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Morning Quant Ride Mar 16, 2018

Mar 16, 2018

March 16, 2018

Traders’ Corner

US Markets PreviewUS markets are set to open mixed with S&P futures rising 0.26% to 2756.5. NASDAQ futures are negative.  Qualcomm (QCOM) shares are up 2.69% pre-market on news of a potential acquisition by an investors group led by former chairman Paul Jacobs. Johnson and Johnson shares are flat, rising +0.02% following news of the $2.1 billion deal to sell their diabetes device business to LifeScan, Inc. Eastman Kodak (KODK) is trading 15.15% higher pre-market after revealing revenue and Ebitda growth is expected in 2018. (OSTK) shares are down 13.1% before the open after posting Q4 losses per share of $3.72.1-month implied volatility levels are mixed for US index options.  Russell 2000 implied volatility is fairly priced while implied volatility for Nasdaq and S&P500 options is trending 1 standard deviation above 1-year averages.  Skew continues to be rich with investors continuing to buy OTM puts.  A notable observation is the rise in implied correlations for Nasdaq options, currently almost 1.5 standard deviations above its 1-year average.  Rising implied correlations would suggest the payoff from stock picking is limited.US Markets RecapUS equities finished down overall on Thursday. Markets sank to intraday day lows as negative sentiment was driven by news of a widening investigation with subpoenas into the Trump Organization, and a demand for documents from President Trump’s businesses. Market breadth was also negative with an advance/decline ratio of 0.83 (227 advances and 273 declines), and a put/call ratio of 1.3.


 The S&P 500 was essentially flat with the broad index down 0.08%, with a number of sectors underperforming the broader index. Materials were the worst performing sector, declining 1.28%. Consumer staples stocks slid 0.64%, weighed down by an underperforming food producer industry. Energy stocks posted 0.42% declines as well, largely due to lagging oil-service companies. Industrials were the strongest performer in the S&P, rising 0.33%. Financials were steady at +0.09%, led higher by bank stocks which received some support after the Senate’s decision to reform the Dodd-Frank act.

The Russell 2000 underperformed the broader market, sliding -0.49%. Small-cap financials at +0.11% were in-line with financials returns in the S&P, and finished as the top performing sector. Along with utilities, these were the only two sectors to finish positive in the Russell 2000. Energy was the worst performer with a return of -1.67%, followed by consumer staples with fell 1.15%, and a 1.02% decline in healthcare. S&P Gainers

