Tag Archives: stocks

Too Far, Too Fast? Market Professionals Reflect Evolving Smart-Money Opinion

How good have their forecasts been? Figure 1 is the record of five years of daily forecasts for ProShares UltraPro Dow30 ETF (NYSEARCA: UDOW ), an ETF that holds derivative securities which are intended to magnify the daily percentage price changes in the DJIA index by a factor of 3 times, either up or down. Figure 1 tells what the Market-makers daily hedging-implied forecasts for UDOW over the past 5 years have produced as net profits for a wide range of imbalances between upside and downside prospects. Those imbalances are measured by the Range Index [RI] which tells what percentage of the whole forecast range lies below the market quote at the time of the forecast. Figure 1 also indicates how often the forecasts were able to produce a profitable outcome, operating in a realistic, time-constrained portfolio management discipline. Click to enlarge So what did MMs see earlier, see now? Here is the current picture of probable coming UDOW prices, along with similar once-a-week forecasts over the past 2 years. Figure 2 (used with permission) The vertical lines of Figure 2 are the price range forecasts for UDOW implied by the MM community’s hedging actions to protect firm capital exposed during buyer~seller balancing to “fill” volume trades. The forecast of 5 weeks ago was from a then-price of $46.54 and a Range Index of -11. Now it has a quote of $64.72 and a Range Index of 57. A week ago the price of $59.49 carried a RI of 51. Figure 1 suggests that buys of UDOW at today’s RI level of 57 in the past might produce only a +2% payoff from here, instead of the upwards of +12% that had been experienced by -11 Range Index forecasts earlier. The +2% prospect is reinforced by the row of data in Figure 2 as the actual payoff experience achieved in 108 of the 1261 days for which UDOW forecasts were available. Forecasts that had RIs of around 57. The current forecast is more optimistic than past experience; it projects a potential gain of +5.6% Odds for reaching the current payoff prospect remain high, with priors producing a profit in 84 of every 100 among the 108 experiences. The fact that gains better than three times the earlier forecast’s average payoff already have been experienced makes one wonder if the “other shoe might drop” any time now and markets might start to back off. To ease such concerns, it is appropriate to know as UDOW prices were rising during this past week, its MM expectations rose faster. The outlook gains pulled back RIs which on a couple of days were at 68. Continued rising expectations, at a gain rate faster than prices, will put strength under a continued market price rise, albeit at a slower pace. Failure to do so may signal weakening market enthusiasm. We’ll have to see what happens. It can be monitored on blockdesk.com., along with expectations for the VIX index and VIX-based ETFs. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Surprise! Electric Utilities Lead The Market

It may be a sign of the strange times in which we live, but utilities that provide us with electricity have emerged as a leading industry group. This traditionally boring group is ranked No. 9 out of 197. It’s likely that low interest rates are forcing income investors to seek dividend-paying stocks. Also, growth stocks remain out of favor, and money managers might be seeking the relative safety of utilities. Some of the stocks in this group have broken out of bases, but chart readers aren’t usually drawn to them for an intermediate move. Investors who buy them usually do so because they expect them to generate income for a number of years. Also, if the current rally strengthens, money managers are likely to cast them aside in favor of growth stocks. A dozen stocks in the 38-member group have Composite Ratings of 90 or above. The No. 1 stock in the group is ITC Holdings ( ITC ) with a Composite Rating of 97.  It owns transmission systems that carry electricity to customers in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma. Last month, the company announced that it is merging with Canada-based Fortis, which operates electric and gas utilities, in a deal valued at $11.3 billion. The company said the merger is accretive to earnings and that shareholders will see a meaningful dividend increase, which now equals an annualized yield of 1.8%. As part of the deal, Fortis will apply to list its shares on the NYSE. ITC’s stock has meandered out of a cup-with-handle base and is barely within the 5% buy zone from a 40.84 buy point. Pinnacle West ( PNW ) is the No. 2 company in the group with a Composite Rating of 96. It’s a holding company for Arizona Public Service, which supplies electricity to 1.2 million customers in Arizona and co-owns the Palo Verde Nuclear Generating  Station, the largest nuclear plant in the U.S. and a primary source of electricity in the southwest. The company is benefiting from Arizona’s population and economic growth. It recently raised its dividend for the fifth straight year. It’s the equivalent of an annualized yield of 3.4%. Pinnacle meandered out of a saucer-with-handle base with a 70.10 buy point and is still within the buy zone. Atlanta-based Southern Co . ( SO ) has a Composite Rating of 96. It generates and distributes electricity to 4.4 million customers in Alabama, Mississippi, Florida and Georgia with a generating capacity of 46,000 megawatts. It also has just emerged from a saucer-and-handle base and is only 1% above a 50.34 buy point. But volume was missing on the breakout. The annualized dividend yield is 4.3%. The five-year annualized earnings growth rate is 4%. Analysts expect a 2% EPS decline this year and a 5% increase in 2017. Image provided by Shutterstock .