Tuesday was a quiet day, but a dovish speech by Lael Brainard may have been overlooked due to the huge CPI number coming on Thursday …
One headline that caught my eye was …
BRAINARD SEES TENTATIVE SIGNS OF SOME REBALANCING IN THE JOB MARKET
Brainard also said, “We are also very aware that the cross-border effects of unexpected movements in interest rates and exchange rates, in some cases could interact with financial vulnerabilities.”
That is a shift in the tone I have been looking for. I think after Thursday’s CPI number, we could see the narrative shift more toward financial stability and less toward inflation.
This would give the bond and stock market a chance to bounce before the earnings season.
Today, we’ll look at a couple of stocks to consider on a pullback from the initial CPI print on Thursday.
The Data Dependant Shift
Brainard also went down the path of becoming data-dependent…
“In light of elevated global economic and financial uncertainty, moving forward deliberately and in a data-dependent manner will enable us to learn how economic activity, employment, and inflation are adjusting to cumulative tightening in order to inform our assessments of the path of the policy rate.”
I think this speech went a bit unnoticed, and it is telling that a pause may be in order to let the rate hikes move through the economy a bit.
That said, I see a couple of stocks that have value and are in a position for a move higher if the market holds in after CPI on Thursday …
Global X Lithium & Battery Tech ETF (LIT)
The Lithium sector, like most, has corrected back toward the bottom of the 2022 trading range.
LIT’s price recently diverged from the relative strength index (RSI) to complete a potential reversal pattern known as a positive divergence.
Yesterday’s candlestick pattern is also bullish providing a low-risk/high reward set-up.
The shift lower in global demand for just about everything has given traders a chance to get in on the longer-term bullish trend for Lithium.
Here I like a simple Nov. 18 67/70 call spread for $1.30. It gives traders an opportunity for a maximum net gain of 200%.
November expiry gives traders enough time for a Fed pause either at the next meeting Nov. 2 or shortly after, giving stocks a nice boost.
Invesco Solar ETF (TAN)
The US Inflation Reduction Act (IRA) gave the solar industry a massive boost with billions in tax incentives supporting solar deployments over the next decade.
Now that the market has settled back to where it was prior to the IRA bill announcement it is time to get back in …
For TAN I like a diagonal spread. Traders could buy a Nov. 18 75 call and sell a Oct.28 72 call for a $.30 debit. The upside is the Oct. 28 72 call expires worthless and you traders own the Nov. 18 75 call for $.30.
Again, this gives traders time for a Fed pause with little capital at risk and the timing may be ideal for a sharp move higher post-Nov. 2 Fed meeting.
Bring It Home
The timing is right for a switch from being overly concerned with inflation to worrying about the financial condition of the markets.
The bond and currency markets are causing many problems within the global financial system and are now coming out in the Fed speak. i.e. Lael Brainard.
This should continue in the weeks ahead and if there are any shocks to the system the Fed would have to act prior to the next meeting.
If the CPI number comes out a touch high and SPY holds the 350 area, that would be an opportunity to jump on TAN and LIT. Have a game plan and execute!
And as always …
Live and Trade With passion My Friend,
Griff