"Dead Cat Bounce" Dies - Dow Futs Down Over 500 Pts, Treasury Yields Are Tumbling / Stocks Extend Losses After WHO Declares Pandemic (Update)

Jim,

It seems that a lof of ppl think that yesterday was just a dead cat bounce. What do you think?

Regards
James

Dead Cat Bounce" Dies - Dow Futs Down Over 500 Pts, Treasury Yields Are Tumbling

by Tyler Durden
Tue, 03/10/2020 - 21:49

Well that re-escalated quickly…

A disappointing lack of detail -despite promises of unlimited spending - appears to have upset the market’s vibe from a day of panic-buying to very technical level of resistance.

Dow futures are now down 550 points…

And 10Y Treasury yields are down 12bps…



James,

I don’t think we have seen the bottom. Pimco’s Mohamed El-Erian does not think we have seen the bottom either.

I do not think a recession is the consensus view but I do not see anyone ruling it out either.

I have a lot of consumer staples and utilities so my beta (to the market) is low. That is not to say that you and others have not done better with timing and/or hedges.

I only took about 10% of my entire portfolio out of the market yesterday and probably will not take any more out.

More importantly, I had some dry powder already and I am looking to go 100% into the market. Probably not that long from now. I never could catch a falling knife so I expect to be a little early or a little late. But the risks will be low after this is all over (or near the bottom).

Best,

Jim

Jim,

It appears that you offload the 10% in a good time.

Much better time than selling on Mon.

Are you still considering to invest in pair trading with your dry powder?

Regards
James

Hi James,

Not pairs trading now. But can you get historical NAV or iNav data near the close on ETFs?

I can add alpha relative to the SP500 using just pricing data on the Sector SPDRs. This may not be too useful to me as I would need to keep cash in my SEP-IRA to move in and out of of the Sector SPDR ETFs or do some fairly intense trading near the close.

Even with a 2 day lag the strategy works with closing prices and adds to the returns over and above the trading costs. But not with opening prices.

I suspect that the discrepancy between the closing price and the NAV is the cause. The opening prices probably reflect the NAV published after the close. There may be the need to cover shorts at the end of the day, or other things, causing some of this discrepancy. I am uncertain of this.

But I have no doubt that historical NAV data would add to a strategy that is already effective—especially since this discrepancy is the probable underlying cause of most-- if not all–of this anomaly.

For me, it will probably be less work (and equally rewarding) to not have to have any cash in the SEP-IRA and just be fully invested. Especially, since I cannot leverage any of this.

I suspect Georg and others probably have a lot to add to this.

The Sector SPDRs are probably not correlated enough to be truly market neutral but one could short some of the sectors that are expected to underperform and get a partial hedge that would maximize the Sharpe Ratio.

So to answer your question. I am not there on pairs trading now.

Best,

Jim

Jim,

So you want the closing price for the sector ETFs? It is very easy to obtain that even from Yahoo Finance.

or you want the NAV of the sector ETFs before closing? Just want to be sure I understand what you are looking for.

Regards
James

James,

I have already used Yahoo’s data to confirm P123’s data with close and adjusted close. All work.

Probably the iNav say 1/2 hour before the close would be the most useful for the actual trading. It could give a true PIT signal for backtesting and a signal for trading.

The NAV after the close would help confirm what is going on. Correlations are nice. Knowing the true cause is even better.

Either one would probably be helpful if you are interested.

As I said this may not pay for me now. Although, I will continue to look at leveraged ETFs and maybe using money that I can short with (and get leverage with).

Of course, knowing the cause or the anomaly (for sure) would be a step toward adding confidence. Also know when using the anomaly may no longer work (e.g., seeing when the discrepancy between the close and the NAV narrows) would be helpful. And the iNAV before the close could tell when a trade may not work.