  • DG +4.75%
  • AVGO +2.75%
  • MCD +2.13%
  • ULTA +2.05%
S&P Laggards
  • MON -4.83%
  • SJM -4.59%
  • QRVO -3.92%
  • ABBV -3.37%
RTY Gainers
  • AKCA +38.25%
  • CVTI +19.06%
  • AMOT +17.88%
  • SMTC +10.89%
RTY Laggards
  • HONE -12.40%
  • TISI -11.83%
  • FPRX -11.23%
  • SHLD -6.61%
Asian & Australia Equities RecapAsian equity markets broadly closed down following yesterday’s negative trading session yesterday.  Japanese equities finished in the red with the Nikkei -0.58% and Topix -0.40%.  Real estate stocks were the only positive sector on Tokyo Exchange with tech, utilities and materials stocks the largest underperformers.  Notable overs include: Haseko Corp +3.9%, Tokai Carbon -3.39%, TDK Corp -3.27% and Yamato Holdings +2.87%.  Total volume traded on the Tokyo Exchange was ~3.79% above the 10-day average.  News headlines in Japan were dominated by news that Shinzo Abe knew about the Moritomo Scandal six days before the Japanese government admitted to details behind the land-sale.  According to a survey by Jihi News Agency, Prime Minster Abe’s support has fallen to 39.3%.  Bank of Japan Governor Haruhiko Kuroda was approved for a second 5-year terms by the Japanese parliament.Chinese/Hong Kong equities finished negative with the Hang Seng -0.25%, Hang Seng China Enterprise index -0.37% and the CSI 300 -0.97%.  In Hong Kong, utilities, telecom and real estate stocks were the only positive sectors with tech, energy, and consumer discretionary were the largest underperformers.  Notable movers include: Country Garden Holdings +4.68%, Power Assets Holdings +3.26%, and Hong Kong Exchange -2.62%.  Volumes in Hong Kong and Shanghai were weak: volume on the Hong Kong Exchange was 30.45% below its 10-day average while volume on the Shanghai Exchange was 13.95% below its 10-day average.  Investor sentiment continues to focus on threats from the US administration to combat theft of IP by Chinese firms.Indian equities closed down with the Sensex -0.44% and Nifty 50 -0.49%.  All sectors finished negative with metals stocks down the most.  Tata motors was the biggest decliner on the Sensex, closing down 3.7%.Asian options markets are trading similar to US options markets with implied volatility currently 1 standard deviation above 1-year averages for major Asian index options.  Skew remains expensive, implying investors continue to buy OTM puts.In the Land Down Under, Aussie equities finished positive with the ASX 200 +0.48%.  Staples, telecom and utilities stocks were the biggest outperformers while financials were the only negative sector.  Notable movers include: Westfarmers +6.31%, Premier Investments +6.12%, Southh32 +5.63% and Metcash -5.36%.  Concerns about a global trade war had a limited impact on Aussie equities.  Options markets are implying limited risk for Aussie equities with implied volatility on ASX 200 index options fairly priced.  Correlations among Aussie equities are picking up with implied correlations now more than a standard deviation about their 1-year average.European Equities RecapEuropean equities are nominally positive with the Euro Stoxx 600 +0.20%.  Regional indices are modestly positive: FTSE 100 +0.22%, DAX +0.52%, and CAC 40 +0.28%.  Materials, telecom and financials stocks are the biggest outperformers this morning with retail, construction and industrials stocks the largest underperformers.  Notable movers include: Intesa Sanpaolo +1.56%, E.ON SE -.37% and Daimler AG 1.25%.  Italian February CPI was +0.5% Y/Y vs. preliminary  measure of +0.6% Y/Y.European options markets are relatively mute with implied volatility fairly priced.  The VSTOXX index is ~14.27 which would put it in-line with its long-run average.  The VSTOXX appears to be mean-reverting along with the VIX with investors demanding less risk premium for European equities.Rates & Commodities RecapUS Bond yields remain pressured with the yield on the 10-year currently 2.81%.  The fixed 10-year swap rate now is ~2.857% after holding above 2.90% for over a week.  The US Dollar index is down 20 bps this morning with strength in JPY¥ (+0.68%) and EUR€ (+0.17%) pressuring the USD$.  The JPY¥ is currently trading with a 105 handle with 3-month forwards now implying a move below 105.  Commodities markets are mixed with energy and precious metals prices positive.  WTI is currently at USD$61.34/barrel , up 23 bps.  Gold spot is up 34 bps in sympathy with strength in the JPY¥.Cryptocurrencies RecapMajor cryptocurrencies are down across the board this morning. Google updated its Financial Service policy yesterday, which will ban all crypto-related advertisements starting in June. Bitcoin temporarily broke a psychological level of $8,000 however it found support and is currently trading at $8,170. Ethereum, the second largest cryptocurrency by market capitalization is trading at $600 – down over 50% from its high of ~$1,400 in January. South Korea raided three cryptocurrency exchanges this week over suspicions that exchange staff embezzled funds from customers’ account which is likely contributing to the crypto sell-off. Not all recent news has been negative, as Abra, a crypto mobile wallet startup, is expanding the number of cryptocurrencies it supports to twenty from just two. Additionally, the Royal Bank of Canada (RBC) is exploring using blockchain to automate credit scores - cited from its patent application submitted this week. Lastly, Lightning Labs released the first Bitcoin mainnet-ready Lightning Network (LN) implementation yesterday. This will help developers easily connect to the LN so that developers have the necessary safety, security, and fault-tolerance features required for real-world, real money usage. The company recently completed seed financing worth $2.5 million led by Square and Twitter Founder Jack Dorsey, Litecoin creator Charlie Lee, and ex-PayPal COO David Sacks.We are watching these A-rated laggards from yesterday’s market action:QuantShot: AbbVie Inc. - 8.68% off its 52wkH, reports earnings on 04/25/2018Cracker Barrel Old Country Store, Inc. - 10.77% off its 52wkH, reports earnings on 05/29/2018Eaton Vance Corp. - 7.28% off its 52wkH, reports earnings on 05/23/2018Entercom Communications Corp. - 31.62% off its 52wkH, reports earnings on 05/03/2018Federated Investors, Inc. - 10.75% off its 52wkH, reports earnings on 04/26/2018Huntington Ingalls Industries, Inc. - 8.25% off its 52wkH, reports earnings on 05/09/2018Huntsman Corporation - 13.11% off its 52wkH, reports earnings on 04/26/2018QuantShot: Kellogg Company - 11.05% off its 52wkH, reports earnings on 05/03/2018QuantShot: Kohl's Corporation - 11.50% off its 52wkH, reports earnings on 05/22/2018QuantShot: Lowe's Companies, Inc. - 21.51% off its 52wkH, reports earnings on 05/23/2018QuantShot: Masonite International Corporation - 27.02% off its 52wkH, reports earnings on 05/04/2018MCBC Holdings, Inc. - 10.48% off its 52wkH, reports earnings on 05/07/2018Tech Data Corporation - 22.09% off its 52wkH, reports earnings on 05/25/2018United Rentals, Inc. - 4.11% off its 52wkH, reports earnings on 04/20/2018

