It’s on for Exxon


Hey There Income Hunters,


In late January, I wrote a bullish Power Income report on Exxon Mobil Corp (Ticker: XOM) and shared the trade I put on. See it below …



We haven’t even gotten a federal infrastructure spending package (yet), but …


My trade is already up 70% — a 2,100% annualized return!


Power Up

The Power Income Valuation Model has a $73+ fair value price for XOM based on earnings per share and dividend growth …

However, the new high of 52.36 on Monday was not met with a new high in the Relative Strength Index (RSI) — a very helpful momentum indicator — meaning we got a negative price/RSI divergence … which is a great signal for reversal patterns.


A key Power Income Rule is Respect the RSI, so I took profits and will look to reset the trade a little bit lower …


Bring it Home

The RSI Divergence is a very helpful technical tool for Income Hunters…


A negative divergence is constructed in three simple steps:

  1. Price makes a new high and RSI does the same

  2. Price corrects then continues higher and makes a new high

  3. RSI fails to make a new high


In the “Big Picture” the energy sector has a long way to go. 


XOM was turbo-charged the past few sessions, so now is GREAT timing to sell a rich stock and move into an undervalued one.

                  

Tomorrow we’ll analyze British Petroleum (Ticker: BP), which I think offers great value.


Until then …


Live and Trade With Passion My Friends,


Griff

Yellen Pounding the Table on Stimulus… Even on Sunday!

Hey There Income Hunters,


There was a great exchange over the weekend when Janet Yellen was asked to respond to recent criticism from former Clinton Treasury Secretary Larry Summers.


Summers wrote in a Washington Post op-ed last week that President Biden’s stimulus plan, while admirably ambitious, is too expensive and could risk runaway inflation.


Republican lawmakers (along with some Democrats), not to mention other economists, have duly latched onto that.


But Yellen was not impressed.


“We face a huge economic challenge here and tremendous suffering in the country. We have got to address that,” Yellen said in response. “That’s the biggest risk.”


I think the most outrageous thing Yellen said, however, was that the Fed had the tools to handle any potential inflationary threat.

As any economic historian knows, you cannot turn inflation on and off …

Just look at how hard it was to control in the 1970s.

History Repeating
That statement by Yellen is so typical of an ex-Fed governor. 

There is precedent for Fed chairs ignoring the facts when we were heading towards a crisis …

Ben Bernanke, who headed the Fed from 2006-2014, did the same thing during the housing crisis. Check this out from July 2005

INTERVIEWER: Ben, there’s been a lot of talk about a housing bubble, particularly, you know from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there?

BERNANKE: Well, unquestionably, housing prices are up quite a bit; I think it’s important to note that fundamentals are also very strong. We’ve got a growing economy, jobs, incomes. We’ve got very low mortgage rates. We’ve got demographics supporting housing growth. We’ve got restricted supply in some places. So, it’s certainly understandable that prices would go up some. I don’t know whether prices are exactly where they should be, but I think it’s fair to say that much of what’s happened is supported by the strength of the economy.

All this sort of avoidance is doing is keeping average Americans from understanding the truth and being able to make the necessary changes to protect themselves … 

Janet Yellen is so afraid the Fed won’t get inflation that the mistake she will make is losing total control of it.

And guess what …

It’s already here

These are two leading inflation indicators … 

  1. The 5yr breakeven is the difference between the 5yr Treasury and the 5yr Treasury Inflation Protection (TIP) security rate

  2. The 5y5y forward inflation expectation rate is a measure of expected inflation (on average) over the five-year period that begins five years from today.

So, this $1.9 trillion is a done deal and you know they will put through an infrastructure spending bill before the summer.

That means there is only one thing for you to do.

Just stay focused on the reflation trade. (That means precious metals and miners. I like AG and PAAS for silver; SAND and AU for gold. Also energy stocks, including XOM and BP, and infrastructure plays KMI, EPD and TOT.)

The Fed’s ineptitude is our greatest asset.

Bring It Home
OK, I had to vent today after reading that exchange. I have been watching this go on way too long!

Also, congrats to my adopted hometown team, the Tampa Bay Buccaneers, for their Super Bowl win. I expect they’ll see some inflation in ticket sales next season.

Have a great week and as always …

Live and Trade With Passion My Friends,

Griff


Ride the Blue (and Gold) Wave


Hey There Income Hunters,


What a way to end a wild week!


The day started off with a very poor jobs report and equity markets exploded


Why? Because, if needed, the Dems will just send more free money, Oprah-style. (You get a stimulus! And YOU get a stimulus!)


The Blue Wave is rolling now.


Senate Dems pushed through the $1.9 trillion stimulus blueprint and Vice President Harris holds the first tiebreaker vote on the real thing.


House Speaker Nancy Pelosi predicts passage by March 15. (Beware the Ides??)


Nothing shows the massive fiscal lift all this has given stocks more than the chart below.


The cumulative amount of fiscal stimulus in the past 12 month is $5 TRILLION.


Three portions of $2.2 trillion, $900 billion and the forthcoming $1.9 trillion is really incredible …


I’m not really going out on a limb here, but I need to make sure you understand … 


I think gold put in lows this week and we should be starting a new bull trend shortly. 


Today I added to my Barrick Gold (Ticker: GOLD) position, I bought First Majestic Silver (Ticker: AG) and bought 100 shares of Sandstorm Gold (Ticker: SAND), the latter of which I really like.


Here’s why …


Enter Sandstorm
Sandstorm owns royalties from 201 mining operations and projects. Of which, 24 are in production, 21 are in the development stage, 22 are in an advanced exploration stage, and 134 are in earlier exploration stages. 


Sandstorm expects 120% growth in only 3 years. The company also holds cash of $125 million, and has credit facilities of $300 million at its disposal.


It all means that Sandstorm is well funded to acquire additional royalties streams and to further boost the projected growth.


GOLD, SAND and AG each report earnings in the next two weeks … and I think they should all beat estimates…

I’ve written a lot recently about my respect for the Relative Strength Index (RSI) — a very helpful momentum indicator — when it diverges from the price trend.

Well, SAND experienced a textbook RSI on Friday:


  1. SAND made a low at 6.26 

  2. It was confirmed with a low RSI of 38.59

  3. Then it set a new low today at 6.18 

  4. The RSI closed at 41.84, hence the price/RSI divergence


Price/RSI divergences (in this case price down, RSI up) are great indicators of reversal patterns.


SAND also made a new intraday low on Friday and then closed above Thursday’s close … This pattern is called a rounded bottom and is a short-term bullish indicator. 



Bring It Home

One last insane indicator of the amount of stimulus coming to the market …


In the past year, nominal GDP totaled $21 trillion, so the cumulative injection of fiscal stimulus amounts to almost 25%


The only problem is this:


Every dollar of stimulus is another dollar of debt, because the Government is responsible for borrowing every dollar it spends … 


We will never pay down our debt, so all this spending just kicks the can down the road until inflation picks up … which is getting closer by the day.


Once that happens the stimulus spending will stop, the music stops and then everyone left with stocks and bonds will start selling …


So be long metals, commodities and real estate and when inflation is around the corner (and that time is coming soon), it will be time to buy puts on stocks and bonds.


Finally, now the most important pick of the week … 


Tampa Bay will flip the score on KC from their Week 12 loss — and the BUCS will win the Super Bowl 27-24 over the Chiefs … as Tom Brady wins his fifth Super Bowl MVP!


Live and Trade With Passion My Friends,


Griff

Digging Up Another Miner

Hey There Income Hunters,


Hey There Income Hunters,


Before the open yesterday, I shared one of the most undervalued gold miners in the industry …


Let me remind you, this is a stock that RBC Capital just affirmed for a $68 target price.


Yet, yesterday AngloGold Ashanti Limited (Ticker: AU) made a new weekly low while the Relative Strength Index (RSI) — a very helpful momentum indicator — trended higher …


This confirmed what’s known as a “positive divergence,” which signals a higher move is possible.


