Market Commentary

Carrefour S.A.’s (CA:EN Paris) heavy share price reaction to last night’s profit warning should not be under-estimated. Down 14% at pixel time, the company’s lowered full-year profit and sales guidance was far from expected by the market, with key sentiment risk indicators displaying little sign of stress on OTAS. Add to this an overwhelming bullishness by ‘expert’ sell-side idea generators ahead of results and it’s unsurprising the stock is being punished so heavily.

Looking at the detail, positioning in Carrefour through options, stock borrow, and credit markets all exhibited benign readings when compared to historic norms, lead indicators that typically give our clients an early warning of potential upcoming risks.

For example Short Interest, a keenly watched gauge of Hedge Fund activity, was well within its 2-year average range at 6.23%, having seen a reduction from the exceptional highs of 11.5% in late June. This past week had seen only an incremental 0.8% increase heading into numbers.

The sharp reversal in price could also be attributed to the high wave of optimism preceding the release. The TIM alpha capture portal indicated a strong swathe of positive sentiment from sell-side brokers who were pushing the stock.

One small morsel of evidence pertaining to the potential issues besetting Carrefour was witnessed in the trend in earnings momentum. Over the last month, analyst’ forecasts were revised down by an average of 4.26%, well in excess of the sector average and placing it in the bottom 10% of all negative performers in the industry group……. although arguably this was already priced into the shares with price trending strongly with earnings momentum (see chart).

As expected, the fallout from Carrefour has further hit the European Retail Index, it underperforming the broader market by around 2% intraday and leaving investors challenged to find sector alternatives.

Clients with a global investment mandate wanting to re-invest in the Retail sector can use the new OTAS Screener app to identify alternative investment opportunities that are flagging positively in the wider sector. Uniquely, clients can configure Screener to either consider all OTAS core factors or prioritise just to those factors deemed most important in their investment process e.g fundamental, technical etc.

What a difference a year makes….well 10 months !

We revealed in our post-Brexit blog back in June of last year how senior directors(‘insiders‘) of the largest UK companies were using the market sell off as an opportunity to invest their personal wealth back into their own businesses by buying company stock. At the time, it was a telling signal that they believed their own companies were mispriced and undervalued, whilst simultaneously boosting market confidence about the limited impact of Brexit on UK PLC.
Retrospectively it seems these directors were vindicated in their assessment. The pullback was temporary and the market has since rallied a further 14% from preBrexit levels and some have made a killing.

So lets roll forward 10 months…..

Today’s insider analysis now paints a very different picture, well, certainly for the UK companies most exposed to fluctuations in sterling, the UK 250 Mid-Caps.
The Net Discretionary Transaction Value(Sells vs Buys) of insider transactions for this segment of the market over the last three months has seen its highest selling intensity since the same three month period in 2007. A total of £173m worth of company stock was sold from February to April, over four times more than was bought by directors.

Our analysis shows there has been two real notable periods of consistent, high intensity insider selling in UK Mid-Caps both coinciding with negative event catalysts; in 2007 ahead of the impending Credit Crisis and in similarly in 2010 at the onset of the Greek Debt crisis.
Are we to assume this increased vigour to sell company stock represents an about turn by the directors of UK PLC and their estimation of the company’s fortunes in a post-Brexit world ? Or now that they have had time to properly assess the impact of Brexit on their businesses are they unknowingly signalling to the market about an expected material slowdown in business conditions ? Time will tell…

We also noted in our previous Brexit blog that Andrew Pidgley the Executive Chairman at UK property firm Berkeley Group had transacted the single largest individual buy trade in the immediate aftermath of the vote,  purchasing c£1m worth of stock. Those who use OTAS to monitor his transaction history will have seen that he has recently sold over £31m worth of stock(around 15% of his total holding,) his largest single transaction ever. Furthermore, they will have identified his previous selling history as particularly knowledgeable. 

With the triggering of Article 50 now discounted by the market, the focus turns to the next two years of negotiations and it will be this that has the greatest influence on UK companies. However, if the market is looking a for a proxy on the confidence of UK businesses it only needs to looks at how some of their leaders are positioning themselves now, especially in the sectors which are potentially most exposed.

Many traders believe that trading around earnings announcements doesn’t provide an attractive risk/reward proposition, probably due in part to the information asymmetry that exists and the fact they are generally not well informed. They just dont have that ‘edge.’

Our clients do.

