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Morning Quant Ride Mar 20th, 2018

Mar 20, 2018

Traders’ Corner

US Markets Review

US equities closed broadly lower in yesterday’s trading. Market sentiment was generally negative as evidenced by an S&P advance/decline ratio of 0.12 (53 advances and 452 declines), as well as a put/call ratio of 1.88. Technology weighed heavily on US markets, and NASDAQ stocks are experiencing their worst losing streak since 2016. After reaching all-time highs on March 13, the NAQSDAQ index is down 4%.The S&P 500 finished down 1.42% from the open. Information technology declined 2.11% and was the biggest underperformer. Facebook, the third largest stock in the S&P tech sector by index weight, fell ~6.7% and was the worst performing stock in this sector. Healthcare and energy stocks also took losses today, posting returns of -1.70% and -1.69% respectively. There were no sectors in the S&P that ended trading with positive returns, but utilities were the biggest outperformer falling 0.75%. A rotation into utilities over the past few weeks may have provided the sector with some lift. Industrials were the next best performer and fell 0.82% yesterday.The Russell 2000 declined by 0.98%, as small-cap stocks outperformed the broader market. Laggards in the Russell 2000 were perfectly in in-line with those in the S&P as energy (-2.83%), technology (-1.54%), and healthcare (-1.34%) were the biggest underperformers. As with the S&P, there were no sector to post positive returns. Again, in line-in with the S&P, Russell 2000 utilities were the strongest performer and receded 0.29%.

US Markets Preview

US equities are set to open mixed this morning. S&P and Dow Jones futures are higher by 0.49% and 0.38%, respectively. NASDAQ futures are negative and slid 0.39%. Shares of Oracle (ORCL) are down 8.4% pre-market after the company forecasted slowing sales growth in its cloud-related product line. Oracle’s stock was downgraded by analysts after the announcement with Bank of America issuing a neutral rating, down from a buy rating. Shares of ROKU (ROKU) are up 4.73% after receiving an upgrade at Oppenheimer & co. to market perform from a previous underperform rating. Children’s apparel retailer Children’s Place Inc (PLCE) forecasted adjusted EPS for 2018 missed the lowest analysts estimate. Adjusted FY 2018 EPS for the company was $8.20 compared to a $8.85 estimate. Shares of the company are 7.9% lower pre-market.

US options, in the pre-market open, appear to be implying a continuation of yesterday’s risk-off sentiment.  OTM May Puts on IWM and slightly OTM March 23 SPY Puts are the most actively traded options contracts this morning.  The VIX is trading down to 18.32 this AM, down from yesterday’s official close of 19.02.  Implied correlations for S&P500 and Nasdaq options are now almost 2 standard deviations above their 1-year averages, suggesting the relative benefit from investing in individual stocks is limited.

Asian & Australia Equities Recap

Japanese equities closed down with the Nikkei 225 -0.47% and the Topix -0.21%.  Utilities, financials and energy stocks were the only positive sectors in the Nikkei 225.  Healthcare, consumer staples and industrials were the largest underperformers.  Notable movers included: Dowa Holdings +4.45%, Japan Post Holdings +3.46%, FANUC Corp -3.28% and Kansai Electric Power +3.24%.  Negative market sentiment from the US trading sessions weighed on Japanese equities.  Continued speculation about whether Prime Minister Shinzo Abe will be caught up in the Moritomo Scandal remains an unknown risk.  Volume traded in Tokyo continues to pick up with yesterday’s total volume traded 11.8% above its 10-day average.

Chinese/Hong Kong equities closed mixed with the Hang Seng +0.11%, Hang Seng China Enterprise index -0.50% and the CSI 300 +0.08%.  Tech, energy and consumer staples stocks were the biggest outperformers in Hong Kong while industrial, real estate and financials stocks were the biggest laggards.  Notable movers include: Sunny Optical +8.63%, AAC Technologies +4.47%, Geely Automobiles +2.23% and China Resources Power +2.13%.  News headlines were focused on news that US President Trump is considering USD$60bn in annual tariffs on Chinese imports in an effort to mitigate the theft of intellectual property of US companies.

