Eta Carinae

Eta Carinae

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Eta Carinae (EC) was up 1.85% (net) for September. The positive performance was all the more appreciated given the headwinds from relatively inhospitable overall conditions in EC’s global equity trading universe. Throughout the month, the equity sector registered low signal-to-noise (SNR) readings (a measure of trend strength where low equates to lack of trend). Fortunately, there was a lone bright spot in this month of less-trendy conditions as Asia Pacific (APAC) markets provided very robust opportunities to counteract the less friendly environs in Europe (EU) and the United States (US).

Themes that impacted equity market movements included weather (a devastating typhoon in Japan and a major hurricane in the US), ongoing trade war rhetoric between the US and China coupled with concerns surrounding the lack of progress between the US and Canada in hammering out a new NAFTA deal, and the new Italian government’s budget negotiations. Central banker banter in Japan and actions in Turkey and the US caught the attention of investors throughout September as well.

Before the trading roundup, we’d like to share with you some interesting readings which caught the attention of our research group. They include:

  • A Critical Review of Recurrent Neural Networks for Sequence Learning, by Zachary C. Lipton, May 29, 2015 
  • “Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly,” by Malcolm Baker, Brenda Bradley, and Jeffrey Wurgler, Financial Analyst Journal, Vol 67, Number 1
  • “Wiggins: Detecting Valuable Information in Dynamic Networks Using Limited Resources,” by Ahmad Mahmoody, Matteo Riondato, Eli Upfal

Asia-Pacific (APAC):    +3.41% (gross)

After processing the tragic news of one of the worst typhoons to hit Japan in 25 years, the SIMEX and Osaka Nikkei indices shot straight up (see SGX Nikkei 225 chart below). The confirmation of Japan’s Central Bank that it had no plans to raise rates provided some of the momentum, as a weaker yen would help Japanese exports. “Palladium Rally Leads Sudden Rebound in Metals,” a short Wall Street Journal (WSJ) article by Amrith Ramkumar published on September 24, 2018, explained the persistence of the bullish run in the palladium market over the past 7 months and also shed a bit of light on why this small metal market may have provided support for Japanese and Chinese equity rallies this month. Palladium is used heavily in the auto industry and as the article goes on to say:

Investors look at industrial metals-widely used in manufacturing and construction-broadly to gauge growth world-wide. A months-long price slide in these markets had eroded investor confidence, pushing money managers int US assets throughout the year.

Yet recently, some analysts appear much more confident that a full-blown trade war and slowdown in China won’t materialize. Japan’s Nikkei Stock Average just had its best two-week stretch since July 2016, and the Shanghai Composite logged its best week in 20 months.

EC’s long positioning in Japan (and to a lesser extent China) was generously rewarded as the trajectory of September’s move illustrated in the SGX Nikkei 225 chart doesn’t get any rosier for trend followers. Trading on the Topix, Osaka Nikkei and Simex Nikkei exchanges were most impactful. The only market which siphoned some of the profitability was India’s Nifty Fifty Index (NFI). After a strong rally in the NFI over the summer, long positioning was hampered by a turnback in the market due, in part, to rising oil prices and new concerns related to the soundness of some non-bank lending companies. As Bloomberg reported (in a September 25 article by Siddhartha Singh, Anurag Joshi, Saloni Shukla and Aashika Suresh, “Defaulting Shadow Lender Faces India Insolvency Filing”):

Defaults by the IL&FS group, a systemically important non-bank lender, have rattled India’s investors this month with anxiety levels in the equity market rising to a seven-month high and companies finding it harder to close bond sales.

Europe (EU):    -0.97% (gross)

Europe was weighed down by impending BREXIT deadlines, but an added focus this month was the new Italian government’s budget discussion leanings which are not exactly rooted in fiscal conservatism. According to a September 28 WSJ article, Italy is the eurozone’s biggest government borrower, but the bigger story behind these discussions is outlined (by Emese Bartha and Giovanni Legorano, “Italian Assets Dive After Government’s Budget Plan”) below:

…concerns over Italy have deep roots. In May, fears that the country could leave the eurozone rattled markets around the world… Italy has been a key factor in keeping global investors out of Europe since. “They look at Europe, and frankly they feel to some extent it’s becoming uninvestable; the uncertainty, the volatility, the fact that the economy is much weaker than in the US,” said M&G’s (Investments) Mr. (Stefan) Isaacs.

Many EU markets took rollicking paths only to end up in just about the same place they started the month as shown in the Euro STOXX 50 and FTSE Index charts below. The profit taking in Italian MIB-30 Index trading was easily outpaced by setbacks in Euro STOXX 50, the UK’s FTSE and French CAC 40 Indexes which dragged performance into negative territory. Flat results were garnered in German DAX and Amsterdam Exchange trading.

North America NA:     -0.43% (gross)

Both the NASDAQ and Russell 2000 dragged on what was otherwise flat trading in North America. The trendless price movements of the E-Mini NASDAQ 100 and Mini Russell 2000 Indices (illustrated in charts below) proved challenging to navigate. The Russell 2000 losses cut against the grain of what had been occurring throughout the year with mid and smaller cap US stocks. In an interesting, September 16 WSJ article, “It’s Not All Tech. Small Stocks Are Powering the Market Higher,” the edge US equity markets have held this year over other global equity markets cannot be solely attributed to the FANG effect (FANG=Facebook, Amazon, Netflix, and Google), as detailed by Corrie Driebusch:

Signs of stock market breadth are everywhere investors and analysts say: Smaller-company stocks have climbed more than their larger counterparts this year. Among the quiet winners in the current market are midsize companies. When divided into five groups based on market value, the second and third quintiles of the Russell 1000 index are outperforming the top quintile that houses the biggest stocks, according to data compiled by Strategas Securities LLC. …Indeed, without the 10 biggest contributors – which includes Amazon, up 68% – the S&P 500 would be trading higher. The equal-weighted index, which gives the same weight to both the smallest and largest companies in the index, reached a record in late August – the same day as its more closely followed counterpart.


An end-of-month Federal Reserve rate hike was greeted favorably with US stocks closing higher on the day of the announcement; however, it may have also provided an impetus for investors to reduce some of their equity exposure. This, coupled with published reports of a new security flaw at Facebook in late September, also contributed to month-end declines.

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