I’ve rarely seen so many positive and negative divergences in one week.


It’s a classic sign of multiple cross currents in the market.


Check this out …



What is going on?


Well, like I keep saying nobody understands how inflation works…


Right now the inflation fire hose is clogged, meaning all the stimulus money flooding the system is trapped in the markets…


Which is creating larger and larger asset bubbles including stocks, bonds and real estate — all driven by historically low interest rates and massive amounts of cash flowing into the system …


And there is much more coming.


The pressure continues to build … And when it’s released, inflation will soar.


The most important thing that came out on this front yesterday was U.S. Treasury Secretary Janet Yellen shouting about needing more cowbell, er, I mean stimulus …



My point is, there is a perfect inflation storm brewing 


The weaker economic numbers will actually force more stimulus … which only guarantees more inflation with very little growth.


It’s the very definition of stagflation: stagnant growth with inflation.


A Stock I Love
OK, here’s another stock I love. Warren Buffet actually bought it recently to hedge his portfolio from, you guessed it, inflation.


The company is Barrick Gold (Ticker: GOLD). (What an incredible ticker, by the way.)


Like all gold miners, Barrick has been correcting its uptrend since the March low for almost six months and I think we are close to the bottom.


Barrick may drift to $20 – $21, however, I am going to buy a half-position today.


Here’s My Trade

I am looking to buy a Jan-21, ‘22 20/30 call spread for a max loss of $310 and a max profit of $1,000.



I am confident that, by the end of Q3, inflation will be above 2.5% and heading higher …


At that point you will be thinking about where you should invest your pot of gold


Bring It Home

See, I think it’s the current general consensus that is missing the point on how the deflation/Inflation tug of war works …


Everything that is pushing precious metals down now just means more stimulus, which will create a greater explosion of inflation later.


Deflation is a short-term force that presents an opportunity to position for inflation, in this case during the second half of 2021


The inflation trade will turn around and move so fast that it will be hard to chase. So you don’t need to get in at the very bottom because it will be a blast off when it’s least expected. 


Happy Friday everyone and enjoy the Super Bowl weekend … Go Bucs!! (They’re my adopted hometown team. It’s crazy down here in Tampa right now.)


And as always …


Live and Trade With Passion,


Griff

Your Very Own Golden Ticket?

Gold miners have been knocked down over the past six months and I believe there is real value to be had. 


AngloGold Ashanti Limited (Ticker: AU) is the cheapest of them all, closing at $23.52 on Wednesday …


Yet RBC Capital has affirmed their buy rating with a price target of $38!


With earnings coming up in a couple of weeks, now is a great time to grab this golden ticket.


There is plenty of supporting data for these miners, including mines on three continents with outstanding production …



Plus, their production is on the rise — just in time for a GOLD RUSH in the second half of the year brought on by a combo of fiscal stimulus and economic reopenings that will spur spending and precious metals.



Fast Charts loves’em, too. Check out their forecast for 2021. I don’t know about $68, but double the price from here looks easily doable …



Gold has been ignored lately and that’s exactly what you want …


Collect a few nuggets now and you’ll be able to pick up a few gold bars later.


The Trade I’m Making

I like an AU 24/29 Call Spread to July 16 for this trade. 


Pay $155 to make $500… 



Bring It Home

I don’t know about you guys but after the GameStop Saga of ‘21, I am glad the markets are back to normal. It is so easy to get sucked in to these momentum trades that seem too good to be true.


As an Income Hunter, you have to stay consistent and always have a “Big Picture” in mind. Take time to learn about great companies and get a feel for how they trade …


You can make tons of money and have tons of fun doing it!


Live and Trade With Passion My Friends,


Griff

Silver Drop Victory Lap — What’s Next?

Hey There Income Hunters,


I was very confident in the set-up for a downward move that I identified  on the monthly silver chart this past Monday


But I didn’t expect an 8% drop to happen so quickly.


For anyone who didn’t see the call, here it is …

Longtime readers of Power Income know how much I respect the Relative Strength Index (RSI) — a very helpful momentum indicator — when it diverges from the price trend.

