The Right Sector .. The Right Stocks …

Hey There Income Hunters,


With the easy stock rally behind us, it’s more critical than ever to pick your spots in the right sectors to bag consistent winners.


I’ve been banging the drum on the energy sector recently and on Sunday suggested a trade in the Energy Select Sector SPDR Fund (Ticker: XLE).


Well, it was up big yesterday and is ready to break out above the 50-day moving average …


And there’s still time to jump on that for a move to new highs by the end of the year.


Today I want to steer you toward an additional sector and a stock that’s ready for a serious move higher …


It’s Time to Dig in on Newmont Corporation (Ticker: NEM) …


NEM is a very profitable company, generates plenty of cash flow and throws off triple the dividend of the S&P 500 …


Here’s the gold story …

  • Gold should be higher based on where real interest rates are.

  • Gold would be higher if the Fed didn’t brainwash the average investor into thinking the central bank can control inflation.

It will be higher as the Fed and US government are forced to start printing money again in 2022.


NEM the Right Stock at the Right Time


NEM has a market capitalization of $45 billion. The company has assets spread all over the world and produces gold, silver and copper — and lots of each. Plus there’s a strong balance sheet with net debt of just $800 million …


Check out the fair Power Income fair value price for NEM



Don’t Miss This: Nemont is trading at an over 40% discount to fair value.


Now remember, $81 is the fair value based on gold hovering between $1,650 and $1,850 …


That means there is plenty of upside if, as I expect, US growth slows below the long-term growth trend of 2% and forces the Fed to power up the printing press while inflation remains well above 2%.


NEM’s Technical Position 



Yesterday’s candle is a doji, as confirmed by Option Pit’s Queen of the Candlestick Licia Leslie.


And the doji signals a reversal in trend.


NEM, it should be noted, is undervalued based on its ratio to the price of physical gold.


I am looking at buying the NEM Nov. 19 60/62.5 call spread.


By tomorrow’s open we will have the CPI number, which could move the market.


Bring It Home 


We are heading into the most exciting part of the year, and I want to add to my commodity holdings because I believe we will see a rally in inflation assets.


With gold and the miners I respect the fact that until we clear the $1,830 area on good volume, we are still stuck in a range.



That is why I am focused on betting on profitable quality miners that are trading at a discount.


Live and Trade With Passion My Friends,

Griff

Going Stag(flation)

As you can see in the chart below, the weak economic surprises have broken below zero. This is the reason many banks are revising their GDP forecasts down for the coming quarters.

 


Chart via Bloomberg.

 

Meanwhile, inflation is expected to stay high for the next few quarters, so trading against this backdrop of stagflation is critical to maintain an edge.

 

The top performers for a stagflationary environment are real estate investment trusts, utilities and energy.

 

Over the weekend, I wrote about buying the Real Estate Select Sector ETF (Ticker: XLRE).

 

Today, let’s look at the Energy Select Sector ETF (Ticker: XLE), which is not only in a strong low risk/high reward setup but also throws off a 4.3% dividend …

Chart Description automatically generated

 

The 4.3% dividend is HUGE for investors when stocks and bonds throw off less than 2% annual fixed income.

 

You have to own energy stocks, and here’s why:

 

      • With a more aggressive push for vaccinations globally, we will see an increase in driving and flying in the months ahead. That will lead to higher oil prices and wider profit margins for producers, transporters and service providers.
      • Supply will decline as governments incentivize  car buyers to switch to electric vehicles. At the same time, there will still be a minimum of 400 million gas powered cars on the road for the next 5 years.

 

On the Other Side of the Coin …

 

Financials are a sector you want to sell in a stagflation environment.

 

Let’s take a look …

 

SPDR Select Sector Financial ETF (Ticker: XLF)

 

Banks struggle in a stagflation environment and the current circumstances are especially difficult on banks for a few reasons:

 

      • The current administration is tighter on regulations, making it more difficult for banks to make money …
      • Long-term interest rates are outperforming short-term rates, which narrows the profit margin on banks’ mortgage business.
      • The digital finance revolution will reduce the need for banks to intermediate between counterparts in the  financial world.

Let’s see what the XLF technicals are telling us …

 

Chart, histogram Description automatically generated

 

Look for a break of the 50-day moving average in XLF to initiate bear option strategies.

 

We will see an extended rotation away from financials into energy and commodities in the months ahead

 

Questions? Shoot me an email.

 

Bring It Home 

 

I think we will see the big boys re-enter the market this week.

 

Fed tapering is an even higher probability now after reports this weekend cited Fed officials preparing for a November reduction of $15 billion in quantitative easing each month.

 

This could spook equities early in the week,

creating opportunities to trade volatility into expiration on Friday …

 

Make sure you check out Macro Monday today at 11 a.m. when you join the Trading Legion. Not sure that’s the right move? Call our Customer Care team 1-888-872-3301 to find your best fit at Option Pit.

 

Live and Trade With Passion My Friends,

 

Griff

An Expected Correction and What to Buy Next Week

Hey There Income Hunters,

 

Those who joined Mark Sebastian and Andrew Giovinazzi for yesterday’s OP Markets Show were treated to insightful and tradable market intelligence.

 

Per usual.

 

(The show is part of the massive curriculum available to Option Pit Pro members, by the way.)

 

Mark, who gained so much insight from trading SPX early in his career, revealed a mid-month pattern heading into option expiration, which is the third Friday of every month …

 

The markets are heading into expiry on Friday of next week and knowing how this pattern has played out the past few months will give you an edge.

 

I also produced some interesting data on why we should expect followthrough — and the sector to focus on to get long for the next move higher …

 

The Monthly S&P 500 ETF Trust (Ticker: SPY) Correction 

 

As the graph shows below, SPY has corrected anywhere from 2.5% to 4.5%, for four consecutive months, either right before or right after option expiration:

 

 

This is not a coincidence since, as Mark will tell you, a lot of gamma hedging occurs around expiration.

 

After Friday’s trade in SPY (-77%), it looks like there was early positioning for this anticipated move.

That could mean we bottom out in the early-to-middle part of next week and make another move higher …

 

There was a lot of online discourse this week about a gap forming between S&P projected earnings growth and the downgrades to GDP projections in the upcoming quarters. This may push the indices down a bit further, providing an excellent opportunity to play for a move higher off the 50-day moving average.

 

So, here is a sector ETF I think can add to your gains on a rally …

 

Real Estate Select Sector SPDR (Ticker: XLRE) for Alpha Seekers

 

For the past six months, XLRE has been the top- performing sector in the S&P 500. It is up almost 27%.

 

I have documented how the Fed has been buying extra mortgage bonds every month to help the real estate market …

 

This should continue, which will support XLRE — especially in a stagflation environment when XLRE is historically a great performing sector anyway.

 

XLRE Technicals

 

XLRE has blown off some steam after it’s last move higher. It hasn’t tested the 50 DMA since March, when it crossed it and then came roaring back.

 

We could see a similar performance next week, and the $46.25 area looks like a good place to execute a low-risk high reward short-term option play.

 

 

Bring It Home 

 

I will discuss this opportunity on Monday during my Macro Monday Live Event at 11 a.m. — which is an exclusive piece of the Trading Legion and Pro programs.

 

Please join me to discuss the key data and trades you need to know about during the week ahead — including a must-have XLRE play.

 

Have a great weekend and as always …

 

Live and Trade With passion My Friends,

Griff

ECB Beats the Fed to the Punch on Taper

Hey There Income Hunters,

Yesterday, the European Central Bank announced that it will cut back on its $95 billion dollars worth of monthly Euro bond purchases.

Those bonds had been rising the past couple of weeks in anticipation of the move. 

And are for the joke of the day? 

Raphael Bostic, head of the Atlanta Fed, came out and said the Fed can be patient because the dismal economic data that has been emerging gives our central bank room to play.

So, the ECB is tapering while the Fed is dragging its heels …

That is a recipe for a lower dollar.

And, sure enough, the dollar failed at another higher breakout attempt on Thursday.

Now we head into inflation data …

The markets are not ready for what’s coming

Are you? 

Here Is What You Need to Kno

The dollar dropped yesterday on the ECB announcement.

Looking ahead, it faces headwinds, including:

      • Global  central banks, including the ECB, Norway, New Zealand and Canada are pulling back on stimulus ahead of the Fed. That is dollar bearish
      • After taking a lead on vaccine distribution, the US is fading fast, meaning other economies can outperform us going forward. That is dollar bearish 
      • Plus, even after $13 trillion in total monetary and fiscal stimulus, US economic data is softening. That, as you might have guessed, is dollar bearish 

A Weak Dollar Destroys the “Transitory” Narrative 

Low bond yields, high stocks and a selloff in commodities indicates the consensus narrative is a Fed that is in control and inflation that will come back down …

But is not supported by the inflation forecasts:

These forecasts are from Bloomberg and Hedgeye Research, and their CPI numbers have been spot on …

 

So, 5% through the end of the year and 4.5% in Q1? … 

 

I am happy to bet against the consensus narrative and wager on higher bond yields into the end of the year based on numbers even close to those.

 

Plus, not only am I going against the herd (which is usually wrong), but I have a number of historical indicators on my side, such as:

 

Higher European interest rates that will remove foreign buying that has supported US bonds in the past few months …

 

 

An October that historically means much higher net bond issuance, which will put a lot of pressure on bond yields …

 

 

A seasonal pattern in October and November of the greatest rise in interest rates for the year …

 

 

The Takeaway: The Trade to fade consensus is to put on a bearish bond option strategy into October.

 

iShares 20+ Maturity Treasury Bond ETF (Ticker: TLT)

 

Let’s first look at the technical setup in TLT … 

 

 

Remember, this is a contrarian trade. That means going against a technical setup that is currently positive.

 

My plan is to fade the rally in TLT if it reaches the 151 area … I like buying the 146.5/144 Oct. 29 put spread; however, the specifics may change, depending on the pricing of the options once we get there.

 

Below is the current risk analysis. The return just using a 145 target price is 180%. That is an excellent risk/reward to the end of October:

 

 

Bring It Home 

 

I have traded bonds most of my career and I also know how powerful inflation can be. You want to have a position on when inflation has yet to be priced in.

 

Once psychology shifts, it will be hard to chase flows out of bonds into inflation hedges like commodities …

 

I’ll keep monitoring for impactful events, such as passage of the debt ceiling and investor selling of bonds. Don’t miss this week’s letter on other bond ETFs.

 

Have a great weekend and as always …

 

Live and Trade With passion My Friends,

 

Griff

Are Corporate Bond ETFs Rolling Over?

Hey There Income Traders,


With the market deeply entrenched in stagflation — that’s slowing growth and rising inflation — #IncomeHunters must keep an eye on corporate bond ETFs for signs of trouble in corporate America.


Why?


Because these bonds have historically deteriorated in value well before the stock market plunges.


Check the iShares Investment grade Corporate Bond ETF (Ticker: LQD) performance heading into the Leman failure (graph below) …


I overlayed LQD with the S&P 500 ETF Trust (Ticker: SPY) to give you an idea on the warning signs LQD was giving off prior to the collapse …



Lehman filed for bankruptcy Sep 15, 2008, meanwhile LQD had diverged from SPY in early 2007 providing a signpost for things to come …

Double Barrel Debt Burden

The difference between the 2000s and 2020s is corporations are buried in debt and the Government will not be able to bail them out …


The 2020s will be dramatically different from the 2000s for three reasons …

1.    The debt burden is much greater

2.    Inflation will be elevated for a prolonged period

3.    Slower growth will not enable the Fed to fight inflation

What makes the markets soo interesting is that not many investors understand what stagflation is …

Nor do they understand how impossible the Fed’s job of create growth while controlling inflation is … 

J-Pow has done a miraculous job brainwashing investors into thinking the Fed has a magic toolbox with all the tools necessary to reduce Government debt, create economic growth and fight price inflation …

However, at some point higher prices without trending growth will squeeze corporate profits and the overwhelming debt burden will lead to a credit crisis …

That is why closely watching corporate bond ETFs is so critical …

Corporate Bond ETFs to Watch

The LQD ETF is a very liquid corporate bond ETF …. The ETF holds AAA credit down to BBB credit however, in such a low interest rate environment the managers overload the ETF with BBB rated bonds to boost returns …

When the market approaches similar conditions to 2008 it will be difficult for managers to liquidate the holdings of BBB rated bonds into the secondary market …

The reason for this is, in a weak economy, as BBB rated bonds are downgraded to BB they fall into the high yield category forcing investment grade portfolio managers to sell them …

This will accentuate the price drop, which makes LQD a must watch for signs of capitulation … You can make quick easy profits by getting ahead of the market …

 

iShares High Yield Corporate Bond ETF (Ticker: HYG)

HYG has been a popular high yield play especially because the Fed via BlackRock had been buying HYG as a strategy to support the corporate bond market …

HYG will be the first bond ETF to fall if corporations begin  experience counterparty credit problems …

The signpost to warn of a crack in the credit foundation is the Spread between US Treasury rates and high yield credit … Check it out …



Notice the low in the high yield credit spread prior to the great recession in 2008 … Once the spread broke out it fueled a big move out of high yield into the safe haven of US Treasury bonds …

Recently the spread widened and is now holding in at current levels … I will keep an eye on this as a trigger for a bearish option strategy on the ETF … Here is the current technical setup for HYG …


I do not  think HYG can trade much higher from here …

My timing for a steeper fall in economic activity is Q2 2022 so there is time …

You just never know what external event could trigger credit problems …

If you agree with the trade and feel the economy could suffer more immediate issues you could consider an 87/85, put spread to Jan’22 for $.88 …

 

Bring It Home

I wanted to introduce additional bond ETFs to follow … This week presented another good opportunity to jump on the TLT bear strategy to capitalize on heavy Bond supply …

I made 70% on half my 149/147 put spread to 9/10 expiry and am carrying half into expiry …

There are many good strategies and bond ETF pairs to trade …

Please join me tomorrow for the 1pm Griff’s picks live event that is included in the Vix Edge subscription … If interested in Vix Edge please call Ted at (888) 872 3301 … Hope to see you tomorrow and as always …

Live and Trade With passion My Friends,

Griff


Uranium Prices Are Going Nuclear

Hey There Income Hunters,

Have you noticed uranium futures soaring recently on the back of strong demand and limited supply?

Well, it’s time to pay attention.

Uranium is currently trading over $40 — up from $30.30 in mid-August and a year-low in the spring of just below $28.

You see, nations around the globe today envision a bigger role for nuclear power in their clean energy programs …

And that includes the US, which is considering allocating funds from the forthcoming infrastructure bill to enhance a nuclear supply that currently accounts for about 19% of our country’s electricity.

But in an odd twist, just as demand is rising, the industry has been hit with a wave of reactor closings and Covid-19 has triggered a decrease in production. Take Kazatomprom, for example. The world’s largest uranium producer has decided to keep production flat through 2023.

Notice the vertical short-term move higher in the chart below … 

Even with that spike, there is a huge potential runway for the clean-energy solution.

Today, I will give you the intel on why the metal will rise further and where to get in …

Uranium’s Strange Supply/Demand Imbalance

Understand this: the  economics have never been very good for uranium miners.

First of all, it takes billions of dollars to build a nuclear reactor facility.

Then it takes decades to pay off the financing.

Secondly, in the past, even when there was a supply shortage, nuclear utilities would be inflexible buyers and just pay whatever was needed to keep their facilities active.

Today, though, the utility’s demand is greater than the amount of uranium that is mined per year. For the past several years, existing inventories and secondary supplies have made up the difference …

Now the supply/demand projections heavily favor higher prices for the next decade and beyond:

Uranium Bull Market Data

The graph below shows the two previous uranium bull markets … 

The current global economic environment and commitment to clean energy provides the foundation for a major bull market in the years ahead.

Here’s what #IncomeHunters should know: at the current $40 price, uranium production is not covering existing demand and it is trading at a price below the cost at which it is profitable to build new mines.

The largest producers Cameco (Ticker: CCJ) and Kazatomprom buy secondary uranium on the market and re-sell it to the utilities under long-term contracts.

But these contracts will be drawn down — and secondary supplies will not last.

In order to get new supply, prices will have to go up substantially.

A New Buyer Has Recently Emerged

Sprott Inc. (Ticker: SII) recently acquired Uranium Participation Corp., which was  a Canadian company that held uranium … Sprott purchased the company in July and turned it into the Sprott Physical Uranium Trust, a closed-end fund.

In August, Sprott announced an issuance of $300 million in new trust shares to buy uranium at market …

This moved the price of uranium 25% — and Sprott still has about $150 million more to buy.

Plus they can authorize more sales at any time.

Built-In Floor on the Price of Uranium

With demand increasing from utilities — and now Sprott has demand for their fund — the price of uranium will rise ultimately to $60 or higher, allowing new mines to operate at a profit.

Even then, we could see prices squeeze higher when new demand from government-sponsored facilities is created to meet zero-carbon emission mandates.

Since the Sprott trust trades at a premium to its net asset value, I would consider buying the Global X Uranium ETF (Ticker: URA), which holds CCJ and Kazatomprom , among other top mines and servicers …

Technical Setup for URA

The chart below illustrates the vertical move higher in URA over the past few weeks since Sprott began buying uranium for the trust …

Notice the negative price/relative strength index (RSI) divergence that was triggered when URA took out the previous high from January above 23.75.

RSI did not reach a new high, so we would expect a pull back from this area.

Bring It Home

I am currently holding two uranium stocks: Denison Mines (DML) and Uranium Royalty (Ticker: UROY), which are up 47% and 35% respectively. I’m also looking to purchase a bullish option strategy on URA on a pullback to the $21 price shown above.

I have written at length on a new monetary system that will open up channels for global investment in clean energy. China’s plans for a global buildout of undeveloped nations is a prime example.

Nuclear energy will play an important role in this buildout and the US is quickly moving in that direction, as well.

The Sprott Trust Fund now provides short-term support for the market, and we know the long-term demand will be there.

Live and Trade With Passion my Friends,

Griff


Critical Charts for This Week

Hey There Income Hunters,


This is a critical week for the markets.


First, the consensus narrative for transitory inflation has been put to rest recently, … while growth has been slowing and the labor market took a hit on Friday as non-farm payrolls were much weaker than expected …


Meanwhile, stagflation is muscling up.


Notice the chart below illustrating the diverging trends of economic surprise trending lower while inflation surprise continues trending higher …


Chart, line chart Description automatically generated


I have been talking about stagflation for many months, and I think we will see it become the consensus narrative in the weeks ahead.


Stagflation is not a common economic condition and not many Americans understand its impact on the economy.


Today, I will show you the trades to watch for as signposts as to where the money is flowing so you can stay ahead of the crowd and make quick profits.


Watch These Levels on the US Dollar Index (Ticker: DXY)


There has been confirmation of economic deceleration in the US over the past few weeks, with retail sales declining and the Atlanta Fed revising down real growth (GDP) in Q3 from 5.3% to 3.7% …


Meanwhile, Japan and other Southeast Asia economies are expected to get a nice economic boost, as Delta variant cases have peaked and they have been under more strict lockdowns than the US.


This relative change in growth will put pressure on the dollar — which I have been very bearish on, and continue to be.


We are approaching big levels on the dollar, and if they are broken it will trigger renewed selling and much lower levels into the year’s end:


Chart, line chart Description automatically generated


Watch for Breakout on Physical Gold (CFDs on Gold)


Keep your focus on gold because it is a huge winner in a stagflation scenario — especially when the Fed is choosing to take their policy cue from full employment as opposed to higher inflation.

With the employment situation uncertain, the Fed will sit back for a few weeks and monitor economic data …


This could attract an allocation into gold and a breakout of the $1,837 level is the signpost to monitor.


On a break of $1,837, we could see a quick acceleration of the recent rally and a test of $1,920 — and ultimately $2,089 — by the end of 2021:

Chart, bar chart Description automatically generated


Since the weekly bullish hammer candlestick pattern in early August, gold has made three new weekly highs … 


I will be adding to my bullish metal positions when gold makes a higher high above $1,837, signaling a reversal of the downtrend since May.


A breakout would be significant for the markets and could force allocations out of other asset classes, like bonds, into Gold.


iShares Treasury 20+ Maturity Bond ETF (Ticker: TLT) 


Adding to the importance of this shortened holiday week is the Treasury’s issuance of $20 billion of bonds.


Investor’s will be bidding to buy $58 billion in 3-year notes (Tuesday), $38 billion in 10-year notes (Wednesday) and $24 billion in 30-year bonds (Thursday).


The bonds are most important to watch because they will signal just how bad the economy really is.


Higher inflation puts tremendous pressure on bonds when the rate of inflation is higher than the return on bonds, as it is now.


However, if the economy is headed towards recession, bonds will rally in anticipation — and that will quickly reduce inflation.

Chart Description automatically generated


Trade Alert: I have 149/147 bearish put spreads to Sept. 10 on TLT, and I think we could see $146.5 this week.


Even lower levels would be an indication that investors anticipate stronger growth ahead as the reopening of the economy picks up speed.


Bring It Home


Bonds, precious metals, and the dollar are the most significant macro drivers of the markets. 


Bonds are especially important for forward-looking signals on the economy.

Stock prices have never been a great forward looking- signpost and, usually, equity investors are blindsided by a sharp turnaround in the market


See the 2008 financial crisis and the dot-com bubble bursting for evidence on that.


Drop me a line this week with questions or comments!


Trade and Live With passion My Friends,


Griff

Pot ETF About to Light It Up

Hey There Income Hunters,


It’s time to procure a bullish position in pot stock

.

The market has corrected almost 25% since mid-July, and there is good news from the Biden administration that will give the market a boost.


In a letter to Congress last week, the Office of National Drug Control Policy (ONDCP) proposed making it easier to research marijuana and other Schedule I substances.


This is a very good step in support of the medicinal benefits pot can bestow on society.


And the Drug Enforcement Administration (DEA) firmly believes in this support as a necessary step towards the Food and Drug Administration (FDA) approval of new drug products.


Today, I’ll pass two pot stocks I like, plus the technical pattern that provides a bullish signal for buying one now.


Biden Supportive of Moving Pot to a Schedule II Drug 


This makes total sense, since pot continues to be a Schedule I drug, while cocaine is rated less dangerous as a Schedule II (see table below) …


Table Description automatically generated


Today, the pendulum has swung, as politicians push for any tax revenue and new jobs they can find (among other reasons).


Build a portfolio of stocks that have corrected and will profit from federal decriminalization that, although delayed in 2021, will come in 2022 as Democrats must find ways to pay for all their fiscal fireworks.


The CBD industry alone is expected to grow at a compound annual growth rate (CAGR) of 40.4% for the next five years ….


Here are two stocks that are a buy now:


AdvisorShares Pure Cannabis ETF (Ticker: MSOS) 


MSOS was the first US-listed, actively managed ETF to provide exposure solely to American cannabis and hemp companies, including multi-state operators.


Thirty six states have now decriminalized cannabis for medicinal purposes, while 13 states have legalized it for recreational use.


MSOS is in a strong buy position technically. Notice the move on Friday on higher than average volume …


Chart Description automatically generated


Notice also, the two hammer candlestick patterns registered over the past 4 days. A hammer pattern is defined by:

  • A lower tail that is longer by at least 2x its body 

  • Either a red or green candle color doesn’t matter

  • The upper tail is very small and almost absent 


Hammer candlesticks usually appear in a downtrend. They are generally reliable reversal patterns. And this is an ideal situation for a reversal in trend to happen in the short-term …


Consider a MSOS 33/35 call spread for $.70 to Sept. 17. Closeout the trade on a close below $32.50.


This trade offers a return of 185% if MSOS expires on Sept.17 above $35. Any close above 33.70 nets a profit.


Grow Generation Corp. (Ticker: GRWG) 


GRWG is the pick-and-shovel supplier to many cannabis growers, operating in 12 states today and growing quickly … 


I love this company and forecast them to be the “Home Depot of the cannabis industry” in the years ahead.


GRWG is the perfect combination of a uniquely positioned business with a great strategy for growth as decriminalization sweeps across the country.


The stock is in a stable position and the recent correction makes it a good time to buy.


GRWG has put in a series of higher highs and higher lows,with an uptrend developing … At the lows, a couple of inverted hammers developed on good volume.


The inverted hammer is defined by the same bullish reversal characteristics of the hammer:

Graphical user interface, chart Description automatically generated


Consider a GRWG 33/35 call spread to Sept. 24 for $.66. 

This trade offers an over 200% maximum return and I believe the probability of GRWG reaching $35 or higher is good. If not, use a sell stop below $30.5 to limit your loss.


Bring It Home 


Last week’s employment data opened the window for money to flow into beaten down sectors, and cannabis is one of them.


The disappointment of not passing decriminalization at the Federal level should give way to positioning for passage in early 2022.


This is good timing to jump on a burst of momentum to the upside in both stocks I mentioned today  for a quick low risk/high reward play.


I hope you are enjoying the long weekend and as always …


Live and Trade With Passion My Friends,


Griff 

Is The Fed Preparing For A Slowdown?

Hey There Income Hunters,

In case you missed my Griff’s Picks show in our Volatility Edge program yesterday at 1pm … I wanted to share the details …

J-Pow has been adding 30% more reserves to the banking system, even though he has been talking about draining reserves for weeks …

Check this out … This data comes right from their reserve balances … 

Now, the Fed had stated that their amount of quantitative easing (QE) would be $120 billion per month … 

However, it has been much greater …

Could J-Pow be building a cushion before they do start tapering in November? Anything is possible because QE is their only monetary tool they have left. Rates are at zero, and if they sense trouble in the credit markets or the economy all they can do is increase QE.

The Powell Christmas Massacre May Be Repeated

The timeline the Fed has constructed for tapering at the end of this year is eerily similar to 2018.

Powell was also at the helm in 2016, which is when he started tightening by reversing QE, and raising interest rates. It seemed absurd at the time because gross domestic product (GDP) was barely above 2% …

The recovery from the great financial crisis was the worst in history, and he started draining liquidity … So, by October, the Fed Funds interest rates had risen by 1%, and the stock market started selling off.

J-Pow just kept raising rates anyway, and then in early December, it started melting down and by Christmas Eve the S&P 500 (Ticker: SPX) was down almost 20% for the month

Check out this meltdown:

Powell then came back after Christmas, and said the Fed would stop raising rates, but by then the damage was already done.

The takeaway here is that until the Fed and Government can create real economic growth. They should not attempt to drain liquidity from the system.

 Watch the Jobs Market

Yesterday marked the official ending of the unemployment benefit checks … Now we will see the real condition of the job market … Notice the current state of the participation rate …

15 million prime workers now have to look for jobs. The labor participation rate will rise, but will there be enough jobs to move the unemployment rate much lower?

If there isn’t, then the unemployment rate will rise. Right now, it is sitting at 5.4%, while it was 3.5% pre-COVID.

If it does rise, the Fed will have the cover to avoid tapering … The bottom line is the Fed does not have the latitude to reduce much of the liquidity they have already added …

The consumer and the economy are much more fragile now than they were in 2018. Stimmy checks are history, and the spending bills up for approval will not do anything for the consumer.

No tapering and more spending can only mean one thing …

Sell the Dollar

I think will continue to go down for two reasons:

      • One is the Fed has turned more dovish just as other central banks are turning more hawkish, like European Central Bank (ECB) and China.
      • Second, and potentially a much more powerful force, is the Afghanistan disaster. It could trigger a loss of confidence in the dollar worldwide  …
        • We have already seen a number of countries shifting away from the dollar, and exiting Afghanistan may perpetuate similar moves.
        • It did not take China long to reach out and set the tone for trade deals and support for Taliban, and they have $3 trillion in dollar reserves for sale as they set up trade deals in Yuan …

Set up bear strategies in the US Dollar Currency Index (Ticker: UUP) …

Implied volatility (IV) is at the lows, so I like buying the Oct. 15 25-strike puts … I paid $0.31 for the puts. 

