Implications of China’s Crackdown

Hey There Income Hunters,

The crash in Chinese tech and tutoring stocks is a macro force that has the potential to cause tremendous volatility for global markets.

Although China says their moves are intended to reshape market competition and lower market entry barriers, these claims are falling on deaf ears as their actions show little concern about shutting off foreign capital flow into China.

Instead, China is beginning to deploy its new anti-foreign sanction law … Initially the new sanctions have been imposed on individuals, including commerce secretary Wilbur Ross, in response to recent US sanctions on Chinese officials in Hong Kong.

Reciprocal counter-sanctions include US Congressional-Executive Commission on China and the National Democratic Institute for International Affairs.

Turning up the Heat on the US/China Conflict

These sanctions impose an Asian deflationary force that resists US, UK, and Euro inflationary forces

This is a critical macro event that demands attention in the short-term because it could tip the scale on the inflation/deflation debate to deflation and trigger a deeper equity market correction in the months ahead

You need the real scoop on the macro drivers as opposed to the media headlines ..

That is why you need to …

Join Andrew Giovinazzi and Frank Gregory this TONIGHT at 8 p.m. to find out how to profit like the top hedge funds by getting in front of the macro forces that drive global money flow.

In the meantime, I’ll give you two critical signposts to monitor for intel on a potential deeper correction.

SPDR Select Sector Fund (Ticker: XLK)

US tech has been driven higher by the reduction in US 10-year interest rates.

So, if we see the Fed continue to ignore inflation and bonds, the reverse trend in tech would follow.

Money Supply versus the S&P 500

If the Fed begins draining liquidity it will cut off a major source of stimulus for the stock market.

Increasing the money supply has been the main driver for stocks for over a decade, and I don’t believe the Fed will be willing to cut-off that lifeline …

However, they have made that mistake before during the Depression and post the 2008 financial crisis, so it is a key signpost to watch for …

Bring It Home

Each week we move closer and closer to an end game that puts in motion a reset of the US economy …

You will never hear the truth from the media about the inevitable consequence of building $28 trillion in debt when your income is only $21 trillion …

However, you’ll see how to trade real info, not the headlines, tonight when 

Frank Gregory and Andrew Giovinazzi host the Hedge Fund Secrets Revealed webinar TONIGHT at 8 p.m. EST.

You will learn how to trade like a hedge fund — without high fee structures or exorbitant barriers to entry.

Plus, you’ll have access to the intel from the experts who have operated on the inside …

And you can speak directly to pro traders who turn current events into the day’s best trade ideas …

Don’t miss it!

And as always,

Live and Trade With passion My Friends,

Griff

They Stepped in the Inflation Trap. What?

Hey There Income Hunters,

If you’ve been reading Power Income for any length of time, you know I think Jerome “J-Pow” Powell and his minions at the Fed are clueless as to how the financial markets really work.

The problem has always been that they never understood human behavior and the psychology behind the economic cycles.

First, Powell told the public that the Fed would be patient with inflation as it approached the central bank’s 2% target …

Then he said it was “transitory” at +3% …

Now at +4%, it’s a real problem.

As I have said many times, the Fed, the banks and the government (otherwise known as the “Wall Street Government”) have been trapped under their self-inflicted debt burden for 40 years.

It’s a debt burden they turned into an inflation problem because they decided it was the best solution for THEM. It certainly wasn’t for the hard-working Americans they were meant to protect.

Here is the worst part of what … someone will get a call from the Fed and be told when they are about to make a real policy shift.

That is why in 2008, when just about every American suffered a loss of wealth, the Wall Street Government made a fortune.

But that’s OK — because this time, it’s the real investors who will make the money.

You see, now it’s the Wall Street Government that is trapped by the driving forces of inflation. 

You know what they say about payback, and this time we are on the right side of the table.

Option Pit wants you to come along for the ride as we level the playing field and take advantage of this paradigm shift of the Street.

Would you like to be privy to how this is all going to come down — and make a ton of money at the Wall Street Government’s expense?

