- The dollar again traded down today and sparked a rally across many sectors. The dollar index is at a critical support level again as well as trading at the critical $1.50 level on the Euro. If the level breaks and holds we could see new lows for the dollar and new highs for stocks, commodities and gold.
- One large trader was seen implementing some downside protection in the MSCI EAFE ETF – this rotation into protective long positions and lower beta names has been a consistent theme of late. Perhaps a sign of more difficult gains ahead?
EFA – iShares MSCI EAFE Index ETF – The exchange-traded fund, which includes stocks from Europe, Australasia and the Far East, attracted bearish option players despite the 2.5% rise in shares today to $56.88. One investor, who may hold a long position in the underlying stock, unfurled a ratio put spread in the January 2010 contract. The trader purchased 10,000 puts at the January 55 strike for an average premium of 1.39 each, and sold 20,000 puts at the lower January 52 strike for about 70 cents apiece. The investor pockets a net credit of 1 penny per contract on the trade and establishes downside protection in case shares of the EFA decline ahead of expiration. The 1 cent credit is ‘free money’ for the trader as long as the shares remain above $55.00 through expiration in January.
- Goldman Sachs reiterated their conviction buy list call on Wellcare (WCG) and raised the price target to $40.
- Goldman removed Eli Lily from their conviction sell list, but did not change their sell rating on the name.
- Goldman removed Abbott labs from their conviction buy list, but still rate the name a buy.
Tim Backshall at CDR has some commentary on notable action in the credit markets:
Spreads were tighter in the US today with HY outperforming IG as the dollar fell overnight and early macro data appeared less than terrible (though some underlying indices showed weak outlooks). HY skews have narrowed significantly in the last couple of days (with intrinsics underperforming) and as we discuss in detail below, today’s moves take indices back to unch from 11/25 but scratching the surface shows some clear signals of change.
Across the broad credit universe, tighteners dramatically outpaced wideners on the day and while spreads rallied (HY outperforming IG at the index level), in single-names we saw the up-in-quality trade continue with BBB- and above notably outperforming the BB and below rated names. All sectors were tighter on the day but Advertising, Builders, and Construction machinery were the laggards (along with Transports) while Gaming, Autos (sales seemed better than expected in most cases), Lodging, and Banks were the leaders.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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