OTAS’ unique ability to bring multiple factor analysis and key risk identifiers together in one place gives our clients the ability to actively manage portfolios and stock positions by minimizing surprise risk over earnings season.

Clients with access to our Estimize earnings estimates have the ability to compare current consensus EPS data whilst additionally combining the power of OTAS’ Earnings Positioning screen and other Core multi-asset analytics to identify which of their investments have potentially elevated positive/negative price risk heading into numbers.

Let look at a couple of current examples with upcoming earnings:

Possible downside risks:
Wyndham Worldwide – Earning Release Wed 26th April

  • Stock making new 52-week highs. Technical RSI of 83.5, currently the third most overbought stock in S&P500.
  • Analyst EPS estimates remained unchanged over last month versus share price +9%.
  • Shares are now trading at the median analyst price target of $91(consensus ‘Buy’)
  • Estimize consensus expects only a 2 cent(or 2%) Q1 beat vs Wall St.
  • Short Interest in the last week has increased by a significant 18% to 9.11% of free float.
  • Shares are priced to heavily beat, market EPS expectations are inline. Negative Hedge Fund positioning suggests possible ‘Travel & Arrive‘ scenario.

Possible upside risks:
Tractor Supply – Earning Release Wed 26th April

  • Positive price reaction following fall in shares after negative pre-announcement in early April.
  • Earnings estimate downgrades now reflected in share price. Shares trading at 16% discount to median analyst price target(consensus ‘Buy’)
  • Company valuation and 12m yield looking potentially attractive
  • Estimize forecast Q1 EPS of 0.50 cents, still 6.4% higher than Wall St average
  • Significant 1 week fall in short interest, -37% to 2.4% of free float.
  • Pre-announced downgrades now ‘in the price,‘ strong fundamentals, heavy short covering, general consensus still expect a Q1 beat.

For more information on any of our risk screening tools or trading analytics, make sure you visit our stand at TradeTech(Stand 14) over the next few days where we’d be happy to show you more.

After a strong showing in H2 2016, Swatch shares are currently displaying a number of potentially negative fundamental, technical and sentiment risk indicator observables in OTAS.
With the crucial festive period over and the next financial update not until the 16th March, such warning signals may provide Swatch investors with early evidence to re-position in the shares…..

  • Price Momentum fading – Having made back all its sector underperformance since early August 2016, Swatch’ relative performance is showing signs of fading again over the last week. Selling pressure is also evident in todays session, the OTAS Microstructure(right-hand chart) indicates the shares underperforming their basket on significantly higher than expected volume.
  • Analyst EPS expectations continue to diverge from market price – Having shown a positive correlation historically, the OTAS EPS/Price chart shows a clear dislocation in EPS momentum and price. The shares currently trade at a 14% premium to the mean analyst price target in spite of ongoing negative earnings revisions.
  • Only Insider selling – A number of transactions lately show company insiders selling into the rising share price. Timing wise, recent historical trades indicate well informed trading.
  • Trading on peak valuation – Swatch shares have looked statistically expensive(2 Stan.Dev event) relative to sector peers since November, moreover, on 21x 12m Fwd P/E the shares are trading around their highest ever absolute P/E multiple. Similar comparable valuation extremes back in July 2007 subsequently saw the shares re-rate heavily and lose around -65% of their market value.
  • High Implied Volatility – Vol markets indicate higher sector relative risk for Swatch shares compared to peers, a +/-14 move over the next 3 months. Recent option trading activity shows a larger bias for Puts.
  • Short Interest – Low activity from Hedge Funds. Current free float on loan stands at around 12%(which is within the normal expected range compared to the last 2 years) and has contracted by around 1.1% in the last week.
  • TIM Indicator – Contrary to the above observations, sell side brokers are generally positive on Swatch shares and are pushing them accordingly. The TIM indicator has seen its score* improve from 2 > 8 in the last week indicating bullish sentiment. Perhaps they don’t have OTAS as their evidence based early warning system !??
    *1=Heavily Bearish(Underperform) – 10=Heavily Bullish(Outperform)

Let’s quickly dismiss the view that investors learnt from Brexit how to react to the election of Trump. US options are the world’s most liquid and the three month market that we track has consistently shown that President-elect Trump would be a sanguine outcome for stocks. Commentators are falling over themselves after the event to explain why this is, but OTAS has portrayed a consistent message of financial calm.