Indian Equities finished in the green with the Sensex +0.22% and Nifty 50 +0.30%.  Software and telecom stocks led the positive move in Indian equities while energy stocks were the primary laggards.  Tata Steel was the largest positive mover, closing up 3.25%.  Worries about the tax on equity gains appears to be waning as we move closer to the implementation date on  April 1.

In the Land Down Under, Aussie equities finished negative with the ASX 200 -0.39%.  Tech, telecom, and consumer staples stocks were the largest outperformers while materials, energy and real estate stocks were the biggest underperformers.  Notable movers include: Retail Food Group +6.67%, TPG Telecom -4.64%, Seven West Media -4.35%, and Fairfax Media +4.29%.  The release of the February minutes for the recent Reserve Bank of Australia (RBA) highlights the positive tone the RBA has towards to the growth outlook for Australian economy.

Options markets in Asia were active with 1-month implied volatilities for Japanese, Hong Kong and Indian index options well above 1 standard deviation.  Skew on all of these index options have move well above the 70th percentile, implying increase Put buying the past few days.

European Equities Recap

European equities are up across the board with the Euro Stoxx +0.33%.  Regional indices are positive with the FTSE 100 +0.38%, DAX +0.36% and CAC 40 +0.27%.  Financial services, insurance and real estate stocks are the largest outperformers while healthcare, telecom and utilities are the biggest laggards.  Notable movers include: Adidas +1.56%, Deutsche Bank +1.29%, Telefonica SA -1.18% and LVMH +1.12%.  Germany February PPI was +1.8% Y/Y vs. consensus of +2.0% Y/Y.  The Bank of England is expected to vote not to increase interest rates this Thursday though there is growing expectations among investors that they will raise rates in May.  According to the Chartered Insitute of Procurement and Supply (CIPS), one in seven European suppliers raised prices due to a weaker GBP£.

Options markets are quiet in Europe with 1-month implied volatility continuing to hang around its 1-year average for liquid European index options.  The VSTOXX is currently trading ~15.52, down almost a point after jumping 3 points yesterday to 16.49 in sympathy with the rise in the VIX.  Skew remains relatively in-line with its 1-year average for most liquid European index options, suggesting there has been limited Put buying this morning.

Rates & Commodities

US bond yields are slightly higher to start the day as the whole curve is down while longer dated maturities have sold off more. The 10-year is at 2.865% from 2.856% at yesterday’s close and the 30-year is at 3.097% from 3.086% at yesterday’s close. Global bonds are mostly higher as well with most of the EU & Asia in the red. Investors appear to be buying Italian, Spanish & New Zealand bonds. President Trump is said to be preparing $60bn worth of tariffs on Chinese goods which will be a focus in the markets for the rest of the week. The USD$ is mostly stronger across the board today – notably up 32bps against the JPY¥ (106.51). Japan’s trade minister said the nation is likely to get exemption from US tariffs, and Deputy Governor Amamiya has said that there is no current need to hike rates. Following yesterday’s news of the UK reaching an agreement with the EU, the USD$ is mostly flat against the GBP£(1.401) as data showed inflation slowed more than forecast in February. WTI Crude oil is higher on the day – up 113bps ($62.06) as the US has been exploring sanctions on Venezuelan oil. Investors are waiting for the latest API report to be released later today. Precious metals are trading with a downward bias besides Palladium. Iron ore & steel renbar prices have continued their decline, falling 2.9% & 1.4% respectively. This follows the news of lower demand out of China from yesterday.


