Hey There Income Hunters,
It was nothing but green for Green Energy stocks on Thursday …
And as Karen Carpenter sang so beautifully … We’ve only just begun …
I actually shorted GSG today
Care to guess why?
That’s right … I spotted a negative divergence in price vs relative strength index (RSI) this week.
A negative divergence happens when price continues to climb while an indicator — in this case RSI, which measures momentum — heads the other way.
It’s often a good sign that reversal is coming for the security prices — and that’s how I played it today.
Short, Short, Short
I also opened three other shorts on Thursday because I think volatility will return before the stimmy checks get widely distributed …
1. GSCI Commodity Index (Ticker: GSG)
This gives my Blue Wave portfolio a hedge after a couple of nice up days, and the divergence certainly helped.
Here, I opened 3 15/14 Apr-16 put spread:
2) SPDR S&P 500 ETF Trust (Ticker: SPY)
I chose this one because it’s a killer divergence. Check it out in the chart below.
The new high for SPY set a new all-time record. However, it didn’t break loose from the previous range. Plus RSI did not set a new high …
3. iShares MSCI India ETF (Ticker: INDA)
The beautiful thing about trading technicals using options is it doesn’t matter what the product is becaus preads are so efficient to manage …
You find the best risk/reward and put’em on.
I did a tight two-strike (Apr-16 44/42) put spread:
Bring it Home
Let’s review …
– It always starts with having confidence in the MACRO: The current phase of the economic cycle is one of accelerating growth and inflation.
– Then you must know your correlations: The most important is bond yields because of how negatively correlated they are to Gold, Large Cap Tech and Utilities.
The ETFs I use for each are: TLT for bonds, GLD for gold, XLK for tech and XLU for utilities
Remember, gold is currency. Silver is a bit of both industrial metal and currency. That’s why silver out-performed Gold over the past 6 months. Now I think gold will outperform for a bit.
– Lastly — and this is hardest — get your position sizing right: For instance, putting on half a position to start and taking some off as it goes against you. Then once it’s going in your favor, add if it’s a longer-term trade….
Also remember to position sectors against each other. Get used to sectoring single stocks in their correct sector … Energy, Tech, Consumer Discretionary, Consumer Staples, Industrial, etc. …
That will really help knowing what to do based on the macro picture. We’re currently in an accelerating growth and inflation phase that could last two to three months
So, you want to focus on: Green Energy Tech, Consumer Discretionary, Energy and Industrial …
On the other hand, short bonds (until we think the Fed will intervene) and the dollar without worry.
And always …
Live and Trade With Passion My Friends,
Griff
SOUNDOFF: I always love to hear from readers, so drop a comment or reply below! And be sure to follow me on Twitter @bill_griffo.