Index Update 04.07.2015

MOMENTUM

We run our proprietary momentum scoring algorithm on indices just like we do on stocks. You can use the momentum scores of sub-indices to get a sense for which sectors have the wind on their backs and those that are facing headwinds.

Traders can pick their longs in sectors with high short-term momentum and their shorts in sectors with low momentum. Investors can use the longer lookback scores to position themselves using our re-factored index Themes.

You can see how the momentum algorithm has performed on individual stocks here.

Here are the best and the worst sub-indices:

index momentum best 365 2015-07-03 png

index momentum best 50 2015-07-03 png

index momentum worst 365 2015-07-03 png

index momentum worst 50 2015-07-03 png

Relative Strength Spread

CNX_500 relative-spread-index 50 2015-07-03 png

Refactored Index Performance

50-day performance, from April 24, 2015 through July 03, 2015:

Equally Weighted Market Cap. Weighted
CNX PHARMA (EQUAL) +19.20% CNX MEDIA (CAP) +7.71%
CPSE INDEX (EQUAL) +6.19% CNX PHARMA (CAP) +6.92%
CNX MNC (EQUAL) +5.81% CNX MNC (CAP) +5.44%
CNX FMCG (EQUAL) +5.57% CNX ENERGY (CAP) +5.33%
CNX AUTO (EQUAL) +5.23% NV20 (CAP) +4.09%
CNX CONSUMPTION (EQUAL) +4.55% CNX BANK (CAP) +4.05%
CNX MEDIA (EQUAL) +4.15% CNX FINANCE (CAP) +3.68%
NI15 (EQUAL) +3.46% CNX AUTO (CAP) +3.67%
NSE QUALITY 30 (EQUAL) +2.50% CPSE INDEX (CAP) +3.25%
NV20 (EQUAL) +2.30% CNX INFRA (CAP) +3.02%
CNX PSE (EQUAL) +1.96% CNX CONSUMPTION (CAP) +2.94%
CNX IT (EQUAL) +0.82% CNX SERVICE (CAP) +2.56%
CNX FINANCE (EQUAL) +0.46% CNX COMMODITIES (CAP) +2.53%
CNX BANK (EQUAL) -0.17% CNX PSE (CAP) +2.37%
CNX ENERGY (EQUAL) -0.21% NI15 (CAP) +0.83%
CNX SERVICE (EQUAL) -0.68% CNX IT (CAP) +0.76%
CNX COMMODITIES (EQUAL) -1.85% NSE QUALITY 30 (CAP) -0.00%
CNX INFRA (EQUAL) -2.58% CNX FMCG (CAP) -2.19%
LIX 15 (EQUAL) -5.83% LIX 15 (CAP) -3.56%
CNX REALTY (EQUAL) -9.77% CNX PSU BANK (CAP) -5.78%
CNX PSU BANK (EQUAL) -10.29% CNX METAL (CAP) -9.42%
CNX METAL (EQUAL) -12.25% CNX REALTY (CAP) -11.90%
LIX15 Midcap (EQUAL) -13.61% LIX15 Midcap (CAP) -13.11%

Trend Model Summary

Index Signal % From Peak Day of Peak
CNX AUTO SHORT
6.66
2015-Jan-27
CNX BANK SHORT
8.88
2015-Jan-27
CNX ENERGY SHORT
25.33
2008-Jan-14
CNX FMCG LONG
9.20
2015-Feb-25
CNX INFRA LONG
46.95
2008-Jan-09
CNX IT LONG
88.27
2000-Feb-21
CNX MEDIA LONG
23.15
2008-Jan-04
CNX METAL LONG
58.71
2008-Jan-04
CNX MNC LONG
1.66
2015-Mar-12
CNX NIFTY SHORT
5.68
2015-Mar-03
CNX PHARMA LONG
11.32
2015-Apr-08
CNX PSE LONG
23.84
2008-Jan-04
CNX REALTY SHORT
90.35
2008-Jan-14
50-day performance turns green for most indices and the MNCs have more or less covered their draw-downs. Looks like financials and FMCG have found their mojo. Will the markets keep their trend?
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Correlation Update 04.07.2015

Nifty one year daily return correlations

Nifty one year daily return correlations

Nifty one month daily return correlations

Nifty one month daily return correlations

Bank Nifty one year daily return correlations

Bank Nifty one year daily return correlations

Bank Nifty one month daily return correlations

Bank Nifty one month daily return correlations

Midcap one year daily return correlations

Midcap one year daily return correlations

Midcap one month daily return correlations

Midcap one month daily return correlations

A lot of thick blue squares mean that positive correlations are high. Red squares mean negative correlations are high. Whites are the doldrums.

