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Financials Gain With Tech In PainWhen central banks raise rates, financial sector outperforms. That is until credit crumbles by which time all bets are off. As federal funds rates spike and stay elevated for longer, lending rates will climb higher relative to deposit rates. Net Interest Margin ("NIM") which is the difference between lending and borrowing rates continues to favour financial services firms. Inflation while softening remains high in developed and emerging markets. Hopes of Fed pivot on rates is fading as inflation is starting to spike again in some countries. Central banks on either side of the Atlantic are determined to tame it down. Continued rate hikes push economies into recession, crush consumer demand while increasing credit (corporate & personal) defaults. At that stage, even the financial industry (“financials”) starts to feel the pinch. But growth and tech stocks will be hurt even more. These stocks will plummet as present values of future distant profits get discounted at higher rates. As financials gain from attractive NIMs, growth stocks meanwhile are likely to get hammered from elevated rates. This case study articulates a spread trade to harness yields from these anticipated market moves. Investors with portfolio exposure to S&P Financial Select Sector Index ("Financials Index") can participate in industry's outperformance. This index provides exposure to banks, mortgage firms, consumer financial firms, capital markets and insurance firms, among others. A long position in CME E-Mini Financial Select Sector Futures and a short position in CME Micro E-Mini Nasdaq-100 Index Futures will deliver >2.7x reward to risk ratio. HISTORICAL NEXUS BETWEEN TECH-HEAVY NASDAQ & FINANCIALS INDEX Over the last 10 years, the ratio of the Financials Index relative to Nasdaq-100 touched a high of 0.0917 in July 2013 and a low of 0.0342 in November 2020. The ratio rises when financials outperform Nasdaq. The ratio hovered around 0.072 on average from 2013 until the onset of pandemic linked monetary stimulus. It plunged when the monetary policy taps were let loose. Valuations of tech, high-growth, non-profitable firms soared relative to staid financials. However, with QE substituted by QT i.e., from monetary easing to tightening, financials are set to fight back. Frail demand with layoffs is the uncertain path ahead for tech. In contrast, financials appear poised with resilient balance sheets to swing the ratio back in its favour. DEMYSTIFYING S&P FINANCIAL SELECT SECTOR INDEX The Financials Index is market cap weighted and rebalanced quarterly. As of end February 2023, there were sixty-seven companies in total with the top-10 representing 53% of the index. Top-10 index constituents by weight and their 12-month price targets are summarised below. Price targets (PT) for the top-10 point to an average appreciation of 12%. The average of maximum PT among the top-10 delivers a spectacular gain of 29%. However, the average of minimum PT among the same group shows a drop of 8%. Clearly analyst targets are skewed towards a healthy upside gain with limited downside risk. FEDERAL FUNDS RATE TO STAY HIGHER FOR LONGER In speaking to Barron’s, Brian Moynihan, CEO of Bank of America said that the Fed is going to have to leave the rates at a higher structure than people may believe. The Fed were late to the game, and they have got to keep rates high for long until it works through the system. ELEVATED RATES HURTING DEMAND BUT INVESTORS REMAIN EERILY BULLISH Tech sector is feeling the heat of melting demand. Revenues of S&P 500 tech firms is expected to grow only 2% this year. It is the slowest since 2016 as per Bloomberg Intelligence. Q4 earnings have been sending worrying signals for the largest tech companies. Earnings from Apple, Microsoft, Alphabet, Amazon & Meta missed estimates by 8% on average, as per Bank of America. Despite cracks in Q4 earnings, investors’ enthusiasm for tech stocks remains bubbly. Nasdaq is up 13% this year. Rising share prices coupled with shrinking earnings estimates is pushing Nasdaq valuations into lofty zone. The Nasdaq is now priced at 24-times one-year forward earnings, compared to an average of 20-times over the last decade. Overpriced by 20% based on historical standards. In contrast, financials price-earnings ratios, as represented by Financial Select Sector SPDR ETF is at a humble14.5-times. Every dollar of earnings per year requires $14.5 in financials compared to $24 in Nasdaq. In theory, the Nasdaq is 66% more expensive than financials. Bullish markets this year has pushed Nasdaq stocks well ahead of price targets. This phenomenon might be the result of a bear market rally or short covering or rising retail participation or all of them. Consequently, ratio of financials to Nasdaq has slumped 9% so far this year setting the scene for an attractive spread trade entry. TRADE SET UP As central banks are determined to keep inflation down by keeping rates higher for longer, this paper demonstrates a long position in CME E-Mini Financial