Best,

Jim,

The only way to get what you are looking for (NAV 30 mins before closing) is to caluclate the NAV of the holdings for the sector ETFs (based on the previous day) in a spreadsheet. We will also need to have live data feed in order to do that. The data in my Reuters Eikon is delayed by 15 mins.

The acutal NAV of the ETFs are not disclosed by the ETF providers until the next day (before market opening).

Regards
James

James,

The iNAV or intraday net asset value also called the IIV (intraday indicative value) is calculated and available every 15 minutes during the day for most ETFs. Quant firms try to get ahead by using a basket of stocks as a proxy for the ETFs so they can trade on information between those 15 minute periods that is less available.

This helps keep the ETF’s value in line with the underlying assets. People arb away any difference between the ETF and the underlying assets during the day. But at the close the trading increases and the people that usually arb away the difference cannot always keep up. And people—including those that would normally arb away any difference— are less inclined to hold the ETFs overnight. Especially if they have a belief in the market direction.

So, I am sure that I have not found something that is new—otherwise it would not be public information that quant firms look at a proxy for the iNAV using a basket of stocks. Still looks like there could be some returns left for those willing to take the risks of holding the ETFs overnight.

Best,

Jim

All,

Here is a little bit about NAV and iNAV: Fidelity’s Primer

Fidelity’s site does give all of this including the iNAV, NAV premium,/discount, average premium/discount, average premium divided by the average BID/ASK for the last month etc…

Someone is already using this information, I think.

Best,

Jim

Jim,

I just checked and iNAV for all SPDR sector ETFs is available in Reuters Eikon. It is updated at the same time as the ETF price (minute by minute).

However I don’t have real time data feed for my Reuters Eikon. (there is a 15 minutes delay).

I uses StreetSmart Edge from Charles Schwab to monitor my portfolio in real time.

Regards
James

James,

So I already have a signal but historical data for the NAV and iNAV would—almost certainly—improve the signal and make it more reliable.

One could also probably paper trade the signal and note what the iNAV was when the trade was made (as well as the NAV after hours) and improve the signal with this information.

One might ultimately find that the trade does not work when the difference in the ETF price and the iNAV are not greater than the BID/ASK for example.

This may be more possible with zero commissions (and again leverage).

Best,

Jim

Jim,

How exactly does your strategy works?

Do you buy the ETF when ETF price is a certain % below the INAV before closing?

Regards
Ka,es

James,

Look for an email at lunch time.

I love sharing stuff. I am not in love with a bunch of c*ss words only to find people recommending my ideas later-on in the forum or elsewhere.

Plus, it involves a little statistics. Something you can do if you think it is good—no Python required.

I think my ideas have had general interest for the forum up until now and maybe people have knowledge about the NAV and would like to add to this tread. Maybe even their own signal. So little of this stuff is secret or is widely used elsewhere anyway.

Best,

Jim

Jim,

US equity markets are re-tumbling following WHO’s statement that Covid-19 is now a pandemic.

Regards
James

James,

Yes. But relatively tame by recent standards?

Still national guard and quarantines in New York (martial law by another name) not to mention the possibility of cancelling of March Madness. Marc may feel the effects soon;-)

I had a colleague—a sick one with preexisting conditions including treated congestive heart failure —deliver anesthesia for me on a Thursday, be in the hospital on a Saturday, soon to be on a ventilator with a ventricular assist device and gone in a week possibly due to the flu. Nothing else was positive—e.g., no MI etc.

As salient as that was, if it were due to coronavirus it would seem more important. Or more simply, even if it is “only” as bad as the flu it will be bad. People will take notice with a personal story, or one from church (or on the news) and stay home. There will be the demand effects on the economy that Marc has detailed.

Best,

Jim

Jim,

I don’t know if you have already heard of this site (Portfolio Vizualizer).

https://www.portfoliovisualizer.com/

It is extremely useful for someone who maintains a diversified portfolio of stocks or ETFs (similar to what you are holding).

Regards
James

James, Thank you! -Jim