Outside of the battered energy segment, financials have been the worst-performing sector so far this year as investors turn away from banking stocks over fears of growing loan defaults caused by economic disruption from the coronavirus crisis.
However, exchange stocks – companies that facilitate the trading of equities, derivatives, and commodities – have outperformed the group by around 15% amid surging trading volumes in the wake of heightened volatility across most asset classes throughout March and April. While average daily volume (ADV) eased somewhat last month, ongoing wild swings in energy markets kept trading volumes well above longer-term averages.
Below, we take a more detailed look at three leading exchanges and review their April trading activity. We’ll also turn to each company’s chart to identify possible swing trading opportunities.
Intercontinental Exchange, Inc. (ICE)
Atlanta-based Intercontinental Exchange, Inc. (ICE) operates regulated exchanges and clearinghouses for commodity, financial, fixed income, and equity markets, including the New York Stock Exchange (NYSE). Building on record trading turnover in March, NYSE ADV for cash equities last month surged 70% year over year (YoY) in April, while equity options ADV grew 13%. Energy ADV jumped 45% from the year-ago period, with record energy open interest of 46.6 million lots reached on April 24. As of May 6, 2020, International Exchange stock has a market capitalization of $50.88 billion, offers a 1.35% dividend yieldand is trading almost 15% higher over the past month.
Since setting its 52-week low at the height of the coronavirus-induced sell-off, the company’s shares have staged a V-shaped recovery, with price closing back above the 200-day simple moving average (SMA) in Tuesday’s session. Those who take a trade should consider using a trailing stop to exploit the stock’s recent upside momentum. For instance, place an initial stop underneath this month’s low at $87.51 and raise it under each under each subsequent higher swing low. Limit risk by amending the stop order to the breakeven point if the price moves above key resistance at $100.
CME Group Inc. (CME)
CME Group Inc. (CME) operates exchanges that trade futures and derivative contracts based on interest rates, equity indexes, foreign exchange (FX), energy, metals, and commodities. The $64 billion Chicago-based firm saw its April equity index ADV increase 119% YoY. Turnover of its popular Micro E-mini Equity futures totaled 1.7 million contracts per day, while natural gas futures and energy options recorded ADV YoY growth of 60% and 39%, respectively. Although CME Group stock has slipped 10.64% on the year, it has gained about 3% in the past month as of May 6, 2020. The company also issues a 1.96% dividend yield.
After consolidating for several weeks, CME shares rallied over 3% Tuesday from the support of a flag pattern at $175. Furthermore, given that the relative strength index (RSI) sits well below overbought levels, the price has ample room to keep moving higher over the short term to mid-term. Traders who take a long position here should set a take-profit order near crucial horizontal line resistance at $220 but cut losses if the stock closes below the May 4 low at $170.67.
Cboe Global Markets, Inc. (CBOE)
Cboe Global Markets, Inc. (CBOE) operates as an options exchange through five segments: Options, U.S. Equities, Futures, European Equities, and Global FX. The company recently suspended trading on its Chicago Board Options Exchange (CBOE) open outcry trading floor as a precautionary measure to prevent the potential spread of COVID-19. Despite the firm reporting a 23% fall in overall trading volume compared to March, total options turnover across the company’s exchanges reached 200 million contracts last month, up from 137 million contracts in April 2019. Trading just below $100, with a $10.85 billion market cap and yielding 1.53%, the stock has advanced 10.4% over the past month as of May 6, 2020.
Cboe shares rallied into the 50-day SMA in mid-April, but the closely watched moving average has acted as a firm line of resistance since. A close above the indicator yesterday may bring bulls back from the sidelines to bid prices higher in the days ahead. Those who buy at current levels should aim to book profits between $112.5 and $125, where the price is likely to find resistance from a previous seven-month trading range. Manage downside by placing a stop-loss order beneath the May low at $92.03.