A bearish RSI divergence is confirmed when the following steps are completed:


  1. You set a new high in price (27.39)

  2. It’s confirmed with a new high in RSI (75.28)

  3. The market price corrects and comes back and makes a higher high (27.98)

  4. RSI does not confirm the strength in the move (68.11)


It’s historically uncommon to get monthly RSI divergences…


However, when you do, it usually signals a decent move …


The question is, what now? Can we expect more downside?



Usually, when a trend reverses, it produces a three-day correction.


I’m now looking to buy silver and am grateful this market didn’t run away from us thanks to the WallStreetBets gang.


As far as the inflation trade goes, I think silver is a great core position to hold.


Here’s why …


Silver not only holds value as “real money,” — which is incredibly powerful on its own right as the world transitions to a new monetary system based largely on digital currency — it is also in HUGE demand for solar and electrical vehicles.


The Blue Wave will increase that demand with incentives in both areas.


Consider, for instance, that President Biden has issued an executive order to electrify the 645,000-vehicle federal fleet in his first days in office and is already spinning up a revised Cash for Clunkers program.


You can see the increase in demand just on the automotive side beginning this year …



How to Play It

The trade I like with SLV volatility a bit rich is to sell the 24 Puts at 2.60 …


I’d be happy to own Silver outright at $21.4. And if not, making over 12% wouldn’t be too shabby either …



Bring It Home

I think there was a good lesson to be learned this week.


It’s the same lesson the Hunt brothers learned in 1980 on “Silver Thursday,” the day the Silver market collapsed …


The exchanges can always raise margin requirements when volatility heats up … and when they do, you don’t want to be left holding the bag.


Let’s see what these wonderful markets have in store for us today…


Live and Trade with passion my Friends,

Griff

Silver Linings

Hey There Income Hunters,

Well, retail investors may not succeed in getting silver to 50 …

But in three days they did what it took the Hunt brothers (the infamous siblings who tried to corner the silver market) four weeks to do …

Drive the market 25% higher.

There is a lot more to the Hunt Brothers story … and for what this means for silver in the short-term.

On the Hunts for Silver
Brothers Bill, Nelson and Lamar Hunt, from Texas, spent the latter part of the 1970s accumulating silver in an attempt to corner the market. (It was actually a strategy to hedge against the decade’s insane inflation.)

In the brothers’ case, they were fully “leveraged” as they moved silver 713% in the first few weeks of January 1980.

Leverage, it should be noted, is trading on borrowed money — it makes the good times better and the bad times worse.

For the Hunts, it turned into a debt-fueled boom … and then bust on what became known as “Silver Thursday,” when prices collapsed.

Last week was another great example of how leverage works — and how it can turn the screws.

Several large hedge funds had maxed out their leverage …

The GameStop (Ticker: GME) squeeze forced the central counterparty clearing house (CCP) of the exchange to demand payment to satisfy the margin requirement … the dreaded “Margin Call.”

And the hedge funds lost BIG.

Back in 1980, the Hunt Brothers received a margin call for $100 million and they didn’t have it.

That created the fear Wall Street brokerage firms might collapse.

So, as usual, a bank lent the Hunts the money … to protect itself from failing.

You know, I often wonder what the banks will do when blockchain’s digital ledger technology simultaneously settles all transactions via digital dollars …

Hmmm, not sure if banks would have a role in that scenario … and that doesn’t hurt my feelings one bit.

I think we will find out soon enough …

What’s Next for Silver?
So, onto what I see for silver …

Longtime readers of Power Income know how much I respect the Relative Strength Index (RSI) — a very helpful momentum indicator — when it diverges from the price trend.

Well, we got a bearish divergence in silver on Monday.

