Conclusion, Investment Implications, Strategy

CME Group Inc. (CME) is in the early stages of a major bullish trend change, accompanied by monthly relative outperformance versus the benchmark S&P 500 (SPX).  A sustained rise above the $171.96 area amid continued relative outperformance would confirm this and target a potential 22% rise to $225.36 per share.

Analysis and Rationale

CME Group Inc. (CME), through its subsidiaries, operates contract markets for the trading of futures and options on futures contracts worldwide. It offers futures and options products based on interest rates, equity indexes, foreign exchange, agricultural commodities, energy, and metals, as well as fixed income products through its electronic trading platforms, open outcry, and privately negotiated transactions. It serves professional traders, financial institutions, institutional and individual investors, corporations, manufacturers, producers, governments, and central banks.  The company was formerly known as Chicago Mercantile Exchange Holdings Inc. and changed its name to CME Group Inc. in July 2007. CME Group Inc. was founded in 1898 and is headquartered in Chicago, Illinois.

Chart 1 below plots CME daily since July in the upper panel along with its 200-day moving average, a widely-watched major trend proxy, with an accompanying chart of CME’s relative performance versus the S&P 500 (SPX) and its 21-day (monthly, our Tactical time frame) moving average in the lower panel.

The green highlights in the upper panel point out CME’s Dec 1st rise above its 200-day MA, indicating a major bullish trend change.  The green highlights in the lower panel point out the CME has also been outperforming the benchmark S&P 500 (SPX) on a monthly basis since Nov 17thThese conditions present a low-risk buy opportunity that will remain valid above underlying support near 177.54.

Also note that CME is in the Financial Sector, which our SEAF Model identified as one of the top two sectors of the S&P 500 in terms of asset inflows per Monday’s Keys To This Week report.

Chart 1

Table 1 below shows that considering the upside target of $225.36 and a protective stop placed below the $177.54 area, a long entry price of $185.10 would provide a 1:5.3 risk/reward ratio (risking $1.00 to make $5.30) with an initial risk of 4.1%.

Table 1


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