Time to Check the Warning Signs

It was great seeing many of you on the Griff’s Picks show yesterday. It was a crazy day and good to run through some trades …


Remember, the point of Griff’s Picks — which is another bonus available to Volatility Edge and OP Pro Subscribers — is to run through my analysis of what is currently driving market flows …


Then I break down the sector of the market most impacted by those flows …


And finally analyze the specific stock and give you what I believe is the lowest risk for the highest return option to play.


Now, there is one very big issue that demands our attention over the next weeks and with so much uncertainty hanging over the market, the fear factor may dominate trading … 


Today, I’ll lay out the issue plus a trade for now and another to tee up for when you see the warning signs …


The Potential Fiscal Cliff that Leads to Recession 


The political battle being fought in Washington is coming at a really bad time. Congress has gone from spending $3 trillion in 2020 and another $3 trillion in 2021 to … to no agreement for 2022 yet.


This is eerily similar to what happened in 2011. Notice the chart below that highlights the Federal deficit as a percentage of gross domestic product (GDP) …



The more negative the number, the greater the amount of spending, relative to GDP, the federal government undertook in a given year.


Notice the decrease in spending every year after the great recession of 2008, which caused a 20% drop in the stock market in 2011, followed by recession in 20012 and into 2013 …


The Fed, as always, was late to respond and had to catch up by launching QE and keeping it in place for two years.


Now, fast forward to today and it’s happening again. The Fed is trapped because it over did the stimulus after Covid hit and let inflation rise above their 2% target …


Our central bank created a serious stagflation environment of high inflation and a weakening economy. It will have to now taper the bond purchases just as Congress can’t agree on additional stimulus …


S&P earnings forecasts are sky high, just as growth forecasts are plummeting. It’s not a good scenario for stocks, especially not low-rated stocks…


iShares Corporate Bond ETF (Ticker: HYG)


During the webinar yesterday, a pro Option Pit subscriber brought up HYG


So, I did a bit of digging into the fundamentals and technicals of the ETF and here is what I found …


The underlying assets in HYG are low-rated corporate bonds, which have been scooped up the past couple of years as investors sought out higher returns in fixed income.


However, with inflation running at 5%, the 4.5% yield on HYG does not even cover the investors annual cost of living increase.


Plus, corporations are issuing record amounts of debt to lock in low rates ahead of record Treasury issuance that will hit the market once the debt ceiling is passed, so the timing of the bear strategy is good … 

 

Next I reviewed the technical patterns and found two bearish indicators …



Notice the new all-time-high price while RSI diverged from price and did not make a new high. This is a reliable reversal pattern … 


Plus, the daily candle (last candle, upper right)  is known as a hanging man pattern, which also signals a reversal in trend … 


My Trade


BTO $HYG Oct-22 88/87.5 Put Spread for $.23 


In this trade I am willing to receive a lower reward for my risk because the reversal patterns increase my probability for success and the volatility of HYG is so low … 


Here is the risk profile …



Have a question about this? Drop a comment below!


Bring It Home


You have to take what the market gives you …


This is a shorter term trade and it fits my macro theme of higher inflation for longer and higher bond yields over time 


Live and Trade With Passion My Friends,

Griff

The Crazy Days Haven’t Even Started

Hey There Income Hunters,

 

We’re in the middle of a seismic shift — and you might not even realize it.

 

If you were out the past couple of days and looked at daily closes you would think not much happened.

 

You see, throughout this incredible equity market rally, the indices went up on good news and they went up on bad news …

 

Until this week, that is.

 

This week, the market got its first lower-than-expected consumer price index print, and instead of the usual — stocks up and commodities down — the pattern shifted  …. 

 

Commodities in general as measured by the Bloomberg Commodities ETF (Ticker: BCOM) are now + 3% so far this week while the S&P 500 is unchanged … 

 

It has been a good week for Power Income and the #IncomeHunters who acted on my recommendations.

 

How ‘Bout Them Trades?

 

      • In Monday’s Power Income, I pushed for a bullish play in the SPDR Energy Select Sector ETF (XLE), which held the 200-day moving average and is up almost 4% for the week

 

As you can see in the chart below, XLE broke out above the 50 DMA on much higher volume. Plus, it broke above its downtrend resistance … 

 

 

 

NEM is a very profitable, high-quality company that throws off triple the dividend of the S&P 500. They are coming off a bullish doji candlestick pattern and, as you can see, may just be getting started … 

 

      • I saved the best for last, with Freeport-McMoran Inc. (Ticker:FCX), and listed the many reasons why I believe copper will resume its uptrend and why FCX offers you leverage on the copper rally.

 

Again, as you will see this is just the start of a major resumption of the long-term bull market for the natural resource providers …

 

 

Breakouts on above-average volume provide tremendous wind for your sails.

 

Now think about the seismic allocation change that we will see throughout 2022 …

 

We are talking about $17 trillion sitting in stocks while there is only $1.7 trillion the total market cap for all commodities and energy producers combined.

 

So, just a 10% shift out of equities will move the prices of commodities and energy much, much higher.

 

Bring It Home 

 

Since the beginning of the year I have been saying things will change in Q3.

 

Now it is happening … 

 

The Fed and our government have no choice but to keep spending. Europe, meanwhile, is bribing consumers with tons of incentives to buy electric vehicles, and it is working … 

 

Email me to get access to Griff’s Picks today — including my best play for the week ahead.

 

I hope to see you there and as always …

 

Live and Trade With Passion MY Friends,

 

Griff

EV Buyers Getting Lots of Help From Europe

Hey There Income Hunters,

Europe has just taken over as No.1 in the electronic vehicle (EV) space …

This is critical information to include in your trading decisions because competition will ramp up incentives and speed up the demand curve for materials, producers and service providers.

Here are just a few of the innovative ideas intended to increase interest …

      • The UK is planning to make EV purchases more attractive to consumers by allowing them to sell electricity stored in their car batteries back to the power grid when needed.vThe thought is drivers make money and the UK avoids developing new power plants by adding enough energy generation that would equate to 10 nuclear plants.

      • Germany is extending its EV subsidies another four years to create greater EV uptake across the country. Berlin is currently offering a €3,000 bonus for fully electric vehicles and €2,250 towards hybrids, as well as a 10-year tax exemption and lower VAT rates. Some European manufacturers are offering an additional €3,000 bonus to buyers.

      • Many other governments across Western Europe have decided to offer incentives to EV consumers … This has helped push Europe past China as the No. 1 EV market, with 43.3% market share …
      • The bullish case for copper has not faded, yet the price for this critical EV resource is down 18% in the past 4 months, along with major producers …

Today, I will give you an undervalued — yet overachieving — producer that is set to spike higher.

It’s the Cop(pers)!

First, let’s take a look at Copper Futures (Ticker: HG):

Since the capitulation trade below $4 (red circle), the futures rallied back up to downtrend resistance and are now hovering around a converged 30-day and 50-day moving average.

I call this coiling, meaning the moving averages have converged at a congested high volume zone. There are long-term and short-term players waiting to jump on a breakout.

Since the capitulation trade, volume has decreased, and this tells me the market is getting ready to resume its longer-term uptrend.

Now, you could put on a bullish option strategy in the US Copper Income Fund (Ticker: CPER), but I have a play that will juice your returns and allow you to make more for longer …

Freeport McMoran (Ticker: FCX)

FCX mines more copper than any other company in the world …

Get this …

Even with copper prices at $4 FCX would generate as much as $9 billion in operating cash flow.

There is so much cash being thrown at the EV market. With EVs needing a minimum of 5x more copper than gas-powered vehicles, the demand curve will remain very steep for decades …

And how about this: FCX has a market cap of $54 billion with only $3.25 billion in net debt. That is a lean, mean fighting machine.

The stock is trading at a discount to its fair price of $37.50 and trades at a forward P/E of 12, which is 18% below the industry average.

Let’s take a look at the FCX technical setup …

Like many of the commodity plays, price is heading towards the apex of a triangle pattern with converging moving averages. There is going to be a sizable move away from this area and it should happen in the weeks ahead.

FCX is a quality company with a very strong balance sheet. They are extremely profitable and have tremendous growth prospects.

The Macro Overlay

We must always be aware of the macro forces driving flows …

Currently, there are two events that, until resolved, hang a ton of uncertainty on the markets …

      • The debt ceiling battle, which could halt government spending into the end of October before resolution …
      • The Fed’s taper policy announcement, which may not come until Nov. 3.

So, as I think of this trade, the prudent thing to do is wait for a clear breakout above the 50 DMA and downtrend resistance …

Alternatively, if we were to get a deflation scare and a break to a new low, that would be a great opportunity to pick up FCX at extreme undervaluation.

Bring It Home

Volatility is coming. With most of the commodity markets and producers you can see in the charts that price is consolidating and building energy for a big move …

It’s imperative to stay on top of all the products and companies we believe present the lowest risk/highest reward trades and then jump on board at the first sign of big money flowing into them …

Yesterday’s inflation numbers did nothing to change the inflation higher-for-longer prognosis …    

I will keep you informed, armed and ready for battle.

Live and Trade With passion My Friends,

Griff

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:


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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:

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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.

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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