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Implied Volatility around Earnings Announcements

Introduction

There is a common belief that option implied volatility, which is high before earnings announcements, quickly dissipates after the event. So sell options before the event to profit from the fall in IV. We decided to put this theory to test by observing at-the-money IVs 5-days before earnings announcements and their subsequent behavior.

It is not what you expect.

ATM IVs

Here are the at-the-money implied vols 5-days before and the day after announcements:

atm iv announcement

In our study, IV falls only 44% of the time. So the blanket statement fails. IV dissipation is not guaranteed. There are a lot of other things that affect IV and earnings alone is not sufficient to predict the outcome.

However, if the IV was more the 50, then IV dissipates 70% of the time. However, these odds could be similar to those without earnings announcements as well (all things equal.) So further research is required.

Conclusion

Don’t go around selling options thinking that IV will dissipate after earnings announcements. Know your odds.

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Macro Update June 2015

US TREASURIES VS. GILT SPREAD

The spread between 10yr US Treasuries and Indian Gilts remained within a tight range this month.

ust-ind-10yr-spread.2011-01-18

Long-term bond yields continued their ascent:

ust-yield-curve.2015-06-01

INSTITUTIONAL INVESTMENTS

FIIs came back to the debt market but took money out of equities…

fii-investments.2014-01-01.2015-06-30

… while DIIs gulped down debt as well.

dii-investments.2014-01-01.2015-06-30

Oil

Oil futures remained flat.

wti-brent.2011-01-18

Gold

If all the uncertainties cannot move gold up, I am not sure what will.

gold.usd

Copper

After a brief period of enthusiasm, it looks like copper has given up on industrial growth again.

copper.usd

Dollar Index

Looks like the dollar index (DXY) has found a range.

Outlook

Although the Indian markets have shrugged off Grexit for now, nobody really knows the extent to which the contagion can spread. It’s basically a known unknown at this point.

With the monsoon expected to be normal and earnings to begin in earnest only by the end of July, the first couple of weeks of July is going to be driven by optimism.

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Quarterly Recap: April-June 2015

world.2015-03-31.2015-06-30

Equities

Major
DAX(DEU) -8.53%
CAC(FRA) -4.84%
UKX(GBR) -3.72%
NKY(JPN) +5.69%
SPX(USA) -0.77%
MINTs
JCI(IDN) -10.94%
INMEX(MEX) +2.75%
NGSEINDX(NGA) +5.37%
XU030(TUR) +1.37%
BRICS
IBOV(BRA) +3.41%
SHCOMP(CHN) +13.26%
NIFTY(IND) -0.71%
INDEXCF(RUS) +1.74%
TOP40(ZAF) +0.27%

Commodities

Energy
Heating Oil +9.46%
Natural Gas +6.38%
Ethanol +8.99%
WTI Crude Oil +22.10%
Brent Crude Oil +13.69%
RBOB Gasoline +14.29%
Metals
Copper -4.73%
Gold 100oz -0.74%
Platinum -4.72%
Palladium -6.21%
Silver 5000oz -6.02%

Currencies

USDEUR:-3.59% USDJPY:+2.18%

MINTs
USDIDR(IDN) +1.84%
USDMXN(MEX) +3.22%
USDNGN(NGA) -0.14%
USDTRY(TUR) +3.21%
BRICS
USDBRL(BRA) -3.60%
USDCNY(CHN) +0.03%
USDINR(IND) +1.85%
USDRUB(RUS) -4.47%
USDZAR(ZAF) +0.08%
Agricultural
Coffee (Robusta) +11.08%
Soybeans +7.68%
Cattle -8.30%
Cocoa +12.52%
Coffee (Arabica) -1.39%
Corn +9.44%
Feeder Cattle -1.47%
Lean Hogs +22.31%
Lumber +3.67%
White Sugar +3.99%
Cotton +6.00%
Soybean Meal +9.66%
Sugar #11 +4.00%
Wheat +17.70%
Orange Juice -7.16%

Credit Indices

Index Change
Markit CDX EM +3.41%
Markit CDX NA HY -1.55%
Markit CDX NA IG +3.77%
Markit iTraxx Asia ex-Japan IG +9.21%
Markit iTraxx Australia +11.15%
Markit iTraxx Europe +16.41%
Markit iTraxx Europe Crossover +27.41%
Markit iTraxx Japan +4.29%
Markit iTraxx SovX Western Europe +0.46%
Markit LCDX (Loan CDS) -0.19%
Markit MCDX (Municipal CDS) +5.20%
European markets got shellacked and global markets went from obsessing over Fed rate hikes to Grexit. We had our own monsoon scare and bond market turmoil even though the RBI is on an easing path…