Join Andrew Giovinazzi and Frank Gregory this Thursday at 8 p.m. to find out how to profit like the top hedge funds by getting in front of the coming tsunami of money flow.

I’ll give you a taste of what’s to come …

We are not Even Halfway to Where Inflation is Going

Here is just a sample of what the J-Pow and the crony capitalists in Washington hide from citizens …

You see, the moratorium placed on evictions and rent was purposely used to keep inflation down. Landlords were told to put zero in the column for rent if payment was delayed. This kept the impact from rising rents much lower than normal. Analysts believe it took off 1% from core consumer price inflation (CPI).

This component just happens to represent 33% of overall core CPI. So, now that the moratorium is expiring, we are going to see a jump in inflation just when it should be subsiding.

What Will They Do?

The only thing the Fed and Government can do is stall and talk tough.

We will hear taper (reverse QE) is coming. This is when the Fed sells securities to the banks, which drains funds from the system as they try to slow inflation.

However, this tactic will be like bringing a squirt gun to a brush fire …

And get this, tapering will cause short-term bond yields to rise and long-term bonds yields to fall. That is called a narrowing of the 2-year/10-year r yield spread and it will put significant pressure on bank earnings because it shrinks their profit margin on loans.

Bring It Home

The Option Pit team has decades of experience working inside global banks, in Washington and making markets in options …

We have a community capable of not just leveling the playing field, but tipping it in your favor.

And that is why you need to join us on Thursday for …

The Hedge Fund Secrets Revealed webinar hosted by Frank Gregory and Andrew Giovinazzi Thursday, July 29, at 8 p.m. EST.

You can learn how to trade like a hedge fund — without the performance pressures. Plus, you’ll have access to the intel from the experts who have operated on the inside …

And you can speak directly to pro traders who turn current events into the day’s best trade ideas …

Don’t miss it!

Keep sending your awesome feedback and questions, and as always …

Live and Trade With passion My Friends,

Griff

 

2 Trades to Consider During Monster Earnings Week

Hey There Income Hunters,

 

How are we doing so far?

 

Twenty-five percent of S&P companies have reported with 90% reporting positive surprises.

 

This is the highest percentage since 2008 according to that fact set …

 

Maybe the positive earnings shouldn’t be such a surprise when you consider:

  • $840 billion in additional quantitative easing YTD
  • $1 trillion stimulus injected by the Treasury from their leftover Treasury account balance at the Fed
  • This all on top of the original $1.9 trillion stimulus in March
  • A drop in 10-year interest rates from 1.77% to a low of 1.13% 

Hey, you think government spending might be something worth trading? Join Andrew Giovinazzi and Frank Gregory this Thursday to find out how to build your own personal hedge fund around those massive money flows.

The last bullet above may be the most significant because the ratio of the S&P dividend yield compared to the 10-year Treasury bond is at the highest level in recent history….

History also shows that when the Fed initiates a taper — i.e. reversing QE — Treasury rates actually go down.

That may not seem logical since the taper policy means the Fed would be selling more supply of bonds into the system …

But the proof is in the pudding.

And when you have the kind of inside-the-beltway intelligence that Frank Gregory provides, you’ll know exactly what’s driving government decisions — and how to capitalize.

Notice in the graph below that each time the Fed initiated a taper program (blue rectangles), 10-year yields dropped …

Now, I have been saying for months the Fed will not be able to raise rates or they risk collapsing an economy buried under debt.

 So the Fed welcomes weaker economic new3s right now… 

Here is the Fed’s plan: 

Let the market correct naturally and then come in with an excuse to print more money … 

They need very low interest rates and high inflation for many years in order to get the debt reduction the UDS needs to reset the economy.

Now, back to the task at hand …

With the uncertainty of whether Washington will be able to pass the bipartisan infrastructure bill hanging over the market, you may get a great opportunity to catch investors offside … 

Two Trades to Consider this Week….

1. I scanned a few of the big names and APPLE (Ticker: AAPL) stood out as offering a nice opportunity. The stock is fundamentally 29% overvalued based on my discounted cash flow model …

The fundamental valuation is just one side of the story. So, let’s take a look at the technical patterns…

Two observations …

First, notice the lower volume on the most recent move higher. Second, notice the glaring negative Price/RSI divergence from an overbought condition…

AAPL presents a nice setup for a reversal on better-than-expected news. If the market rallies and then re-enters below the old high ($150), consider a 145/140 put spread to Aug. 20 for $130 … 

It is an easy trade to manage. If AAPL rallies back above $150 on high volume and closes above it, you close out the trade if not you have an excellent low-risk/high reward trade on looking for a healthy correction.

2. Ford (Ticker: F): On the other side of the coin, Ford is 20% undervalued and the automaker looks decent on the chart. The 200-day moving average is in a solid uptrend and after failing the first time up to the 50-day moving average. F is consolidating just below with light selling volume indicating there is more buying interest than selling… 

After as-expected or positive earnings, if you get a selloff below $14, consider buying a 14/16 call spread to Aug. 20 for $.50 or lower.

If F closes below $13.50, you close out the trade. So your max profit is $150 and your max loss is $.50. That is a good risk/reward ratio …

 

Bring It Home

 

During such critical announcements like earnings, you can catch the market offside and get a knee-jerk reaction.

 

Those are great trades to jump on because you can make quick money and a nice return on your capital

 

Again these are contrarian trades and, with deep insight on geopolitics, the Fed and the government you are put into excellent risk/reward scenario’s…

This is why you must attend …

The Hedge Fund Secrets Revealed webinar hosted by Frank Gregory and Andrew Giovinazzi Thursday, July 29, at 8 p.m. EST.

I hope to see you there and there, and as always …

Live and Trade With Passion My Friends,

Griff

How to Win Big on the Infrastructure Bill

Hey There Income Hunters,

As work continues toward a final infrastructure bill, it’s time to focus on the biggest winner … 

General consensus will tell you environmental, social and governance (ESG) investments are a no-brainer and will provide you with the greatest returns.

But what our “Capital Gains” team of Andrew Giovanni and Frank Gregory would tell you is don’t get caught in trading the topline consensus narrative.

That’s because, although ESG may continue to be the talking heads’ No. 1 topic of discussion, it has also suppressed investment in the most demanded commodity of all …

Oil.

The table below illustrates how many essential products are created from petroleum and natural gas. This demand guarantees consumption will rise for decades to come: 

Meanwhile, the asset base in the energy sector is shrinking while demand will increase as G7 nations focus on building infrastructure for developing countries in the years ahead.

I’ll share the details of how the energy sector is starving for capital and how production at current levels cannot be maintained.

And I’ll give you a favorite producer of mine that is ripe for another big move higher, as well …

Energy Sector Valuations

Rising demand for energy, combined with flat production, has driven prices higher for petroleum products. 

Meanwhile, fundamentals have improved as free cash flow has risen to historic highs.

That said, valuations remain suppressed due to investor trends moving toward ESG strategies at a scorching pace.

Check out the ratio for S&P 500 price-to-book value …

 

Falling price-to-book ratios would make sense if crude oil and natural gas demand was shrinking …

But according to the US Energy Information Administration, petrol and natural gas consumption will steadily rise through 2050 as demand for renewables grows:

 

Old School EXXON (Ticker: XOM) Ready to Soar

Exxon has taken an old school approach to most renewable energy investment …

While many of their peers have diverted investment to achieve long-term carbon intensity reduction targets, XOM remains committed to oil and gas.

They see a lack of available competitive advantages and continued pressure on returns in renewables.

So, XOM will focus on investments limited to only the highest-return projects that are viable in a wide range of price scenarios.

And XOM’s greater capital discipline should result in improved returns, stronger balance sheet and more net profit returned to shareholders.

Valuation Advantage

Notice XOM’s Power Income fair value price using a discounted cash flow. This places today’s $57 dollar share price trade at a 25% discount to fair value.

 

With stock valuations at extremes, it is nice to own an awesome, proven company like Exxon at a discount — plus receive a $3.48 dividend each year adding 6.10% to your annual returns.