US Large Cap. Implied Volatility

US Large Cap. Implied Volatility

There have been three notable spikes in implied volatility over the past 16 months. Two of those, which we have labelled China and Recession, took this measure to exceptional levels, as fears mounted that a slowdown in Asia would cause the world economy to crater. The third spike, in the aftermath of the vote for Brexit, saw risk rise to unusual, but not exceptional levels. Politics may have rediscovered Paul Graham’s mantra that “It’s charisma, stupid” to explain which candidate wins a two-horse race, but the market remains firmly fixated on the economy.

By now we all have the received wisdom that Trump is good for certain regulated industries, such as banks and pharmaceuticals and his fiscal policies will mean more inflation and higher interest rates. The perceived riskiness of utilities relative to financials has jumped to unusual levels, last seen just before everyone remembered that Greece was about to default. With a while to wait to find out what Trump really stands for, big banks could be less risky than energy distributors for a while.

Implied Volatilty of Utilities Relative to Diversified Financials

Implied Volatilty of Utilities Relative to Diversified Financials

Central banks may have come to realise that forever easier money does not generate growth, but now they have the perfect foil to allow them to reverse course. Governors around the world have been beseeching politicians to do more to generate growth and the public has responded by electing those who promise to do something rather than nothing. There are incumbents who need to wise up fast. If Renzi’s reform bid fails then he may be gone, and if it succeeds and leads to a German imposed bail-in of bank depositors, then he’ll likely be gone a little later. The French also have an activist alternative to hamstrung mainstream politicians. Keep track daily of the implied volatility of the relevant markets and sectors with OTAS.

The chart of PE for the US top stocks suggests that the post-election move has room to run further and it would take a 7% re-rating to lift the valuation back to the highs of May 2015, when forward PE was last in touching distance of exceptional levels.

US Lage Cap. PE Valuation

US Large Cap. PE Valuation

One piece of received wisdom that is not playing out is that Trump will be unreservedly bad for trade and hence China and Emerging Markets. Mexico has taken a kicking, but perceived risk among China Enterprise stocks is almost unchanged. Once again it is fears of economic slowdown that floats this boat and clearly investors are not worried about a slowdown at present. Perhaps they believe that China wins relative to Mexico.

China Enterpise Implied Volatility

China Enterpise Implied Volatility

UK media is fretful the economy will suffer from trade restrictions. It is not obvious why Trump would single out the UK for harsh treatment when everything he has said points the other way and the immediate stock market weakness is likely to be currency related. The financial community in the UK is too savvy to confuse its own post-Brexit well-being with the health of the economy, when the opposite may be true. Keep an eye on implied volatility in the UK and be prepared to buy when threshold levels are reached. Threshold low PE ratios are also approaching.

One more thought going back to our blog of October 17, in which we argued that insurance stocks would be back in business once interest rate rises were on the cards. It may take a while for recalcitrant European central banks to get it, but the valuation of US insurance stocks in the last couple of days reinforces the conclusions we drew about what happens when they do.

US Insurance Sector PE Valuation

US Insurance Sector PE Valuation

After years of impasse, when the conclusion of culture wars rather than the economy occupied politicians, there are signs that activism is bringing markets to life. People worry that cultural change will be reversed, but let us hope that politicians and central bankers focus on the most important task of restoring growth for the benefit of all.

The plight of insurance companies in an era of low interest rates has led some to predict the total collapse of the industry. The sector is a bellwether for the stock market, because so much of its profit comes from investment returns. The chart of the PE of European insurers relative to the broader market shows that extreme valuation for the sector is a precursor of major market corrections.

ins-pe

European Insurance Valuation Relative to the Market

On this logic things are fine, because at two thirds of the average PE, insurance stocks have only just crossed into the normal valuation range following a period in the investment doghouse. This would tie in with our recent message that the prevailing investment trends are uncertainty over the direction of interest rates and gradually rising implied volatility back to normal levels. Relative implied volatility for the insurance sector peaks at index lows.

Implied Volatility of Insurance Stocks Relative to the Market

Implied Volatility of Insurance Stocks Relative to the Market

The woes of the insurance industry are easy to identify, which is why the sector is so popular among investment bloggers, who use it to point to the coming Armageddon in Europe, without having to offer too much analysis. Insurers depend on yield, all the more so as their customers age, so if central banks reduce bond yields to zero or below, insurance companies die.