Cryptocurrencies are following yesterday’s rally as all major coins are trading higher on the day. Outside of the news regarding President Trump banning Venezuela’s initial coin offering (ICO) on the Petro, cryptocurrency news is light and has a positive bias. The ban on the Petro is a political action as the US is looking to place sanctions on the Venezuelan government led by Nicolas Maduro. This ban will prevent the Venezuelan government to have access to US dollar reserves and Euro reserves. In Asia, the Hong Kong Stock Exchange (HKEX) is looking to follow Australia in developing a blockchain settlement system. The plan, would ultimately utilize a blockchain network to settle stock borrowing and lending as well as over-the-counter trades as it can reduce costs compared with traditional methods. In Europe, the UK has announced a new cryptocurrency research effort to better understand the potential risks associated with cryptocurrencies. Britain’s junior finance minister has announced that the UK is the best place in the world for fintech and wants to make sure blockchain firms are welcomed and properly understood. Lastly, the newly appointed PBOC Governor, Yi Gang has known to have said that Bitcoin is “inspiring” and that it will remain a subject of public attention in the long term. This contrasts China’s hard stance on cryptocurrencies and it will be interesting to see if China’s status quo changes.

Latin America

The Ibovespa Index was down in aggregate of 1.15% yesterday as energy -2.32%, materials -1.93% and financials -1.46% were the biggest laggards. Information technology +1.71%, consumer staples +.63% and utilities +.05% were the biggest outperformers. The major focus in the LatAm region was the G20 conference held in Buenos Aires. Notable news out of the G20 was that most finance chiefs warned against protectionism and that the G20 will advocate for the importance of free trade. A major focus for Brazil will be figuring out its steel positioning with the United States & China. Additionally, Brazilian businessmen are said to ask President Temer for countervailing compensation for steel in order to remain competitive. Lastly, data was recently received showing that the net profit of all state-owned companies in Brazil more than tripled in 2017 demonstrating Brazil’s recovery from its recession just a few years ago.

Following Monday's market decline we are watching a few of our A-Rated Laggards:

QuantShot: AbbVie Inc. - 10.99% off its 52wkH, reports earnings on 04/25/2018

AmerisourceBergen Corporation - 12.49% off its 52wkH, reports earnings on 05/07/2018

QuantShot: Coherent, Inc. - 35.88% off its 52wkH, reports earnings on 04/27/2018

QuantShot: Comcast Corporation - 19.77% off its 52wkH, reports earnings on 04/25/2018

CVS Health Corporation - 24.25% off its 52wkH, reports earnings on 05/02/2018

Eagle Materials Inc. - 20.01% off its 52wkH, reports earnings on 05/15/2018

Laboratory Corporation of America Holdings - 6.13% off its 52wkH, reports earnings on 04/25/2018

Louisiana-Pacific Corporation - 6.53% off its 52wkH, reports earnings on 05/04/2018

QuantShot: Pfizer Inc. - 7.86% off its 52wkH, reports earnings on 05/01/2018 Inc. - 16.40% off its 52wkH, reports earnings on 05/03/2018

Twenty-First Century Fox, Inc. - 6.02% off its 52wkH, reports earnings on 05/04/2018

*All returns are price returns

Companies Trending in the News

ADOBE SYSTEMS (ADBE) has been upgraded to a buy at DZ Bank AG with a price target of $252.

AFLAC (AFL) price target has been lowered to $48 at Keefe following a 2-1 stock split on March 16.

ALIBABA (BABA) is considering the acquisition of Rocket Internet’s retail unit in Pakistan. This is a continued effort of Alibaba to extend its influence into Pakistan.

AT&T (T) merger trial over the TIME WARNER INC (TWX) acquisition began on Monday. The US government claims that the merger violates antitrust laws despite many considering this to be a vertical integration between the two companies. AT&T shares were down 1.14%. Time Warner shares were down 1.28%.

COMMERCIAL METALS CO (CMC) has been given a sell recommendation by Goldman Sachs with a price target of $25.

DAIMLER AG (DAI.GR) has been downgraded to market perform at Bernstein. This is down from a previous outperform rating.

