2 Trades to Consider During Monster Earnings Week

Hey There Income Hunters,

 

How are we doing so far?

 

Twenty-five percent of S&P companies have reported with 90% reporting positive surprises.

 

This is the highest percentage since 2008 according to that fact set …

 

Maybe the positive earnings shouldn’t be such a surprise when you consider:

  • $840 billion in additional quantitative easing YTD
  • $1 trillion stimulus injected by the Treasury from their leftover Treasury account balance at the Fed
  • This all on top of the original $1.9 trillion stimulus in March
  • A drop in 10-year interest rates from 1.77% to a low of 1.13% 

Hey, you think government spending might be something worth trading? Join Andrew Giovinazzi and Frank Gregory this Thursday to find out how to build your own personal hedge fund around those massive money flows.

The last bullet above may be the most significant because the ratio of the S&P dividend yield compared to the 10-year Treasury bond is at the highest level in recent history….

History also shows that when the Fed initiates a taper — i.e. reversing QE — Treasury rates actually go down.

That may not seem logical since the taper policy means the Fed would be selling more supply of bonds into the system …

But the proof is in the pudding.

And when you have the kind of inside-the-beltway intelligence that Frank Gregory provides, you’ll know exactly what’s driving government decisions — and how to capitalize.

Notice in the graph below that each time the Fed initiated a taper program (blue rectangles), 10-year yields dropped …

Now, I have been saying for months the Fed will not be able to raise rates or they risk collapsing an economy buried under debt.

 So the Fed welcomes weaker economic new3s right now… 

Here is the Fed’s plan: 

Let the market correct naturally and then come in with an excuse to print more money … 

They need very low interest rates and high inflation for many years in order to get the debt reduction the UDS needs to reset the economy.

Now, back to the task at hand …

With the uncertainty of whether Washington will be able to pass the bipartisan infrastructure bill hanging over the market, you may get a great opportunity to catch investors offside … 

Two Trades to Consider this Week….

1. I scanned a few of the big names and APPLE (Ticker: AAPL) stood out as offering a nice opportunity. The stock is fundamentally 29% overvalued based on my discounted cash flow model …

The fundamental valuation is just one side of the story. So, let’s take a look at the technical patterns…

Two observations …

First, notice the lower volume on the most recent move higher. Second, notice the glaring negative Price/RSI divergence from an overbought condition…

AAPL presents a nice setup for a reversal on better-than-expected news. If the market rallies and then re-enters below the old high ($150), consider a 145/140 put spread to Aug. 20 for $130 … 

It is an easy trade to manage. If AAPL rallies back above $150 on high volume and closes above it, you close out the trade if not you have an excellent low-risk/high reward trade on looking for a healthy correction.

2. Ford (Ticker: F): On the other side of the coin, Ford is 20% undervalued and the automaker looks decent on the chart. The 200-day moving average is in a solid uptrend and after failing the first time up to the 50-day moving average. F is consolidating just below with light selling volume indicating there is more buying interest than selling… 

After as-expected or positive earnings, if you get a selloff below $14, consider buying a 14/16 call spread to Aug. 20 for $.50 or lower.

If F closes below $13.50, you close out the trade. So your max profit is $150 and your max loss is $.50. That is a good risk/reward ratio …

 

Bring It Home

 

During such critical announcements like earnings, you can catch the market offside and get a knee-jerk reaction.

 

Those are great trades to jump on because you can make quick money and a nice return on your capital

 

Again these are contrarian trades and, with deep insight on geopolitics, the Fed and the government you are put into excellent risk/reward scenario’s…

This is why you must attend …

The Hedge Fund Secrets Revealed webinar hosted by Frank Gregory and Andrew Giovinazzi Thursday, July 29, at 8 p.m. EST.

I hope to see you there and there, and as always …

Live and Trade With Passion My Friends,

Griff

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