You do not have to talk to those in the industry for too long to hear them bemoaning the new capital that is driving down returns for everyone. For the insurers, this is dumb capital that lacks the long-term perspective of their industry, but which thanks to light or no regulation has a lower cost of capital than incumbents. This is two different arguments; one about time horizons and another about the shadow financial sector.

Insurance is an industry whose last great innovation was the statistical analysis that brought about mortality tables. This allowed probability as a proxy for predictability and gave rise to a legion of highly specialised mathematicians with skills finely tuned to the needs of the industry. The maths can now be done faster and more effectively by computers, and so any cost advantage that new capital has from efficient operations is a permanent one. Whether you are regulated or not, you no longer need all those actuaries, just as investment banks no longer need so many analysts and lawyers don’t require all those proof reading juniors. Regulation actually serves to slow the loss of white collar jobs, because however onerous it may seem, all regulation favours incumbency.

The longer timeframe argument is more intriguing. Factor analysis shows that the inverse correlation between equity values and bond yields has weakened over several decades, most likely due to lower inflation, which had globalisation as its primary cause. The relationship has actually inverted since 2008, so that bonds and equities rise and fall in sync. Initial observations since 2013 suggest that the traditional correlation is reasserting itself.

This is due to the end of quantitative easing in the US and the political reaction to globalisation across the western world. Rising protectionism and constraints on immigration are the most evident backlash. These measures are designed to push up local wages and hence will be inflationary, and could herald the reversal of a long period of ascendancy of capital over labour.

It should be stressed that the jury is out on this. Most of our blogs reference the standoff between those who believe in the continuation of easy money and those thinking its time has passed, because this is the largest investment argument to be resolved. It is also one that OTAS indicators are ideally placed to track, including our fear gauge and low volatility performance monitor.

If the worm has turned however, and the ineffectiveness of monetary policy at the zero bound combines with political pressure to trigger policies that lead to higher interest rates, then the insurance sector will be back in business. Returns on insurance equities should discount this long before it happens. Those cautious mathematicians who have survived in the sector will have won the argument about the long-term, because underwriting in the industry should be priced using a higher cost-of-capital.

Market expectations of an improvement in like for like sales boosted by a positive currency tailwind following the plunge in sterling post Brexit has pushed Burberry shares 18% higher in the last month.
The shares have benefited from a slew of recent positive broker recommendations and as we head into the Sales Release next week we look to OTAS for any indicators which may provide some colour on the risk landscape from here…

brby

OTAS Core Observations:-

  • Strong sector relative performance in the last week(+8%) aided by a recent positive technical signals.
  • Despite recent positive broker sentiment the change in analyst expectations has been muted with just +1.74% average revisions to 12m forward numbers in the last month.
  • This contrasts significantly from market expectations, where the shares have been pushed +18% over the same period as evidenced by the Divergence stamp. Investors may see this as a possible travel & arrive scenario.
  • The positive price action has left the shares looking expensive in valuation terms relative to industry peers.
  • Burberrys’ sector relative implied volatility is 27% higher compared to normal, evidence the options market is predicting a higher degree of share price risk(+/-17%) for the shares over the next 3 months. Investment managers employing a low vol portfolio strategy should note this abnormality.
    Interestingly, similarly observed high volatility levels have coincided with distinct price behaviour recently.brby1
  • The Put Ratio of traded options is back at year lows indicating little in the way of downside protection currently being sought. This could be a sign of market confidence or misguided complacency by equity investors.
  • Short Interest is within the normal expected range but has increased by around 50% in the last month.
    brby2

Particularly powerful around financial reporting, OTAS’s award winning analytics provides you with multi-asset intelligence and risk outliers in one ‘go-to’ place, allowing you to make more informed investment decisions and provide a better understanding of factors which could impact on share prices.

For your free trial contact OTASsales@otastech.com

“It’s the devil’s way now, There is no way out

You can scream and you can shout

It is too late now, Because you have not been

Payin’ attention”

Radiohead 2+2=5

This week our Blog pulls together the themes and indicators from OTAS that we have been talking about for a while. We have been looking for clues that investors are losing faith in central bank omnipotence, which will expose those who do not adjust their portfolios from following the axiom of the past few years to a significant drawdown. There is a fierce debate among those who believe that judgement is coming and those who expect more of the same.

We tackled this issue in early September in what was probably my favourite blog, because the charts used to illustrate the points were the default charts that can be pulled up from OTAS with virtually no effort. For example, this chart of the average cost of credit for US large caps illustrates how credit risk has flat-lined this year, indicating a collective ambiguity about the direction of interest rates. Perhaps this is why the fiercest online investor arguments are about rates; because no one can be sure of where they are heading.