Companies Trending in the News

ABBVIE (ABBV) was initiated at Market Perform with a $131 price target by Bernstein analyst Richard Wagner. Abbvie shares have climbed 66% since August 1st 2017, outpacing the S&P 500 healthcare index which is up 8.62% during the same time period.ADOBE (ADBE) reported 1Q EPS of $1.55, beating estimates of $1.44. 1Q Revenue of $2.08B, was beating estimates of $2.05B. Shares are up 3.8% pre-market.J.P. Morgan has downgraded Avery Dennison Corp. (AVY) to neutral from underweight. Price targets were lowered from $113 to $107. Shares are unchanged pre-market.Axon Enterprise (AAXN) was cut to neutral from buy at CL King due to belief of limited upside from current valuation. Shares are down 1.99% pre-market.BAYER (BAYN.GN) acquisition of MONSANTO (MON) has failed to win antitrust approval from the US Justice Department. The US Justice Department feels that the merger will hurt competition, and feels that Bayer’s plan to sell businesses is not enough. Bayer was down 1.13%, Monsanto was down 4.83%.BRF SA (BRFS3.BZ) exports of chicken will be halted to the EU, following a probe for tainted-meat.BROADCOM (AVGO) reported 1Q EPS of $5.12, beating estimates of $5.11. 1Q Revenue of $5.33B, beating estimates of $5.32B. Shares are down 1.59% pre-market.CME Group (CME) have reached out to NEX Group (NXG.LN) about offering to purchase the company. NEX has confirmed that they have begun negotiating with CME. NEX is an electronic ECN and broker for currency and treasury markets, based in London. Yesterday, CME Group was up 1.50%, and NEX Group is up 29.68% today in London.DOLLAR GENERAL (DG) shares rallied 4.75% today after providing an positive outlook for 2018. Dollar General expects earnings to be higher than analysts’ estimates for this fiscal year, and plans to open 900 new stores this year.Dominion Energy (D) has been downgraded at UBS from a buy rating to neutral. The price target for the stock was revised downward to $77 from $83. Shares are down 0.67% pre-market.KRAFT HEINZ (KHC) was initiated as a sell with a $60 price target by SocGen. SocGen analyst, Warren Ackerman stated that costs savings have plateaued and margins are likely to come under pressure. Kraft Heinz fell by 1.68%, yesterday.WALMART (WMT) was accused of providing misleading e-commerce results and firing an employee who notified the company that they were breaking the law. Walmart shares fell 0.18% yesterday.WideOpenWest (WOW) was downgraded to neutral from a buy rating at UBS. Price targets were nearly halved, reduced to $10 from $19. Shares are 0.57% higher in pre-market trading.US Pipeline stocks fell after regulators ruled that master-limited partnerships are no longer eligible to receive a credit for income taxes they don’t pay. WILLIAMS COS (WMB) shares were affected the most, with shares falling 5.15%.Former WYNN RESORTS (WYNN) CEO, Steve Wynn, and his ex-wife Elaine Wynn are no longer considering a 2010 agreement valid. By removing this agreement, the pair are able to sell the 21% of the company that they share. Wynn Resorts shares were up 0.53%.

