Archive for February 2010
Sectors on the Horizon
Posted by: | CommentsOil Sector
The big seasonal story in February is typically the oil sector. The track record for the XOI Amex Oil Index from February 25th to May 9th is very good. From 1984 to 2009 the XOI was positive 24 out of 26 times and beat the S&P 500, 23 times. Equally impressive is the very small drawdowns that have occurred. Over the last 26 years, there have only been two negative years, 1990 and 2005. These years produced very small negative returns of 0.6% and 1.0% respectively.
The above graph illustrates the strength of the seasonal trend for oil stocks from February 25th to May 9th. In fact, on average the oil sector has had most of its gains for the year in this two and a half month period. Although the results will be different than the XOI index, investors should consider investing later in the month, in the Energy Select Sector Spyder (XLE) in the U.S. and iShares CDN S&P/TSX Cappd Enrgy Indx Fnd (XEG) in Canada.
Spyders Metals and Mining (XME)
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The metals and mining sector usually does well seasonally from mid-November to the beginning of May. Even within this period the sector can correct in the month of January, presenting a buying opportunity at the end of the month. HAC purchased a small position in XME towards the end of January to position itself for the last leg of the typical period for metals and mining stocks. This sector usually does well until the beginning of May.
Oil Svc Holdrs TR Oil (OIH)
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The broad oil sector typically does well on a seasonal basis starting on February 25th (based upon long-term XOI Amex Oil Index from 1984 to 2009). In more recent years the oil services sector has started its seasonal period in late January. HAC purchased a small position of Oil Services Sector (OIH) in late January to position itself in the oil sector to take advantage of the potential developing seasonal trade. The oil sector typically does well until May. Currently the Oil Services Sector is just above support and the 200 Day Moving Average.
Materials Select Sector SPDR (XLB)
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HAC purchased a position in Materials Select Sector SPDR (XLB) towards the end of January as this is the typical time that materials sector tends to outperform from a seasonal basis. This sector has a large percentage of chemical companies of which the brokerage houses have been upgrading recently. The end of this seasonal period is at the beginning of May. Recently this sector has been coming under pressure because of the European debt concerns having the potential to slow global growth. From a technical perspective the sector is just above the 200 Day Moving Average and a bit further below is the support line.
HAC – January BUYS
Posted by: | CommentsRydex ETF S&P 500 Equal Weight (RSP)
One of the strategies for HAC was to purchase the Rydex S&P Equal Weight (RSP) instead of SPY on the U.S. market or XSP on the Canadian market. RSP is an equally weighted ETF version of the S&P 500 rather than capitalization weighted. In an equally weighted version of an index all stocks are weighted the same. In a capitalization weighted index, larger companies have a larger weight.
From a seasonal perspective, RSP is preferred because smaller caps and sectors such as materials are given more weight. These sectors have a very small weight in the S&P 500 index.
ISHARES CDN S&P/TSX CAPD FIN (XFN.TO)
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The U.S. fi nancial sector typically starts to do well mid-January approximately at the time that the companies come out with their yearend results. The Canadian banking sector has its yearend earlier than the U.S. and as a result tends to do well earlier than the U.S. Financial sector.
Although the Canadian sector is in much better shape than the U.S. sector, the Canadian sector is not going to rocket ahead until the U.S. gets its act in gear. At the current time there is too much uncertainty in the U.S. Financial sector, especially given Obama’s new regulations. As a result, the Canadian sector was performing with the market and XFN was removed from HAC.
Technology Select Sector SPDR (XLK) & Semiconductor HOLDRs (SMH)
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At the beginning part of the month, both the Technology Select Sector SPDR (XLK) & Semiconductor HOLDRs (SMH) ETFs were sold. Both of these sectors performed well for HAC providing positive performance and outperforming
the market. In December I wrote “The seasonal sector trade for these sectors ends on January 17th, but it is usually prudent to start lightening up on the sector before the Consumer Electronics Show in Las Vegas which takes place in the fi rst week in January 2010.” HAC sold the positions in XLK and SMH in early January. The sector has since corrected sharply. The next seasonal time to reenter this sector is in October.
Adding Liquidity / Removing Liquidity Explanation
Posted by: | CommentsHey Traders,
Alot of people have recently asked me for an explanation of adding/removing liquidity in the stock market as well as how orders are routed. Below is a basic description with the resulting rebates as well as additional charges above your commission rate that many don’t realize even exist:
Adding vs. Taking Liquidity vs. Outbound.
The term “Add Liquidity” refers to sending an order to an ECN at a price which is not immediately executable. The order sits on an ECN’s order book until the market moves to that price, at which point the order executes. You can think of this as a limit order.
EXAMPLE: The inside market in XYZ is $20.01 X $20.05. If you place a buy order at $20.04 or below, the order will sit on the order book until another market participant is willing to sell at that price. Alternately, you can place a sell order at $20.02 or higher and your order will sit on the order book until another market participant is willing to buy at that price. Buying on the bid and selling at the offer is referred to as adding liquidity.
The term “Remove Liquidity” refers to sending an order at a price which is immediately executable. A buy order is sent with a price equal to or higher than the current offer and a sell order is priced equal to or lower than the current bid. You can think of this as a market or marketable limit order.
EXAMPLE: Using the example from above, the inside market in XYZ is $20.01 X $20.05. If you place a buy order at $20.05 or higher you will immediately execute at the current offer. If you place a sell order at $20.01 or lower you will immediately execute on the current bid. Buying at the offer or selling on the bid is referred to as removing liquidity. (Keep in mind that some venues can have hidden orders. Executions against existing hidden orders are still considered removing liquidity).
The term “Outbound” refers to an order which is routed from its original destination to another venue.
EXAMPLE: You send an order to ARCA to buy XYZ at $20.05 while NSDQ is displaying an offer to sell at $20.04. ARCA will route your order to NSDQ for execution at the better price. This order routing is referred to as outbound.
Hope that helps! Cheers!