US Large Cap Average Cost of Credit

US Large Cap Average Cost of Credit

From here we developed the theory of Wall Street’s alternative fear gauge, where we used the relative volatility of banks and utilities to assess how relaxed investors were feeling about stock prices. In less than three weeks since then, the riskiness of banks, where low levels indicate an absence of fear, has fallen below that of utilities. This can hold true for several months, but it is not normal.

Relative Volatility of US Banks vs Utilities

Relative Volatility of US Banks vs Utilities

An obvious reason for the low relative riskiness of banks is that the odds of a US rate rise have increased, resulting in the dollar index breaking out of its recent trading range to the upside this week. Higher rates would raise banks’ margins, while hurting heavily borrowed utilities and diminishing the relative appeal of their dividend yields. This is a simple, but erstwhile effective investment conclusion.

Utility stocks are a stalwart of the low volatility portfolios that have been underperforming of late. This has led some to argue that the size of the unwind of the consensus trade in favour of low volatility and high yield will be the cause of the coming equity market fall. Last week we addressed the trigger point for index corrections in terms of the relative valuation of lower risk stocks. The sell-off in these names has pushed the riskiness of utility shares to extreme levels, which historically have not held for very long.

Relative Volatility of US Utilities

Relative Volatility of US Utilities

The mean reversion mechanism for this indicator is either that utilities lead and the rest follow in a coordinated meltdown in share prices, or the active few who trade relative volatility exit the stage, leaving the majority who passively expect the Fed to keep bailing them out to buy the dips.

The Radiohead song 2+2=5 references George Orwell’s 1984 and specifically Doublethink, whereby the state can compel citizens to believe something that is not true. For many investors it is axiomatic that stock prices will continue to rise, supported by easy monetary policy, because there is nowhere else for anyone to invest. The exchange rate related crushing that gold has taken this week reinforces this belief.

Radiohead subtitled their song The Lukewarm. This is a reference to those on the edge of Dante’s Inferno, who cannot figure out why they are there, because they didn’t do anything. For Dante, and the politically charged members of Radiohead, inactivity is precisely the crime for which these people are condemned. When you have an environmental activist in the family as I do, which makes Christmas colourful, you come to understand the charge sheet against the silent majority.

So who is more right; those who expect a major correction or those who believe that debt, deflation and an ageing population will result in years more pump priming by central banks. The reality is that both may be correct. A sell off in markets may be triggered by a rise in US interest rates, which could happen at the low point for our alternative fear gauge, which is now just a few points away. The resulting tumble could then trigger recognition of a policy error, leading central banks to resume the path of easy money.

In the first Blog referenced above we warned that CDS and implied volatility were sending conflicting signals. So far it is a correction in volatility that has addressed this discrepancy. US large cap CDS and implied volatility are two of the easiest charts to find and follow in OTAS. As Radiohead knew, there is no excuse for not payin’ attention.

Value is expensive. I am not sure that’s possible, etymologically speaking, although as it has happened it must be.

Investors are getting used to believing six impossible things before breakfast, as Lewis Carroll’s White Queen could. In a world of negative interest rates, this is the norm. Overnight I read another piece about Canada’s multiple investment bubbles and I am sure that one day they will all burst.

Timing, though, is everything. As a young man I worked in Malaysia during the frenzied stock market run of the 1990s. Each year more investors would come to visit (and shop), count the cranes building skyscrapers and return home bearish. One guy turned the taxi around within ten minutes of leaving the airport and took the next flight home. Eventually one of the visiting investors got their timing right. It would be nice to think it was the airport guy, but I can’t be sure.

Low value equates to low volatility. As this survey shows, low volatility is also low beta and financial strength. Yet over the long term, neither extremely low nor exceptionally high volatility delivers the best performance. That comes from stocks with middling risk.

This is logical. One test of any mathematical model is that it delivers intuitive results. Volatility is risk and if the lowest risk stocks always delivered the highest returns, then their price would be bid up to unsustainable levels. Equally, while risk and return are related, if constantly buying the riskiest stocks delivered the best performance, the word conservative would have fallen out of use.

How do we track this in OTAS? Median implied volatility for the largest stocks in the US is 24, which means that in three months’ time the average share is predicted to be up or down by 12%. The stocks with below average implied volatility have an average forward PE around 18x. This is a slight premium to the market.

