Be Thankful for Thanksgiving Week and Capitalize on it!

Hey There Income Hunters,

 

The fresh Covid fears have impacted the markets perfectly for the trends we will see in early 2022.

 

You have to be grateful when a short-term trend presents great entry points for trades you are looking to set up for.

 

One of the trades I have been talking about is the “value versus growth” trade. 

 

All you have to look at is the trends from the financial crisis to see how much “value” will outperform “growth” as the stimulus is removed. 

 

Now is the time to set up for this reversal in trend.

 

Today I will run through the trends and best way to play for a reversal. 

 

The most powerful forces fueling markets as we begin 2022 will be:

 

      • By January, a trimmed-down Build Back Better bill will pass. 
      • Down 10+ points in the November 2022 midterm polls, the Dems will NOT blow this opportunity to spend. 
      • By Q2 2022, the world will be seeing the tail end of the Covid-19 pandemic, and global reopening trades will be in full force. 
      • Fiscal juices will flow out of the U.S. and China. 

 

By the second half of 2022, higher bond rates will fuel reallocation of funds from Growth into Value. This is because higher rates negatively impact Growth valuations. 

 

Here is what you can expect out of the Growth/Value trade next year …

 

Paired Trade

 

Sell iShares Russell 1000 Growth (Ticker: IWF) / Buy iShares Russell 1000 Value (Ticker: IWD)

 

The recent short-term Covid spike brought buying into the stay-at-home stocks this week …

 

This provides an ideal opportunity to build a position to capitalize on the inevitable decline in Covid cases as more vaccinations are distributed and new drugs come on the market.

 

Bearish strategies in IWF along with bullish strategies in IWD is the most efficient way to position for a longer-term reallocation from growth to value. 

 

Here is the paired spread going back to the financial crisis. 

 

 

The chart shows Buying IWF (Growth) and selling IWD (Value). Notice the outperformance of IWF over the past couple of weeks.

 

This looks like a fake breakout above the old high in 2020 … 

 

This is an ideal setup to build a position selling IWF and buying IWD. 

 

Bring It Home

 

The macro theme is important to review as the short-term market dynamics shift. 

 

By taking advantage of the change in flows due to the Powell reappointment and anticipating the policy changes ahead, you will get out ahead of the flows and make easy money. 

 

Easy money trades include: buying opportunity in value, global cyclicals, energy, coal, and commodities.

 

Keep these ideas in mind as opportunities present themselves to build positions in each. As I find the right trades I, as always, will alert subscribers. Until then …

 

Live and Trade With Passion My Friends,

 

Griff

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