Select Sector Futures expiring in June 2023 (“financial futures”) and a short position in CME Micro E-Mini Nasdaq-100 Index Futures expiring in June 2023 (“Micro Nasdaq”) will deliver >2.7x reward to risk ratio. Spreads require that the notional values of each leg of the trade to be identical. Each financial futures provides an exposure to $250 x S&P Financial Select Sector Index. Meanwhile, each Micro Nasdaq provides an exposure of $2 x Nasdaq-100 Index. As of March 3rd, financial futures expiring in June 2023 settled at 446.4 while the Micro Nasdaq settled at 12,446.50. Balancing each leg of the trade requires 2-lots of financial futures (2 lots x $250 x 446.4 = $223,200) and 9-lots of Micro Nasdaq (9 lots x $2 x 12,446.50 = $224,037). Entry: 0.0359 (446.4/12,446.5) Target: 0.0405 Stop: 0.0342 Profit at Target: $ 28,800 Loss at Stop: $10,350 Reward-to-Risk Ratio: >2.7x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
XLong
by mintdotfinance
SPX, What is inside and how different sectors recently performedHi Great followers, smart traders and brilliant investors ! SPX was down since start of 2022 and so far showed -13.79 negative performance however, not all S&P 500 sectors are performing the same ! In fact, some of them specially Energy Sector (SPN) is doing great and strongly outperform all other indices (See related idea about SPN VS SPX if interested). What is drawn is a provided table showing different sectors inside S&P 500 along with their Tickers. Their performance since start of 2022 is also added to third column. 4th column shows their price chart position with respect to 50 days moving average. 5th and 6th columns show if they recently made Death or Golden crosses and if yes when they did. Also , it is worth to note indices were sorted according to their performance from top to bottom. Many useful information can be extracted from this table. We show some of them as following: 1. Energy Sector strongly outperformed the market ( I believe this great performance is going to continue. See my publication about Crude Oil and Exxon Mobile Company in related ideas for details) 2. Only two sectors (Energy and Utilities) were positive since start of 2022. 3. Only three sectors (Energy,Utilities and Materials) are above 50 days moving average and all other sectors are below it. 4. Only four sectors did not recently make a Death Cross. 5. Only Three Sectors made a Golden Cross and maintained this bullish status. 6. Health Care sector showing kind of side way trend. 7. All sectors which made a Death Cross has equal or more than -10% negative Performance. What can be inferred for sector selection and stock picking? There are some clues which can be added to other criteria to make our trades and investments stronger. Some of clues are as below: 1. If we want to avoid the risk, we have to avoid taking long positions in the sectors which are below 50 Days MA. 2. If we are going to (( Buy the Dip )) , we can investigate stocks in the sectors with most negative performance. I can suggest Consumer Discretionary at the upcoming new low for example. 3. We have to avoid taking position in side way trends which is Health Care in our study. We can immediately take position in the direction of the trend once it reveal it's upcoming path. Please note this information can be used for initial filtering. There are so many other tips and guides to choose stocks and defining buy/sell point for a specific stock. As always, We do not jump blindly into the trade. Hope this publication to be useful and wish you all the best.
SP:SPX
by SaeedSajedi
12
💡 Don't miss the great buy opportunity in SFP/BUSDTrading suggestion: . There is a possibility of temporary retracement to the suggested support line (2.5985). If so, traders can set orders based on Price Action and expect to reach short-term targets. Technical analysis: . DOT/USD is in rangebound, and the beginning of the uptrend is expected. . The RSI is at 53.59. Take Profits: TP1= @ 3.010 TP2= @ 3.230 TP3= @ 3.4480 TP4= @ 3.7485 TP5= @ 4 TP6= @ 4.47 SL= Break below S2 ❤️ If you find this helpful and want more FREE forecasts in TradingView . . . . . Please show your support back, . . . . . . . . Hit the 👍 LIKE button, . . . . . . . . . . . Drop some feedback below in the comment! ❤️ Your Support is very much 🙏 appreciated!❤️ 💎 Want us to help you become a better Forex trader? Now, It's your turn! Be sure to leave a comment. Let us know how do you see this opportunity and forecast. Trade well, ❤️ ForecastCity English Support Team ❤️
SLong
by ForecastCity
1
💡 Don't miss the great buy opportunity in SFP/BUSDTrading suggestion: . There is a possibility of temporary retracement to the suggested support line (2.5985). If so, traders can set orders based on Price Action and expect to reach short-term targets. Technical analysis: . DOT/USD is in rangebound, and the beginning of the uptrend is expected. . The RSI is at 53.59. Take Profits: TP1= @ 3.010 TP2= @ 3.230 TP3= @ 3.4480 TP4= @ 3.7485 TP5= @ 4 TP6= @ 4.47 SL= Break below S2 ❤️ If you find this helpful and want more FREE forecasts in TradingView . . . . . Please show your support back, . . . . . . . . Hit the 👍 LIKE button, . . . . . . . . . . . Drop some feedback below in the comment! ❤️ Your Support is very much 🙏 appreciated!❤️ 💎 Want us to help you become a better Forex trader? Now, It's your turn! Be sure to leave a comment. Let us know how do you see this opportunity and forecast. Trade well, ❤️ ForecastCity English Support Team ❤️
