"The secret of success is to be ready when your opportunity comes." -- Benjamin Disraeli
Weapons of the Trade
You did see how stocks went out last night. You do see where equity index futures are trading this morning. Remember yesterday's Market Recon? We discussed the trading opportunity presented broadly by pension fund mandates at the tail end of a month or a quarter where there has been significant outperformance by one asset class over another. This is a useful weapon for the average kid trying to make a living. Keep it in your arsenal. All of your favorite major market indices suffered a "late in the session", fairly artificial burst of supply that impacted price discovery. Take a look. I'll wait. The S&P 500? The Dow Jones Industrials? Even the Nasdaq Composite. In yesterday's Recon, we even gave you the heads-up that money would flow out of technology, materials and health care on the day. Then technology and materials easily led the way lower, with health care also finishing in the red.
Equity index futures markets are broadly higher this morning, suggesting that money is once again free of any mandate to naturally seek out where it belongs in search of the highest return. Clearly, as stated, that was a tradeable event. If you missed it, or you were skeptical, no worries. There will be more of those. I promise. Understanding the information available is the weapon. Understanding the impact of sentiment and how others react to emotion are your environment. This is your trade. Know your weapon as you know yourself. Know your environment, and adapt to the available opportunity.
There's a new Sheriff in town, or maybe just call it a new digital currency. No, wait... call it a new version of an older, sort of new digital currency. Regardless; at 8:20 am eastern time today, a second version of Bitcoin called Bitcoin Cash will commence live trading. There is a difference of opinion among the Bitcoin exchanges. Coinbase has already said in a statement that it would not be supporting Bitcoin Cash. Kraken, on the other hand, announced that it would support trading in the new version of the currency. Existing Bitcoin holders will automatically receive Bitcoin Cash, but only if their Bitcoin is stored somewhere that supports the newer version. Got it? No? Confused? So is everyone.
The perceived need for a new version of Bitcoin arose from the need for speed. (Cue Top Gun soundtrack). Traditional Bitcoin transactions are limited to one megabyte in terms of size. Not that this old dog understands much of that, but apparently, that is too slow for some folks, because it slows trading down. The network is only able to process a rough seven trades per second. Jeepers. Bitcoin Cash transactions will process at a much higher capacity for speed, maybe eight times as fast.
Some miners like digital currency the way it is, and would use the lack of speed as a tool to keep the cottage industry smallish, as well as keep trade sizes down. Others would look to compete on a higher level. Soon enough, we'll know where the demand lies. Yesterday, the value of one Bitcoin was still running in the neighborhood of $2,800, while in thin trading Bitcoin Cash was valued below $275. That will mean little once live trading begins today. What do I think? I really don't know yet, but I am willing to learn.
No More Reindeer Games
Last Week, FTSE Russell announced that going forward, companies that wish to have their public equity included in the Russell indices would have to expose at least 5% of their voting rights to non-restricted shareholders. Obviously, much has been made of the share structure of Snapchat (SNAP) as just one more negative factor impacting shareholder value. That firm's chart since the early March IPO has less resembled what the broader marketplace has been up to since the spring, and more resembled something a nine-year-old might come up with in order to play with his or her Hot Wheels toy cars.
I strongly agree with Russell. Actually, I think the threshold should be placed considerably higher than 5%. S&P Dow Jones now has something new to add to that, which I think also makes sense. After completing their committee review, Standard & Poor's has decided to exclude new firms with multiple class share structures from inclusion in what is known as the S&P Composite 1500 to the financial community. What the Composite 1500 is comprised of would be the S&P 500, the S&P mid-cap 400, and the S&P small-cap 600. It is so important to market cap for individual firms to be added to a highly followed equity index that forces investment from funds tracking said indices. This is not a topic to be taken lightly.
Unlike with the Russell indices, where already existing constituents were granted a five-year period to change their share structure in order to conform, high profile firms with multiple share classes already included in those S&P indices will be exempt from the new rule. That means such corporations as Action Alerts PLUS charity portfolio name Alphabet (GOOGL) , (GOOG) and Berkshire Hathaway (BRK.A) , (BRK.B) will not be impacted. That was the question that came to mind, wasn't it?
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