The Morning Recap

Large-Cap Conviction Buy Movers

Winners   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Louisiana-Pacific Corporation   LPX   Materials   Forest Products  






UnitedHealth Group Incorporated   UNH   Healthcare   Managed Healthcare  






Cognizant Technology Solutions Corporation CTSH   Information Technology   IT Consulting and Other Services  






Caterpillar Inc.   CAT   Industrials   Construction Machinery and Heavy Trucks  






Black Hills Corporation   BKH   Utilities   Multi-Utilities  






Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Post Holdings, Inc.   POST   Consumer Staples   Packaged Foods and Meats  






The J. M. Smucker Company   SJM   Consumer Staples   Packaged Foods and Meats  






AbbVie Inc.   ABBV   Healthcare   Biotechnology  






Eagle Materials Inc.   EXP   Materials   Construction Materials  






FMC Corporation   FMC   Materials   Fertilizers and Agricultural Chemicals  






Source: S&P Capital IQ                        

Large-Cap Conviction Short Movers

Winners   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
ADT Inc.   ADT   Industrials   Security and Alarm Services  






Riot Blockchain, Inc.   RIOT   Healthcare   Biotechnology  






ARMO BioSciences, Inc.   ARMO   Healthcare   Biotechnology  






Loxo Oncology, Inc.   LOXO   Healthcare   Biotechnology  






Editas Medicine, Inc.   EDIT   Healthcare   Biotechnology  






Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Blueprint Medicines Corporation   BPMC   Healthcare   Biotechnology  






Tesaro, Inc.   TSRO   Healthcare   Biotechnology  






Rite Aid Corporation   RAD   Consumer Staples   Drug Retail  






PlayAGS, Inc.   AGS   Consumer Discretionary   Casinos and Gaming  






AmeriCold Realty Trust   COLD   Real Estate   Industrial REITs  






Source: S&P Capital IQ                        

Upcoming Earnings & Events

Company Name




Earnings Date


Event Type

Darden Restaurants, Inc.






Earnings Release Date

MSC Industrial Direct Co., Inc.  





Estimated Earnings Release Date

Celanese Corporation






Estimated Earnings Release Date

J.B. Hunt Transport Services, Inc.  





Estimated Earnings Release Date

UnitedHealth Group Incorporated






Estimated Earnings Release Date

Comerica Incorporated  





Earnings Release Date

M&T Bank Corporation






Estimated Earnings Release Date

Quest Diagnostics Incorporated  





Estimated Earnings Release Date

BB&T Corporation






Earnings Release Date

AT&T Inc.  





Estimated Earnings Release Date

Caterpillar Inc.






Estimated Earnings Release Date

Gentex Corporation  





Estimated Earnings Release Date

IDEX Corporation






Estimated Earnings Release Date

Kansas City Southern  





Estimated Earnings Release Date

Lockheed Martin Corporation






Estimated Earnings Release Date

Norfolk Southern Corporation






Estimated Earnings Release Date

Line for QuantShots

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