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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (17809)	3/2/2016 1:03:43 AM
From: John Pitera	1 Recommendation Recommended By sixty2nds Respond to of 33421

This Hedge Fund Topped Rivals With Mix of Algorithms and 16th-Century by Andrea Wong February 29, 2016 — 6:00 PM CST Updated on March 1, 2016 — 2:36 PM CST The market turbulence leading investors to flee hedge funds around the world is providing a measure of vindication for one asset manager. First Quadrant LP, which manages *$11 billion in foreign-exchange strategies,* relies on computer models that crunch data such as interest-rate differentials and equity valuations to identify currencies’ fair value and determine entry and exit points. The $1 billion Absolute Return Currency Fund it runs out of Pasadena, California, for John Hancock Investments has returned 9.6 percent in the past year, topping 13 rivals tracked by Bloomberg. The success marks a turnaround from 13 months ago, when the fund logged its steepest daily drop on record after the Swiss National Bank’s shock decision to abandon the franc’s cap against the euro. First Quadrant’s fair-value model benefits from the current environment of risk aversion and heightened volatility. It’s based on a theory with roots in Renaissance Spain that asserts currencies will eventually adjust so their purchasing power equalizes. The yen, about 20 percent undervalued according to Deutsche Bank AG analysis, has climbed 5.6 percent against the dollar in 2016 amid concern global growth is stalling. “In terms of periods of time when fair value works the best, at least our version of it, is in times of stress,” said Jeppe Ladekarl, who manages the Absolute Return Currency Fund with Dori Levanoni. “In this particular period of time we have had markets that traded quite well along the lines of fair value. The yen is one of them.” The fund has been *betting on the dollar, euro and yen against a basket of equally weighted currencies.* The three have all gained versus their other major peers this year, according to data compiled by Bloomberg. A First Quadrant fund that uses a similar model and allows higher levels of volatility has gained 14 percent in 2016, according to a Citigroup Inc. platform that tracks the performance of currency-focused hedge funds. The Absolute Return Currency Fund plunged 8.7 percent on Jan. 15, 2015, after bets the franc would weaken backfired. The currency was already overvalued by 44 percent at the time, according to Organisation for Economic Co-operation and Development measures. It was the biggest daily drop since the fund’s founding in 2010. It was also the largest decline that day among more than 2,000 U.S.-domiciled funds tracked by Bloomberg with at least $1 billion under management at the time. After muddling through the rest of 2015, the money manager’s fair-value strategy began to pay off this year as concern over a global demand slump and policy makers’ response to slowing growth worldwide drove investors to currencies anchored by positive trade flows. Japan and the euro area have among the world’s biggest current-account surpluses. The strategy is based on the *theory of purchasing-power parity,* an achievement of theologians at the School of Salamanca, where it was developed based on silver and gold trading between Spain and its colonies in the Americas during the 16th century. “All the funds that are hot right now are having unusually good streaks because of what’s going on in the world right now, which is a risk-off environment,” said John Dean, managing director of London-based Absolute Return Strategies Ltd., which selects hedge-fund strategies for its investible indexes. “But foreign exchange changes its characteristics really quite rapidly. *Risk-off is a one-in-five-year phenomenon.”The Absolute Return Currency Fund lost money in 2015 after generating positive returns in four of the previous five years when including dividends. Systematic FundsFirst Quadrant is also riding rising demand for systematic funds. More than two-thirds of hedge-fund investors use systematic strategies, with investment consultants and pension funds driving demand, a Deutsche Bank investor survey conducted in February showed. Unlike the traditional discretionary style of trading that leans on fund managers’ intuition and insight, systematic funds don’t take directional views and let the computer models do the work. In First Quadrant’s framework, polarizing opinions on some of the most important questions in markets, such as oil’s outlook, U.S. recession risks and a Chinese hard landing, show big moves in currencies are ahead as investors await fresh evidence that’ll reveal the state of the world economy. “In an environment when currencies have started moving and you have a pickup in volatility, you have more chance for foreign exchange to realign to their fair value,” said Saeed Amen, a cross-asset strategist at Thaleptians Ltd., which specializes in quantitative finance. “Foreign-exchange fair value strategies like purchasing power parity, they tend to work in specific times.* It’s not going to be the case for strategies like that to work continuously over a long time.” bloomberg.com -------------------------- The size and scope of the move in the Swiss Franc against the EUR .... and the other currency cross rates on Jan 15th of 2015 was unprecedented in it's magnitude by a major currency a 30% move in less than 15 minutes ( one that trades on say the CME futures exchange etc... an account exec at Tradestate told us on a conference call last Weds. that Tradestation had gotten out of the currency trading business although their website had yet to reflect it.... Deusche Bank abruptly got out of the retail business 3 years ago. (editorial note by JJP...we may well be seeing the risk off environment exiting.. with the recent stabilization in crude and the global rallies in equity markets.)

To: John Pitera who wrote (17809)	3/2/2016 5:39:39 AM
From: John Pitera	2 Recommendations Recommended By mary-ally-smith roguedolphin Read Replies (1) \| Respond to of 33421

the Dow Transports have had a strong rally since early Feb as has the RUT has climbed above it's 50 DMA.... on the strong rally yesterday ...This is coupled with the SPX, The NASD Comp and the NYA all vaulting above their 50 day MA yesterday....... to have 4 major indicies to all be giving the same bullish breakout signal on the same day is very rare to have them that closely coordianted and is absolutely bullish for them to all take out that resistance and close on their highs... above the intermediate term resistance. I suspect that we have not seen all 4 of those average climb from below their 50 DMA ; close above it and close on the high in the past 5 years.... although I have not researched that specific point. GOLD has continued to perform well as it appears to be in a triangular consolidation and should make a higher high in price than the 1263 high when we consider the RSI momentum overbought on Feb 10th The Weekly Gold Chart is also extremely bullish gold is start this morning again at the top of the WEEKLY Bollinger Band and the weekly RSI is showing more bullish momentum than at any time since the price high in Gold at $1923 in 2011 John

To: John Pitera who wrote (17809)	3/2/2016 10:27:10 AM
From: The Ox	1 Recommendation Recommended By John Pitera Respond to of 33421

I haven't been overly worried about the political process at this time. I will say that the analogies to the "clown car" group the Republican constituents have put forward have had me in stitches. It's one of the reasons why I haven't paid that much attention. Until the field gets whittled down to 3 or 4, I was just waiting. We're getting there. The Dems are more of a foregone conclusion, so no need to spend much time there either. With respect to the markets, I think we've seen some very troubling sentiment numbers but other than that, it's been interesting to watch the move off the recent test of the lows. So many stocks are washed out (or were 2 weeks ago). Many with strong justifications but there are nearly as many babies in the bathwater, so to speak. I posted yesterday on another thread the Glencore CEO stating he thought commodities were making a bottom or have already made it. While he could be "talking his trading book", I believe it's worth taking note of the statement. A few weeks ago I stated on another thread that the market wouldn't be going anywhere without the transports and your chart shows solid movement in that area as well. Money is still moving into the markets as taxes get completed, with 401K money and the like still moving into accounts. Intermediate view is rebounding within the down trend and just now braking above the middle of the channel: