A Good Week to Make a Fortune …

Hey There Income Hunters, 

 

I have been ready for this week for months …

 

I literally circled it at the start of the year.

 

Long have I known that Q2 would be the wildest quarter of 2021 due to a reopening economy and my analysis that inflation would begin to trend higher …

 

Plus I also think bond yields will begin to climb again. In fact, Friday may have been the start as 10-year yields dipped below 1.5% and then swung higher to close near 1.6%.

 

Now the question is how bondholders will react on Wednesday if the mother of all inflation reports — the consumer price index (CPI) — is reported to be 3% or even higher.

 

Throw in the fact that the inflation scare it would create would come on the same day investors have to bid on $44 billion new 10-year notes … and we can expect some nice volatility — which will give us great opportunities to jump on trends already in motion.

 

And, after last week, there’s something for everyone …

 

Stocks making new highs on higher volume. Stocks making new highs on less strength (negative divergence). And stocks making new lows on low volume and hitting major support

 

With all that said, I have three must-watch stocks for this week.

 

1. Yeti Holding Inc. (Ticker: YETI) 

 

I have been watching YETI for a while, waiting for a bearish setup — and finally got one. I love it, especially in front of an earnings report on Thursday.

 

Now, analyst estimates for YETI earnings have been rising as we approach the announcement … Projections call for quarterly earnings of $0.21 per share, which would be a year-over-year change of +90.9%, with revenues up 26.5%. Pretty strong numbers, for sure…

 

However, it’s all about expectations, which are pretty frothy as Federal Reserve Chairman Jerome “J-Pow” Powell likes to say.

 

All I care about is what the market is telling us — and the chart is not so positive. Check it out …

 

 

I see signals that indicate prices may be overbought.

 

First, the new high was achieved on volume that was 20% less than the average. (See the red circle in the upper left.) A breakout that has staying power is usually confirmed by greater volume.

 

Second, the new high was not met with a new high in the relative strength index (RSI), signalling a negative RSI/price divergence … 

 

Lastly, thanks to The Option Whisperer Mark Sebastian, I keep an eye on the comparison of implied to historical volatility. Well, for Yeti, implied is significantly historical. Check out the January trade when IV was in a similar setup …

 

 

So, while a lot can happen depending on earnings, the probability is for YETI to correct from here. I am buying a 90/86 put spread with the intention of taking it off prior earnings, if I have the chance …

 

2. Canopy Growth Corporation (Ticker:CGC)

 

With the pullback we’ve seen in the cannabis sector, I’m looking to allocate funds there — and CGC is a top choice.

 

To date, 80% of CGC’s sales have been in Canada. However, they also export medical cannabis globally. With exporters required to pass strict regulations to enter markets, CGC is well-protected.

 

CGC has also negotiated a sweet deal to acquire Acreage Holdings, a U.S. multi-state operator, immediately upon federal legalization. And the Canadian company owns 27% of U.S. multi-state operator TerrAscend, so inroads are being made into what will be the world’s largest market.

 

Perhaps best of all, Constellation Brands (Ticker: STZ) — parent company of brands ranging from Modelo beer to Svedka vodka — owns 38.6% of Canopy, with options that could push that stake to 55.8%. Such muscle will give CGC deep pockets and incredible brand recognition when launching consumer cannabis products.

 

Let’s take a look at the setup …

 

We can see from the chart below that CGC’s price attempted to trade back above the 200-day moving average …

 

 

I always like to see a market where the moving averages are converging. This tells me multiple timeframes could jump on a move away from there. I’m willing to bet that move will be higher …

 

I’d like to see prices close above the 200-day MA for a couple of days this week. However, I’ll purchase a 25/30 July-16 call spread. Once the market turns and I get closes above the 200-day MA, I’ll add more.

 

3. CarGurus Inc. (Ticker: CARG)

 

CarGurus is a top online site for used car research in the U.S. The majority of its revenues come from brick-and-mortar dealerships who pay fees to advertise inventory on CarGurus.com …

 

And they recently crushed earnings.

 

That makes sense, because CarGurus has a great model backed by a very strong balance sheet and a forecast for excellent earnings growth for the foreseeable future.

 

Of course, the company was hurt during the pandemic when the dealerships were locked down. Now that the economy is reopening, CARG is coming back quickly. The earnings beat brought in very strong stock buying as you can see below …

 

 

Notice how back in December, the CARG price had a similar setup below the 200-day MA? Volume spiked stimulating a vertical move higher …

 

CARG’s earnings could trigger a similar move back up towards $34. The company literally has no debt, and its return on investment is 20% — which is spectacular.

 

Surprisingly, short interest is 13%, so CARG may get an extra kick from short covering as they rally. 

 

And, finally, CARG’s implied volatility has collapsed over the past couple of days.

 

So, let’s see, much higher volume, clearing the 200-day MA and implied volatility collapsing … I am going to buy a 28/33 call spread to June 18, 2021.

 

Bring it Home,

The Power Income strategy is to focus on macro forces first …

 

Those continue to be accelerating growth and inflation.

 

My core commodity positions and core short in iShares 20 Plus Year Treasury Bond ETF (Ticker TLT) are set. I’m hoping to close them out this week …

 

Aside from the core positions, I’ll continue to seek momentum trades based on a technical patterns that allow #IncomeHunters to jump on trends.

 

The moves this week will fund longer-term trades based on the macro picture …

 

And think about what a great strategy this is:

 

      • Three trades, all with high probabilities of success
      • 3-to-1 risk/reward ratios
      • If you hit on one, you break-even. Two and you are up 100%. Three and you up 200%.

 

Those are pretty good odds!

 

Good luck this week and as always …

 

Live and Trade With Passion My Friends,

Griff

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