year on revenue of $22.3 billion. Citigroup is expected to report earnings of $1.21 per share, which is 3 cents below last year on lower revenue of $17.3 billion.

Our base case for the US banks is that trading revenues will be trending lower for the remainder of the year and the current levels look fully-valued with risk to the downside.

JP Morgan

Citigroup

Wells Fargo

 

Algo Signal – TWE

Posted on | by Leon Hinde | Leave a Comment on Algo Signal – TWE

Our Algo Engine flagged a recent buy signal in TWE at or near $12.30.

The recent share pullback creates an attractive entry point.  Asia demand looks strong and FY18 earnings should see underlying profit increase over 20% to $360 million.

We believe TWE is still in the early stages of building a significant business across Asia, which will help to support the “buy on the dip” approach.

Chart – TWE

Incitec Pivot: Look To Take Profits

Posted on | by Leon Hinde | Leave a Comment on Incitec Pivot: Look To Take Profits

On 11th of July we reminded readers of the blog that we viewed the recent Algo Engine signal on IPL,  as one our preferred buy-side signals.

IPL today has opened up 6.5% higher and is now up over 10% from the recent low.

Considering the recent volatility in fertiliser prices, we suggest taking profits in the current $3.55/60 price range.

Incitec Pivot