A bearish RSI divergence is confirmed when the following happens:

  1. A new high price is set (27.39)

  2. It’s confirmed with a new high in RSI (75.28)

  3. The market price corrects, comes back and makes a higher high (27.98)

  4. RSI does not confirm the strength in the move (68.11)

That’s what we have below …

 

It’s uncommon to get monthly RSI divergence. When you do, it usually signals a decent move …

Bring it Home

My big-picture view has not and will not change …

The US is in the final stages of a long-term debt cycle …

The $28 trillion of debt compared to $21 trillion of income (GDP) gap can never be reversed … and the Fed has chosen to go down the path of inflating the debt away.

We will see inflation above 2.5% before the end of the year — and it could be higher.

However, my short-term view is a bit different …

I don’t believe we’ll see the economic recovery the markets have priced in.

So, in the short term I do believe we could see deflationary forces at work. This will only force the Fed and the administration to be more aggressive with stimulus.

That, in turn, will reinforce the inflation I expect in the second half of the year.

So, here is a picture of my conflicting short-term/long-term views …

A little bit of deflation, meaning lower consumer prices (CPI) and soft economic numbers … 

This will fuel greater stimulus, then when the economy starts to re-open…

BAM!

Inflation will be unleashed!

Look, it’s hard to make money trading without having conviction.

I have traded through many economic cycles, but to trade through a transition to a new monetary system is thrilling …

The new system that I foresee will center around a basket of multiple central bank digital currencies and maybe even some gold and silver.

I’ll have much more on that in future posts …

You Income Hunters have been providing great feedback and asking great questions. Keep’em coming and as always …

Live and Trade With Passion My Friends,

Griff 

The Rise of Retail

Hey There Income Hunters,


The GameStop episode is a groundbreaking event.


It’s magnitude really can’t be overstated.


The result is a major step forward towards levelling the playing field in the capital markets arena. 


The little guy may actually make up some ground.


And before I get into what this means for the market, let’s get one thing straight …


The only illegal practice going on here is “Naked Short Selling” by the institutional investors (i.e. hedge funds), which is short selling shares that have not been affirmatively determined to exist …


According to financial data firm S3, GME short interest is currently 113% of the floating supply. See the chart below.


So, the illegal practice continues!


A Long Time Coming

The GameStop episode is the culmination of 20-years of technological, communication and connectivity advancements that finally make the markets fair-game for all …


However, for a total breakthrough to be complete, regulators must acknowledge the illegal activity engaged in by the hedge funds as well as their prime brokers, who are the largest banks …


So know this: our  capital markets system is broken. (Check out my column about the biggest bank heist in history for a review of our financial system and the embedded inequality …)


But the Rise of Retail will help force change!


And I have hope the current administration will put through the reforms necessary to redistribute wealth to honest traders like you …


While at the same time facilitating an increase in total wealth through infrastructure programs that create real jobs as opposed to funneling more cash through the banks.


It sounds like retail is a fan of one of my favorite Blue Wave Specials …


iShares Silver Trust (Ticker: SLV)


Let’s take a look at how to play for a breakout.


Time to Focus on a Possible Breakout in SLV…


You can see from the longer-term chart on SLV that we closed on Friday right at the downtrend line …


A gap open above the downtrend should be bought with a stop on a close back below… 

SLV could trend higher towards the $34 level quickly …


A fast play 

If you are looking for a quick $5 move higher on the breakout, buying an outright call will give you the best bang for your buck …


$310 would be your maximum loss per contract.


The profit is shown in the risk profile below… With an outright call option position, your max profit is theoretically unlimited, since a stock’s price can rise infinitely …

Let’s take a look at the risk profile …



Bring it Home

When we see a market like silver on the move, an outright call instead of a call spread is worth consideration. We use call spreads when you may need more time for the trade to develop.


When you’re playing for a breakout and anticipate a quick move… the outright offers greater upside and you can deploy trailing stops to stay in the trade longer …


An SLV 27 call trailing stop is an order type that would trail the market price of the call by let’s say 10% …


If the 27 call market price drops by more than 10% the position would automatically be closed-out. However, if the market never drops by 10% and increases to $40 you are still in the trade.


That, Income Hunters, is how you give yourself a chance to hit a “Home Run” …

On a trade that offers real potential… Use trailing stops to “stay in the Game” while managing downside risk.


