Morning Quant Ride Feb 6, 2018

Feb 06, 2018

Traders’ Corner

The global equities market sell-off carried over to Asian markets and all major Asia equity indices declined substantially last night, following yesterday’s move in the US markets. The Financial Media continues to a highlight a lack of rationale for the market correction; most are expecting the sell-off to be short lived. Volumes in Japan, Australia, and Mainland China were significantly above their ten-day average; volumes were lower in Hong Kong despite the volatile market. In Australia, the RBA left its policy rate unchanged and despite Q4 CPI falling short of expectations, the RBA still expects inflation to be above 2% in 2018.

European markets are selling off this morning, though all major benchmark indices are well above their session lows. Equity volumes are significantly higher in Europe, ~81 % higher than their ten-day average.

Despite the weakness in global equities, investors are not flocking to “risk-off” assets: Gold remains flat, US bond prices are flat and the USD/JPY is only slightly lower.

US stock futures are pointing to another negative open this morning.  The S&P500’s 4.1% plunge yesterday was it biggest fall over the past 5 years - - our readers would need to go back to 2011 to see such a move in the benchmark US equities index.  The VIX currently is trading above 49 in pre-market trading.  The liquidation of VelocityShares Inverse VIX (XIV) and Proshares Short Vix (SVXY) ETNs created a negative feedback loop causing the VIX to spike further: 5,614% move in the VIX on Friday and a 305% move in the VIX on Monday.  The “technical nature” of the implied volatility short squeeze the past few days offers an attractive entry point for options investors/traders interested in getting exposure to a negative gamma trade.  We are considering:

  • March 2 VXX Bear Call Spreads
The case for shorting VXX using a bear call spread is based on several factors that point to a mean-reversion in implied volatility:
  • VIX spike related more to technical reasons rather than structural macro imbalances
  • Volatility of VIX (VVIX) currently at 177 vs mean-level of ~90
  • VIX measures 30-day implied volatility - - current value of VIX implies a ~6 standard deviation event
  • Spread between front month and second month VIX futures is at a level more than 6 standard deviations below its mean level
  • VIX typically mean-reverts over 16 trading days

Following yesterday's market sell off we are closely watching a few of the quality large-cap stocks that screened as A-Stocks on our Quant model:

QuantShot: Alibaba - 12.45% off its 52wkH

QuantShot: Alphabet - 11.32% off its 52wkH

QuantShot: Brooks Automation - 28.10% off its 52wkH

Comcast - 10.91% off its 52wkH

QuantShot: Domino's Pizza - 6.26% off its 52wkH, reports earnings on 2/27

Dunkin Brands - 11.12% off its 52wkH, reports earnings on 2/06

QuantShot: Facebook - 7.20% off its 52wkH

QuantShot: FedEx - 9.52% off its 52wkH, reports earnings on 3/21

QuantShot: Home Depot - 11.80% off its 52wkH, reports earnings on 2/20

QuantShot: Kimberly Clark - 17.86% off its 52wkH

Kohl's - 11.57% off its 52wkH, reports earnings on 3/01

QuantShot: Micron Technology - 21.03% off its 52wkH, reports earnings on 3/22

QuantShot: NetApp - 11.32% off its 52wkH, reports earnings on 2/15

Pfizer - 12.07% off its 52wkH

QuantShot: Stanley Black & Decker - 10.46% off its 52wkH

Target - 10.08% off its 52wkH, reports earnings on 3/06

Wal-Mart - 8.99% off its 52wkH, reports earnings on 2/20

Our Top Picks in the News

Click headline for story
Global stock market rout spreads to Europe (Financial Times)
Investors Suffer Heavy Losses on Bets Against Volatility (Wall Street Journal)

Laboratory Corporation of America (LH)

Laboratory Corporation of America beats by $0.07, beats on revenue (Seeking Alpha)
Top Conviction Buy in February, please see Quantamize Global Top Picks US Large Cap report

Apple (AAPL)

Apple and Cisco Team Up on Cybersecurity Insurance (Fortune)

Top Conviction Buy in February, please see Quantamize Global Top Picks US Tech report

See more on our Apple QuantShot company report from January 5th

Dunkin' Brands (DNKN)

Dunkin' Brands tops profit and revenue expectation (MarketWatch)

Top Conviction Buy in February, please see Quantamize Global Top Picks US Large Cap report

See more on our Dunkin QuantShot company report from September 21st

Micron (MU)

Micron upgraded to Overweight from Sector Weight at KeyBanc (TheFly)

Top Conviction Buy in February, please see Quantamize Global Top Picks US Info Tech report

See more on our Micron QuantShot company report from January 10th

GoPro (GPRO)

GoPro: From Bad to Worse (Seeking Alpha)
Top Conviction Short in February, please see Quantamize Global Top Picks US Large Cap report

Coherent (COHR)

Coherent Seems in Good Health To Us (Seeking Alpha)

Top Conviction Buy in February, please see Quantamize Global Top Picks US Large Cap report

See more on our Coherent QuantShot company report from February 2nd

AbbVie (ABBV)

Don't Miss Out, Act Now on AbbVie (Seeking Alpha)

Top Conviction Buy in February, please see Quantamize Global Top Picks US Large Cap report

See more on our AbbVie QuantShot company report from January 23rd

Global Indices

Index

Price

1 Day Return

5 Day Return

MTD

YTD

S&P 500

$ 2,648.94

0.00%

-0.54%

0.00%

5.62%

Russell 2000

$ 1,491.09

0.00%

-1.67%

0.00%

2.57%

DJ Industrial Average

$ 24,345.75

0.00%

-0.92%

0.00%

5.79%

NASDAQ Composite Index

$ 6,967.53

0.00%

0.00%

0.00%

7.36%

CBOE Market Volatility Index

49.21

-

-

-

-

Germany DAX (TR)

