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The Simple Mechanics in Range-Trading 2016: Global Week Ahead

I think globally each week. Do you? Follow me on twitter @johnblank100

In the last 4 months of 2016, (February to May) major stock indices and the U.S. 10-year Treasury rate entered a new trading range.  

  • “Risk-on” and long gets rates up to near 2.0% on 10-yr Treasuries
  • “Risk-off” and short gets rates back to 1.70% where the 10-yr left off last Friday

On Monday May 16th, this Global Week Ahead started U.S. Treasuries at 1.73%. The markets show you a modest shift back into a “Risk-on” and long posture in this trading range.

This rotation should catch your interest.

In the latest swing trade, the 10-yr hit 1.93% late in April. Stock indices topped off. Then, the 10-yr risk-free rate headed down for a 3-week range-trading journey to the 1.70% bottom. On the way down, traders sell stock indices. They put the money in a fixed income safe haven. Then, they reverse the swing trade at the bottom of the trading range.

Rinse and repeat.

Without any fresh macro catalysts, this is what traders do to major stock indices and fixed income.

After reviewing coming global-macro indicators in the Global Week Ahead, there is nothing to get excited about. News of a stronger U.S. housing construction sector is coming this week -- in terms of permits, starts, and leading indicators. This data is likely fully priced in.  

GDPNow says Q2 GDP growth for the U.S. economy will be +2.8%. A fully anticipated seasonal spring rebound is on for the U.S. economy.

If you just want to play the new 2016 trading range, I have an idea for you.

An interesting Zacks #1 Rank stock to look at is Chipmos Tech (IMOS). This is a Taiwanese company. It is an independent provider of total semiconductor testing and packaging solutions to fabless companies.

This stock is a small-cap at $468 million. Shares are priced at the bottom of a trading range at $17 a share. The stock has a Zacks Value rating of A. The respected investor Seth Klarman’s Baupost Group controls 13.75% of ChipMOS.

What isn’t in a trading range is the price of oil!

Global Brent crude oil prices rose to nearly $49 a barrel on Monday. That’s a 7-month high. This week, Energy is a #65 out of 265 (top 29%) Zacks-ranked Industry. The higher oil prices go, the higher Energy stocks go.

Oil price momentum is on.

If you are looking for an Energy sector stock ticker play, take a look at Zacks #1 Rank Seadrill (SDLP). This stock also gets a composite Zacks VGM rating of A.

This dirt-cheap $4.60 a share stock offers a PEG ratio of 0.06.  It doesn’t get much cheaper than that! The market cap is currently a paltry $360 million and the chart shows you nice upward trading momentum.

Seadrill Partners LLC is engaged in owning, operating and acquiring offshore drilling rigs. The company's drilling rigs are under long-term contracts with major oil companies. The firm is based in London.

Finally, for the more risk-averse, take a look at Adidas AG (ADDYY). This is the large cap global German shoe & apparel company. The $24.6 billion market cap stock holds a Zacks VGM rating of B.

These are the three most interesting global stocks up to a Zacks #1 Rank (Strong Buy) over the weekend.

This Friday -- as is the tradition -- G7 finance ministers and central bankers meet in Japan. Finance minister and central banker meetings are held typically one week ahead of a 2-day meeting of G7 leaders planned for May 26th and May 27th.  

Japan holds the presidency of the G7 this year. President Obama of the USA will visit the Hiroshima nuclear site on that Friday in two weeks time. That’s the first time a sitting U.S. president has visited.

Leading Global/Macro indictors Out This Week—

On Monday, Japans PPI came in at -4.0%. That is not good. That is deflationary.

The unemployment rate in Turkey is 10.9%, down from 11.1% in the prior reading.

The unemployment rate in Peru is 6.9%, down from 7.2% in the prior reading.

The NAHB builders survey comes out in the U.S. Look for 59, slightly better than the previous 58.

The Fed’s Kashkari speaks in Minneapolis.

On Tuesday, the U.K. CPI should be up a paltry +0.5% y/y. That’s not much.

The U.K. input prices look to be down -6.8% y/y in unadjusted terms.

U.S. building permits should get to 1.135M, better than the prior 1.086M. Spring is here. Housing starts are looking for 1.125M, better than the prior 1.089M.

Japan’s GDP growth should get to +0.1% q/q, which is an annualized +0.3% rate. That is better than the prior -0.3% q/q, which annualized to -1.1%.  Having written that, this is a poor growth rate at best.

The Fed’s Lockhart, Williams, and Kaplan speak.

On Wednesday, the U.K. ILO unemployment rate looks steady at 5.1%.

The Fed releases the latest FOMC minutes.

The ECB Governing Council meets in Frankfurt.

On Thursday, the Australian unemployment rate looks to be 5.8%.

In France, the ILO unemployment rate looks steady at 10.3%.  

The U.K. retail sales (ex-auto and fuel) looks to be +2.6% y/y, about the same as the prior +2.7% reading.

The ECB minutes get released.

U.S. initial claims should be 275K.

The Fed’s Dudley speaks in NYC.

On Friday, Mexican GDP (revised) looks to grow +2.6% y/y. The latest quarter should be about +0.7% q/q. It’s better than the +0.5% prior reading.

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