Good Luck and as always …


Live and Trade with Passion My Friends,


Griff

Is This A “Healthy” Correction

Hey There Income Hunters,


I always felt the worst thing for the markets was uncertainty … 


Uncertainty causes fear of not being able to efficiently manage financial risk … 


It ignites a “risk off” mentality that can fuel liquidation of positions …


I think the hard-to-borrow activity we saw this week with GME, etc. will ultimately be a good thing and could possibly reduce the gap of inequality … which would be a victory for the warriors who fought for change!


Now, let’s see how YOU can capitalize on the lower prices of companies we know will benefit in the months ahead from the Blue Wave stimulus …


Let’s first take a look at the technical damage done to the SPDR S&P 500 ETF (Ticker: SPY) this week …



Next week will be very important.


We need some reassurances from the Fed (and, more importantly, the Administration), meaning Janet Yellen on stimulus …


Or we need good economic news — and my concern is we may get the opposite there.


Non-farm payrolls for January come out next Friday and they look like they are getting ready to head south again …


Check out this two-year graph of monthly non-farm payrolls.



I think this is the most important economic number…


Remember the Fed’s mandate … their job … is to create jobs, and we are a long way from getting back to pre-covid levels as you can see above.


On the bright side, this may be exactly what the Fed and administration need to get them moving on what’s important instead of the same old politics …


So, what’s the play? I am still focused on ENERGY.


Crude has been very stable the past couple of days and I think that’s a good sign for further increases in the price of oil, which is extremely beneficial for energy infrastructure companies like Energy Transfer LP (Ticker: ET) …


Plus, we will get a double win of more demand and less supply toward mid-year.


Here’s the Trade

I like ET. (And I don’t mean the movie.)


A lot. 


It’s trading near $6 …


It’s volume has been picking up in options …


And it’s a 5-star rating at Morningstar with a $20-dollar fair value price… 


Hell, if I can pick it up at $6, I’d be happy with half that!


I like these fast charts because they give you a lot of valuable information with a two-year forecast on earnings as well …


2021 will be a great year for ET… check out the $1.13 earning per share (EPS) forecast for this year in the red circle. That number is not even pricing in Goldman’s forecast of a $65 dollar oil price by year’s end.


Now, according to Morningstar, there is a 50% probability ET will lose $700 million in revenues on the likely Dakota Access Pipeline closure …


However, they have over $50 billion in revenues and Morningstar’s $20 fair value price has the $700 million loss built in …


So I like playing this one with an outright call purchase …


I’d like to see ET drift a little bit lower so I can buy the $6 strike call under $1… 


Then if ET goes to $10, I’ll double my money.


I think we may get many great opportunities in this correction to get set up for the Blue Wave rally in Q2 …


Have a great weekend everyone and as always,


Live and Trade with Passion,


Griff

Correction over jump on Exxon

Exxon (Ticker: XOM) has made an incredible turnaround 


The oil and gas company is up 50% since its October low …


Plus, Morningstar gives XOM a 5-star rating … and puts the current price ($46.06) at a 39% discount from fair value ($74).


So, after a nice pull back from overbought territory (see graph below) …


It’s time to put a tiger in your tank.

What you have to love about Exxon is they refused to cut their dividend during 2019/2020 when oil prices tanked …


Now, check out expectations for the next two years …



It mostly due to their cutting costs and holding back a bit of capital investment …



Here Is the Trade I did:

I purchased a 47.5/52.5 Call Spread for $150, which is my maximum loss with $500 as my maximum profit …


You get a nice 3.3 to 1 reward to risk and I chose a July-19 expiration to be in play for an infrastructure spending package in Q2 …



Bring it Home

It is really important to stay with the longer-term game plan and look for opportunities to take advantage of corrections as your entry point for trades …


I love the energy sector and have been waiting for Exxon to pull back a bit …


I have my eye on a couple of other energy names and will highlight them in future posts.

Have a great day and as always …


Live and Trade With Passion My Friends,

Griff


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