Index Returns

index.performance.2015-03-31.2015-06-30

Market Cap Decile Performance

Decile Mkt. Cap. Adv/Decl
1 (micro) +4.17% 68/64
2 +9.23% 69/62
3 +6.79% 73/58
4 +5.28% 71/61
5 +2.42% 62/69
6 +0.91% 61/70
7 -1.04% 57/75
8 -1.14% 60/71
9 -5.65% 59/72
10 (mega) -0.60% 58/74
Large-caps held steady…

Top Winners and Losers

BAJAJ-AUTO +26.05%
GLENMARK +26.46%
BRITANNIA +28.00%
CANBK -24.46%
TECHM -24.12%
SRTRANSFIN -23.41%
Looks like Bajaj Auto finally turned the corner…

ETF Performance

CPSEETF +3.18%
BANKBEES +1.65%
JUNIORBEES +1.51%
GOLDBEES +0.87%
NIFTYBEES -0.83%
INFRABEES -2.69%
PSUBNKBEES -4.35%
PSU Banks were the most despised asset class…

Yield Curve

yieldCurve.2015-03-31.2015-06-30

Bond Indices

Sub Index Change in YTM Total Return(%)
GSEC TB -0.36 +2.06%
GSEC SUB 1-3 +0.07 +1.73%
GSEC SUB 3-8 +0.07 +0.10%
GSEC SUB 8 +0.39 -1.09%
Yields went up…

Interbank lending rates

mibor.30days.2015-06-30

Investment Theme Performance

Textile, Metals, Chemicals, Paper and Energy Quality to Price +12.87%
CNX 100 Enterprise Yield +3.27%
Momentum +2.92%
Tactical CNX 100 +2.77%
Balance Sheet Strength +2.26%
Auto and Consumer Goods Quality to Price -1.06%
ASK Life -2.68%
Low Volatility -3.04%
Next Trillion -4.27%
Media, Health, IT, Telecom, Services, Pharma Quality To Price -7.28%
Magic Formula -8.36%
Quality to Price -9.24%
PPFAS Long Term Value -10.79%
ADAG stocks -12.23%
High Beta -14.24%
Momentum managed to eke out a positive…

Equity Mutual Funds

Best
Reliance Japan Equity Fund- Growth Plan- Growth Option +7.59%
Mirae Asset China Advantage Fund – Regular Plan Growth Option +7.39%
Franklin India Feeder – Franklin European Growth Fund – Growth +7.02%
DWS Global Agribusiness Fund – Growth +6.02%
Bsl Comm Eq Fund – Global Agri Plan – Growth +6.00%
SBI Smal & Midcap – Regular Plan – Growth +5.78%
Religare Invesco Pan European Equity Fund – Regular Plan – Growth Option +4.37%
Worst
HSBC Progressive Themes Fund – Growth -4.39%
Religare Invesco AGILE Fund – Growth Option -4.43%
LIC NOMURA MF Balanced Fund-Growth -4.69%
Religare Invesco Infrastructure Fund – Growth Option -5.07%
HDFC INFRASTRUCTURE FUND-GROWTH OPTION -5.11%
Sundaram Growth Fund-Growth -5.92%
Reliance Tax Saver (ELSS) Fund-Growth Plan-Growth Option -6.34%

Bond Mutual Funds

Best
Baroda Pioneer Credit Opportunities Fund -Plan B-Growth Option +2.51%
Escorts Income Plan-Growth +2.43%
Baroda Pioneer Credit Opportunities Fund -Plan A -Growth Option +2.25%
Franklin India Dynamic Accrual Fund-Growth +1.75%
Kotak Coporate Bond Fund- Retail Plan-Growth Option +1.70%
Kotak Corporate Bond Fund- Standard Plan-Growth Option +1.61%
HDFC Gilt Fund-Short Term-Growth +1.54%
Worst
ICICI Prudential Income – Regular Plan – Growth -1.39%
JM Income Fund-Growth Plan – Growth Option -1.45%
IDFC GSF – Investment Plan -Regular Plan-GROWTH -1.49%
IDFC GSF – Investment Plan – Growth -1.49%
ICICI Prudential Long Term Gilt Fund – Regular Plan – Growth -1.55%
JM G-Sec Fund-Regular Plan-Growth Plan – Growth Option -1.68%
Religare Invesco GILT Fund – Long Duration Plan – Growth -1.87%
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