| Wednesday, September 23, 2020 Headlines 1. US markets dragged lower as sell-off accelerates 2. Big Tech leads index lower 3. NYSE TICK Index sounds alarm 4. Volatility to rise as election nears 5. IBKR raises margin requirements Markets Closed
 Image courtesy GettyImages/DieterMeyrl Markets Today U.S. equity markets sold off throughout the day, but especially into the close as technology shares lead indexes lower again. Yesterday's gains evaporated quickly, and nearly all sectors fell, and fell hard. Nike (NKE) was a lone winner, just doing it with a huge jump in online sales last quarter. The U.S. dollar strengthened, which has been a recent trend as equity markets have fallen. The Greenback has become the latest safety haven, replacing gold.
Decliners far outpaced gainers today, which is obvious looking at the Finviz chart below, but the TICK Index was also buzzing around the New York Stock Exchange today as the key indicator flashed a warning sign (see below). Volatility is back in town, and the options market is telling us to prepare for it to camp out through the elections in November.
Online brokers are preparing for that. You should be too.  Image courtesy Finviz PODCAST ALERT! The latest episode of The Investopedia Express is LIVE. On this week's podcast:
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Headlines:
 Chart courtesy YCharts NYSE TICK Indicator Alert As mentioned, the selling accelerated this afternoon and triggered a stock exchange alert we haven't heard in a few months. The so-called TICK Index, which compares the number of stocks that are rising to the number of stocks that are falling on the New York Stock Exchange, hit its lowest level since June, which was one of its lowest levels ever.  Chart courtesy TradingView Volatility Rises as Election Nears We are back in a period of rising volatility, if you hadn't noticed. 700 point swings in the DJIA are not the norm. You predicted this would happen, according to our recent survey, and you are not alone. Futures markets foretell of more turbulence ahead with the November U.S. election in traders' sights.
The VIX, or CBOE Volatility index, a gauge of investor fear, currently sits around 26, but it is expected to jump above 32 in November, according to futures pricing. That's a clear signal that the choppiness will continue. Allocate accordingly.  Brokerage Firms Are Raising Margin Requirements If you are an active online investor, you may already have caught wind of this. Customers of Interactive Brokers, one of the largest online investing and trading platforms, were greeted with an email informing them of an increase in margin requirements leading up to the November elections in the United States. Margin is the money borrowed from a brokerage firm to purchase an investment. It is the difference between the total value of securities held in an investor's account and the loan amount from the broker.
According to the letter, which we obtained:
"Elevated option implied volatilities indicate that the markets will be confronting elevated volatility both before and after the November 2020 election ... IBKR shares that sentiment and believe it's appropriate to start controlling leverage in a measured fashion in advance."
The letter states that initial margin requirements will rise up to 35% from normal levels starting Oct. 28 through Oct. 23. Maintenance margin requirements will increase in a similar manner between Oct. 5 and Oct. 30.
An IBKR spokesperson tells our Theresa Carey that the brokerage may make additional changes to the margin on certain products, or all products, depending on volatility.
If IBKR is doing this, expect other brokers to follow.
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(charts courtesy YCharts)  Shares of Nike rose by over 8.5% amid reports that the footwear manufacturing company's digital sales grew by 82% in the first quarter. Western Digital's stock price rose by nearly 7% after the computer hard drive manufacturer announced a split into two separate production units for its Flash and Hard Disk Drives (HDD) systems.  Shares of Albemarle fell by nearly 14.5% on concerns that Tesla is planning to start mining its own lithium, one of the chemical manufacturer's core products. Several oil companies, including Apache, Marathon Petroleum, and TechnipFMC, are down today as energy trends in China's economy point to less growth for local oil demand in the future. Word of the Day The TICK Index compares the number of stocks that are rising to the number of stocks that are falling on the New York Stock Exchange (NYSE). The index measures stocks making an uptick and subtracts stocks making a downtick. For example, there are roughly 2,800 stocks listed on the NYSE. If 1,800 stocks have made an uptick and 1,000 stocks have made a downtick, the TICK Index would equal +800 (1,800 – 1,000).  Today in History Sept. 23, 1998: Wall Street's top investment banks, encouraged by the Federal Reserve, completed marathon negotiations for a $3.65 billion bailout of the giant hedge fund Long-Term Capital Management, which lost nearly $2 billion in a single month when the mathematical models designed by two Nobel laureates failed. Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management (Random House, New York, 2000)
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Wednesday, September 23, 2020
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