PE Relative of Low Volatility Stocks

PE Relative of Low Volatility Stocks

Over time, the stocks that currently have below average risk trade at the same PE as the market. Not all of today’s low vol stocks will always have been less risky, but a lot of them will have been. The chart shows that when the PE premium in low risk stocks reaches 7%, the next move for the market is down.

There are arguments as to why low risk stocks might have the highest potential growth. Strong balance sheets leave scope for leverage and with all the free money sloshing around, buybacks can be used to raise EPS. But Q2 buybacks were the lowest for two years.

Alternatively, all the strongest stocks have the funds to invest in future growth, while the risky stocks have none and hence their earnings will fall. Also, low risk means low return, which equates to high current PE. And that is the point; when the PE of low risk stocks reaches a certain relative level, the low return element of the deal kicks in and stock prices fall.

This typically occurs when the market as a whole falls. When indices retreat from highs, the low risk stocks fall the furthest. Then a few more hedge funds close claiming the market to be irrational.

Canada’s still booming, there is tremendous demand for bonds that you pay to own and the least risky stocks have the highest expected growth. It’s not impossible that this continues, but history suggests that it is unlikely.

The mainstream media is all over the story of the demise of Deutsche Bank, which suggests we have entered the denouement. We use OTAS to assess what is currently factored into the share price as the consequence of any rescue deal for the bank.

Over the past ten years Deutsche has fared no worse than the average European bank, although of course it is supposed to be an above average player, both in terms of international investment banking and among the low return retail banks in Germany. Yet the combination of return on assets and return on equity is forecast to be the worst in the sector this year and next, meaning that for all its leverage, Deutsche’s core return is simply too low.

Deutsche Bank 10 Year Price Performance

Deutsche Bank 10 Year Price Performance

Over a decade, the share price is down 70%, as is the average European bank, while the European market as a whole managed a near 2% rise. By way of comparison, BNP Paribas is down just over 10% during the same period.

OTAS Technical analysis describes Deutsche as a falling knife; a stock trading below its significant moving averages and one that has yet to trigger signs of a turnaround. EPS Momentum is -9% over the past month, which unsurprisingly is in 95th percentile of the European diversified financials industry. There are, however, several banks and financial companies where short term momentum is worse.

Deutsche Bank EPE Momentum

Deutsche Bank EPS Momentum

Since the beginning of Q2 2012, forward estimates of Deutsche’s earnings have fallen 75%, while the share price is down around 70%. A further 15% fall in the share price is implied were it to match the change in EPS over this period. Once talk of bail outs goes mainstream, however, 12 month EPS forecasts move to the periphery of the investment debate.

The downgrades have pushed Deutsche’s forward P/E ratio to the highest on record and it recently touched a premium to the sector that surpassed the level reached in April 2009. Perhaps more significantly, the price to book ratio of 0.24x is below the low point reached during the financial crisis in 2008-9. At one third of the average rating of the sector, the prospects for recovery of Deutsche’s net asset value have never looked worse.

Throughout this time, the short interest in the shares has been surprisingly benign, although the exceptional trading volume of late points to the action being in the cash market. The current level of free float shares on loan is in the middle of its normal range and seems unlikely to be a useful indicator of where the share price goes from here.

The question now becomes what a recapitalisation of Deutsche Bank looks like, assuming it is correct to assume that for all its hard-line rhetoric, the German government cannot let its largest bank go under. With the equity currently expected to return 25% of its value, what about the debt? The CDS trades at 232 basis points, an extreme level over the last decade, but not the highest point reached in that time. Interest rates have fallen over this period however, so it is worth noting that at 1.9x the level of the average European financial, Deutsche’s debt is consider more risky than it has ever been.

Deutsche Bank CDS Relative to the Sector

Deutsche Bank CDS Relative to the Sector

For those who are prepared to bottom fish, there are a number of indicators in OTAS that might point to a turnaround in fortunes at some stage. One would be a stabilisation and then improvement in EPS Momentum, although history teaches that the share price will have moved before the analysts are ready to risk reputations on calling a buy. Thus OTAS technical signals, which focus on mean reversion, may provide an earlier indication of a bounce, especially if combined with another signal. This may be from the CDS market, because if debt investors start to relax about how many cents in the euro will be returned, then Deutsche’s shares should rally.

Stay tuned to OTAS, for it hasn’t happened yet.