€ 12,404.06

-2.23%

-0.82%

-0.12%

2.10%

France CAC 40

€ 5,149.38

-2.58%

0.01%

0.20%

3.19%

Japan Nikkei 225

¥ 21,610.24

-4.73%

-2.41%

1.68%

1.46%

Hang Seng Index

¥ 30,595.42

-5.12%

0.71%

-0.75%

9.92%

Hang Seng China Enterprises

¥ 12,686.60

-5.88%

1.30%

-0.94%

15.82%

S&P ASX 200

AUD 5,833.30

-3.20%

-0.20%

0.87%

-0.45%

Source: FactSet          

Large Cap Conviction Buy Movers

Large Cap A Winners Ticker Sector Industry 1 Day Return 5 Day Return YTD
PETMED EXPRESS INC PETS Consumer Discretionary Internet & Direct Marketing Retail

1.50%

-10.34%

-4.90%

DECKERS OUTDOOR CORP DECK Consumer Discretionary Textiles, Apparel & Luxury Goods

1.36%

5.94%

16.67%

LAUDER (ESTEE) COS INC -CL A EL Consumer Staples Personal Products

-0.07%

-1.62%

5.62%

SNYDERS-LANCE INC LNCE Consumer Staples Food Products

-0.24%

-0.20%

-0.22%

CDK GLOBAL INC CDK Information Technology Software

-0.66%

-5.92%

-3.90%

Large Cap A Losers Ticker Sector Industry 1 Day Return 5 Day Return YTD
AMGEN INC AMGN Health Care Biotechnology

-6.56%

-5.55%

7.54%

ROPER TECHNOLOGIES INC ROP Industrials Industrial Conglomerates

-6.47%

1.39%

10.12%

LINCOLN NATIONAL CORP LNC Financials Insurance

-5.96%

-3.12%

8.03%

ALIGN TECHNOLOGY INC ALGN Health Care Health Care Equipment & Supplies

-5.29%

-6.37%

14.40%

LEUCADIA NATIONAL CORP LUK Financials Diversified Financial Services

-5.78%

-3.27%

-0.76%

Source: FactSet            

Large Cap Conviction Short Movers

Large Cap F Winners Ticker Sector Industry 1 Day Return 5 Day Return YTD
RIOT BLOCKCHAIN INC RIOT Health Care Biotechnology

-12.01%

-20.16%

-57.18%

LONGFIN CORP -REDH LFIN Financials Capital Markets

-9.82%

-15.09%

-36.86%

ARCONIC INC ARNC Industrials Aerospace & Defense

-8.90%

-3.80%

6.83%

PORTOLA PHARMACEUTICALS INC PTLA Health Care Biotechnology

-7.20%

-8.09%

2.47%

ACADIA PHARMACEUTICALS INC ACAD Health Care Biotechnology

-7.08%

-8.76%

-3.82%

Large Cap F Losers Ticker Sector Industry 1 Day Return 5 Day Return YTD
ARMO BIOSCIENCES INC -REDH ARMO Health Care Biotechnology

9.54%

12.00%

-
MENLO THERAPEUTICS INC -REDH MNLO Health Care Pharmaceuticals

0.49%

-8.48%

-
IGNYTA INC RXDX Health Care Biotechnology

0.09%

0.09%

0.94%

PARSLEY ENERGY INC PE Energy Oil, Gas & Consumable Fuels

0.09%

-17.63%

-21.43%

CALPINE CORP CPN Utilities Independent Power and Renewable Electricity Producers

-0.13%

-0.13%

-0.33%

Source: FactSet            

Upcoming Earnings

Company Name Ticker Earnings Date
Fidelity National Information Services, Inc. FIS 02/06/2018
Laboratory Corporation of America Holdings LH 02/06/2018
Intercontinental Exchange, Inc. ICE 02/07/2018
Jack Henry & Associates, Inc. JKHY 02/07/2018
Euronet Worldwide, Inc. EEFT 02/07/2018
Cognizant Technology Solutions Corporation Class A CTSH 02/07/2018
Cerner Corporation CERN 02/07/2018
Regeneron Pharmaceuticals, Inc. REGN 02/08/2018
Snap-on Incorporated SNA 02/08/2018
Black Knight, Inc. BKI 02/08/2018
Sealed Air Corporation SEE 02/08/2018
Fiserv, Inc. FISV 02/08/2018
Prudential Financial, Inc. PRU 02/08/2018
Torchmark Corporation TMK 02/08/2018
FleetCor Technologies, Inc. FLT 02/09/2018
Entercom Communications Corp. Class A ETM 02/09/2018
First Data Corporation Class A FDC 02/12/2018
Ligand Pharmaceuticals Incorporated LGND 02/13/2018
Louisiana-Pacific Corporation LPX 02/13/2018
Service Corporation International SCI 02/13/2018
Snyder's-Lance, Inc. LNCE 02/14/2018
DaVita Inc. DVA 02/14/2018
Zoetis, Inc. Class A ZTS 02/15/2018
Cisco Systems, Inc. CSCO 02/15/2018
Pilgrim's Pride Corporation PPC 02/15/2018
NetApp, Inc. NTAP 02/15/2018
Marriott International, Inc. Class A MAR 02/15/2018
V.F. Corporation VFC 02/16/2018
SS&C Technologies Holdings, Inc. SSNC 02/16/2018

Line for QuantShots

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