HERSHEY (HSY) is exploring the sale of Tyrells, the British crisps brand. This comes just four months after Hershey purchased Tyrell’s owner, Amplify Snack brands for $1.6 billion. Hershey shares fell 0.94%.

HUNTSMAN CORP (HUN) has been downgraded to neutral from a buy rating at Nomura Instinet. Price targets have been set at $36.

MCDONALDS (MCD) is investing into more energy efficient equipment in its restaurants and corporate locations with the goal of reducing total emissions by 36% by the year 2030 compared to 2015 levels.

MICRO FOCUS INTERNATIONAL (MCRO.LN) has been cut To a speculative buy rating at Canaccord with a price target of €13.80.

ORACLE (ORCL) FY3Q Adjusted EPS was $0.83 per share, beating estimates of $0.72 per share. FY3Q Adjusted Revenue was $9.78B, inline with estimates. Oracle shares are 8.41% lower pre-market.

PUMA (PUM.GR) shares are 2% higher after announcing that the company expects currency-adjusted net sales to grow by 10% annually until the year 2022.

TRANSDIGM (TDG) has agreed to buy Extant Components Group for $525 million. Extant produces proprietary aftermarket products and repair and overhaul services for the aerospace and defense markets. TransDigm shares rose 1.09% yesterday.

Speculation that UNILEVER (ULVR.LN) may be interested in a blockbuster merger is building. COLGATE-PALMOLIVE (CL) and ESTEE LAUDER (EL) are two potential targets. Colgate-Palmolive shares rallied 0.52%. Estee Lauder shares fell 0.28% yesterday, while Unilever shares fell 0.29% in London on Monday.

VOLKSWAGEN AG (VOW.GR) subsidiary Porsche Automobil Holding SE more than doubled its net income in 2017 on a y/y basis. Net income for Porsche in 2017 was €3.33b.

WASTE MANAGEMENT (WM) has acquired Anderson Rubbish Disposal and Moorpark Rubbish Disposal. The acquired businesses include residential, commercial, and industrial solid waste services, recycling collection services, and more. Waste Management shares closed down 0.68%.

Large-Cap Conviction Buy Movers

Winners   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Amdocs Limited   DOX   Information Technology   IT Consulting and Other Services  






First American Financial Corporation   FAF   Financials   Property and Casualty Insurance  






Lockheed Martin Corporation   LMT   Industrials   Aerospace and Defense  






Kansas City Southern   KSU   Industrials   Railroads  






TransDigm Group Incorporated   TDG   Industrials   Aerospace and Defense  






Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Prestige Brands Holdings, Inc.   PBH   Healthcare   Pharmaceuticals  






AmerisourceBergen Corporation   ABC   Healthcare   Healthcare Distributors  






Caterpillar Inc.   CAT   Industrials   Construction Machinery and Heavy Trucks  






United Parcel Service, Inc.   UPS   Industrials   Air Freight and Logistics  






Louisiana-Pacific Corporation   LPX   Materials   Forest Products  






Source: S&P Capital IQ                        

Large-Cap Conviction Short Movers

Winners   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
ARMO BioSciences, Inc.   ARMO   Healthcare   Biotechnology  






Exact Sciences Corporation   EXAS   Healthcare   Biotechnology  






Loxo Oncology, Inc.   LOXO   Healthcare   Biotechnology  






MACOM Technology Solutions Holdings, Inc. MTSI   Information Technology   Semiconductors  






Roku, Inc.   ROKU   Consumer Discretionary   Consumer Electronics  






Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Longfin Corp.   LFIN   Financials   Financial Exchanges and Data  






ADT Inc.   ADT   Industrials   Security and Alarm Services  






Fitbit, Inc.   FIT   Information Technology   Electronic Equipment and Instruments  






Nektar Therapeutics   NKTR   Healthcare   Pharmaceuticals  






Dynavax Technologies Corporation   DVAX   Healthcare   Biotechnology  






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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