You may have your own ideas on how to play it; however, from a macro and technical perspective the trade could reach the recent lows and provide 100+% returns.

If UUP closes back above $24.90 you can stop yourself, putting the risk/reward in your favor …

Bring It Home

September could be an interesting month. Can a reopening lift the economy and bring the US back to the accelerating growth and inflation economic condition of Q2? 

I think it is a toss up at this point. However, if the Fed repeats the mistake of 2018, and tightens too soon … that may kill any chance for an economic recovery …

A bearish dollar strategy is a great short-term play since Powell has made his dovish pitch, and we should see weaker economic numbers in the weeks ahead.

And of course, if you find yourself wanting to play more trades based on government shenanigans, Frank and Andrew specialize in the Deep Information Washington trades that other traders don’t have the resources or intel to find.

They closed out a partial win on Kroger (Ticker: KR) yesterday for a +50% win, and you can join them until midnight right here.

Good luck, and as always …

Live and Trade With passion My Friends,

Griff

 

 

Supply Chain Issues Not Going Away – Sell TLT

Hey There Income Hunters,

 

Money supply growth continues to rise and there is a new force at work that may ignite inflation higher and for longer.


What is it?


That cost of shipping goods around the world.


Reports last week outlined that manufacturers have been forced into bidding wars for space on vessels. This desperate competition has pressured the Baltic Dry Index, which measures the price of moving raw materials globally, into the stratosphere:



The realization of continued inflation will have an impact on bonds and now looks like good timing to set a short in the iShares 20 Plus Year Treasury Bond ETF (Ticker: TLT).


***

Just as supply chain issues can impact your trading, so can the power plays being made in DC. And no one is plugged in behind the scenes inside the Beltway like Option Pit’s Frank Gregory.


But he’s not using that Deep Information at some monolithic hedge fund. No, Frank has teamed up with Andrew Giovinazzi to work directly for you in their Capitol Gains program.


Frank’s connections plus Andrew’s trading expertise have delivered three 50%-plus winners since the Capitol Gains launched a month ago.


And membership has been reopened for a very limited time.


Banks Are Choking on Financial Assets 


The Fed continues to do at least $120 billion a month in quantitative easing … that is useless and just sits within the banking system:


All the Banks can do is sell securities to the Fed when they come knocking and then buy more in the Treasury auctions to load up for the next round …


Well now the Fed is throwing a wrench in those plans by teeing up their taper strategy, when they’ll reverse QE and SELL bonds to the banks to drain reserves from the system.


Judging from the chart below, the banks will not want to buy many bonds in auctions if the Fed is also going to be selling them bonds …



So, we have banks overflowing with dollar assets as we enter a Fed policy shift to sell banks securities.


Treasury Supply Schedule for Next Week


Labor Day weekend is coming up, and the shortened week will add to the difficulty for investors to absorb the bond issuance …


Next week, investors will be bidding on $61 billion in 3-years (Tuesday), $38 billion in 10-years on (Wednesday), and $24 billion in 30-years on (Thursday) …



With all the uncertainty on the Fed taper and inflation, bond prices will be pressured and TLT is an ideal ETF to sell because it matches up with 10-year and 30-year maturities.


TLT Technical Setup 


TLT is in a short-term downtrend with a downward sloping 200-day moving average.vI would like to see a solid break of the 50 DMA on higher volume to confirm bearish trends in all time frames.


With the supply next week, however, I think the risk/reward is favorable to play the trade with a tight stop above 150. On the downside I think 146 to 146.50 is reasonable.


I purchased a 149/147 put spread to the Sept. 10 expiration for $.77 and will add either on a break lower or a spike higher on Fridays nonfarm payrolls.


This is an opportunity that puts the probabilities in your favor.I have put half a position on now.


Bring It Home


The TLT auction setup trade has been working well over the past couple of months as the inflation scare puts pressure on bond prices.


Live and Trade With Passion My Friends,

Griff