SLong
by ForecastCity_World
18
SPF 120 Index (France) - critical juncture - keep tuned to shortThe French index as its European counterparts is tracing a cycle wave c down. Currently it is finishing primary wave 2 up wave and the next move will drive the index to new lows. It seems to be tracing minor wave 3 of a five moves up that will complete intermediate wave C and start primary 3 down. For this it should cross the high of intermediate wave A, and complete the 5 waves. After this the more riskier short entry would be at the low of minor B or for a more conservative entry at the low of primary wave 1. FOLLOW SKYLINEPRO TO GET UPDATES.
EURONEXT:PX4Short
by SkylinePro
BTC demand v. supply and the DBWGood morning, traders. After all that movement last night, price ends up right where it started at yesterday's update. It also shows you why I mentioned that I am paying attention to the DBW the most. Price hit the top of that wedge and then dropped back down to find support on the Tenkan line on the 4H chart. As with previous times before, this area continues to print small-bodied candles and/or long wicks on the 1D chart. StochRSI on the 1W is printing a pennant at the 42/43 area suggesting possible upward price movement from where it is at within the next two weeks. I spoke last week of the strong possibility of price just moving sideways for a week or two and that is what it has been doing so far. The 15 Min chart shows price consolidating within the upper-third of the DBW suggesting a likely breakout through the top of the wedge as is expected with this pattern. That doesn't mean that price can't see another strong push toward the bottom of the wedge before it does, though. Doing so at this time would see price possibly reaching $5950. That being said, price doesn't need to drop as it has already recorded four alternating touches to support and resistance. This current ranging in the low-$6000s will continue to try the patience of traders/investors resulting in the "weak hands" selling into the composite operator if this year has been accumulation. "Smart money" is deeper into this pair than it was previously at this price level, just a few weeks ago, suggesting possible accumulation as well. Traders have been making a big deal about the MACD bearish divergences that have appeared throughout this year at the top of the rallies. The reality is that after such a large move up through the end of last year and subsequent strong drop through the beginning of February, these bearish divergences are expected until price levels out as the buy side and sell side trade against each other within a tightening range. Markets tend to return to the mean. That, alone, doesn't guarantee that price continues upward; it only serves as a reality check when people use it as a reason that price MUST go down at the moment. More importantly, traders should take notice that the 1D MACD has been printing higher lows toward the resistance at the highs in May and July, forming an ascending triangle which is a bullish pattern. Since June we have seen price print higher lows, but we do need to see a higher high as well. I am watching for MACD to breach the descending dotted black resistance line within the ascending triangle first. At this time, we can see MACD pulling closer to the signal line suggesting potential exhaustion on the sell side. 1D OBV has been printing a descending wedge, also a bullish pattern, and is nearing the convergence of the support and resistance lines, so a breakout one way or the other is near. As mentioned previously, this could take a few more weeks to play out, but the pattern breakout bias should be upward since the pattern is bullish. And an increase in OBV should lead to an increase in price afterward. I am continuing to watch for a possible SFP (swing failure pattern) at some point, potentially signalling the next bullish push up, similar to what we saw on June 29th and August 14th. This would require that price drop below the September 9th low of $6094.38 on Bitstamp but close above it in the same 1D candle. As always, failure of the June low to hold has me watching $5450 and $5250 as immediate support. Traders choosing to get involved at this level should be aware of the increased risk associated with doing so. Price is holding on support at this time, but it has been here before and as a result there is the very real possibility that price could drop through it if supply outpaces demand. There will be no live stream this morning as I am still not feeling all that well and am just getting my voice back, but I will be streaming tonight at 9 p.m. CST. I appreciate everyone's understanding.
BITSTAMP:BTCUSD
by Chris_Inks
3