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Chart of the Day
Canada stocks look better than frothy U.S. shares to BofA
Canadian shares are a bargain at a time when “U.S. stocks look frothy,” in Bank of America Corp.’s view. Strategists Ohsung Kwon and Savita Subramanian made the argument in a report last week that compared forward price-earnings ratios for the S&P/TSX Composite and S&P 500 indexes. The valuation gauge showed Canada’s benchmark was 23% cheaper as of Friday, according to data compiled by Bloomberg. The discount bottomed out April 13 at 27%, the biggest in more than two decades. “Canada looks particularly attractive” as the global economy rebounds, the report said.
Our View
Investors Pour Back into Tech, Sell Dow & Russell
The ES traded up to new all-time highs on Globex early Monday morning at 4279.50 and opened the regular day session near the highs at 4277.25. After the open, the ES sold off down to the low of the day at 4265.75 at 9:45 and then slowly ground higher.
At 10:54, the ES traded 4274.50 and after some chopping, it sold off down to the low of the day at 4264.25 at 1:21 pm. From 10:00 am to 12:20, the ES stayed in a 4 to 6-handle range with most of it 3 to 4 handles and finally broke out at 3:10 when the ES traded 4364.50 and rallied 12 handles up to 4276.75.
On the 3:50 cash imbalance, the ES traded 4280.00, traded 4279.25 on the 4:00 cash close, and settled at 4280.50 on the 4:15 futures close, up 9.25 handles or 0.22% on the day.
In the end, it was a quiet day. In terms of the ES’s overall tone, it was firm but not like the NQ. There has clearly been a move back into tech, as high-growth stocks enjoyed a continued rally and the ARKK ETF rose 3.8% and hit its highest level since early March. Facebook was up over 4% on the day and closed with a market cap in excess of $1 trillion for the first time.
Meanwhile, the Dow and Russell were down roughly 0.5% and 0.7%, respectively.
In terms of the day’s overall trade, I grow more concerned every day about how quickly the volumes have dropped. Total volume in the ES was a mere 801K contracts traded. No doubt thin to win is working, but what happens when it starts going down?
Our View: Yesterday, the rotation was out of Dow stocks into tech. My guess is we see the opposite today. The S&P is having its best month since January. One of the hardest trades is picking a top. The ES is only 24 points away from 4300.00 but it may be a tough 24. The current price action is to rally in the first part of the day, sell-off, make a low, then bounce. However, some of those lows do not come until later in the day, and then in comes a big rip.
Our lean: Be careful not to get hooked long at a contract high. Sell the early rallies and buy the pullbacks keeping in mind it just looks too easy.
As we all know, there’s no crystal ball when it comes to trading stocks, options or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk free for 30 days.
Danny Riley is a 39-year veteran of the CME trading floor. He ran one of the largest S&P desks on the floor of the CME Group since 1985.
As always, please use protective buy and sell stops when trading futures and options.
Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Decisions to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
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