Technical Set Up

XOM has corrected 16% as oil traded down since the OPEC production increase.

This is a healthy correction in a long-term bull market.

Notice the upward sloping 200-day moving average and the key support at $54 dollars from the previous double bottom completed in March and April …

Shorter-term we have seen high-volume buying as XOM rebounds off the $54 support.

XOM is a buy based on the bullish long-term trend and the short-term trend turning positive last week as XOM bounced off the key support and rallied on higher volume and lower volatility

Higher price, higher volume and lower volatility are the three key ingredients to a market poised to move higher.

I am looking to put on a bullish option strategy in the days ahead and will alert you when I do.

Bring It Home

The Exxon story is another contrarian play that puts you ahead of the crowd and in positions where you can maximize your return on capital.

This is why you must attend …

The Hedge Fund Secrets Revealed webinar hosted by Frank Gregory and Andrew Giovinazzi Thursday, July 29, at 8 p.m. EST.

This event will give you the tools and the truth so you can stay ahead of the crowd

You can learn how to trade like a hedge fund — without the performance pressures. Plus you’ll have access to the inside intel from the experts who have operated on the inside.

And you can speak directly to pro traders who turn current events into the day’s best trade ideas.

Don’t miss it!

Keep sending your awesome feedback and questions, and as always …

Live and Trade With passion My Friends,

Griff

 

Avoid This Trap

Hey There Income Hunters,

What a week!

A perfect V-shaped recovery after Monday’s mini-meltdown.

It was another ideal “buy the damn dip” opportunity …

    Chart, waterfall chart Description automatically generated 

Hedge fund flows have been a key driver during the S&P 500’s incredible 4%-plus move in just the last month …

You see, fund managers cannot afford to sit and watch their competitors ringing the cash register.

And, really, can you?

However, FOMO drives much of the decision-making process and that is a dangerous strategy …

Today, I am going to share what caused this psychological shift and its impact on the market going forward.

QE and Fiscal Policy on All Cylinders

Jerome “J-Pow” Powell and Janet Yellen have done an incredible job tapping into the risk-taking psychology of investors.

An eye-watering $2 trillion dollars of stimulus for the markets in six months is pretty amazing:

Chart, line chart Description automatically generated

Playing the momentum game has become the only game in town… 

Valuation just doesn’t matter because the Fed and fiscal stimulus have created a speculative mentality of just keep buying the damn dip.

Missing the Forest for the Trees

I call this the Great Money Illusion.

And it’s wild to see some hedge fund managers get sucked into the same game as retail investors.

The danger for fund managers is they are now caught in trading the narrative.

What I mean is, they are following the crowd — and that is never a healthy long-term strategy …

Right now, you have the politicians, corporations and the media cheering on the markets, because the markets are where the money is.

Capital inflows to equities in the past six months dwarfed all the years since the 2008 financial crisis:

Chart, waterfall chart Description automatically generated

In other words, this has become an extremely crowded trade.

Don’t Play the Consensus Game

To be a consistently successful trader, you have to be ahead of the consensus narrative.

You want your vision to be the upcoming consensus narrative.

You want to have the position first — before everyone is starting to talk about it — and then get out first as it becomes crowded.

You want to have access to the inside intelligence of what Washington is really doing — not what they’re saying.

You want to know the Fed’s agenda and exploit it, not naively believe our central bank is doing what’s right for you.

Here is the inside scoop …

A lot will change in the next couple of months. The Treasury has used up its excess funds in the Treasury Government Account (TGA) at the Fed.

Yes, some inflationary buckets within the consumer price index will lessen in the months ahead, but others will increase and inflation will remain elevated.

The Fed will have no choice but to begin tapering in the fall.

The key is to be better prepared, with the straight dope and the right trading strategies that put you ahead of the crowd and in positions where you can maximize your return on capital.

In short …

You want — no, need — access to the Hedge Fund Secrets Revealed webinar hosted by Frank Gregory and Andrew Giovinazzi Thursday, July 29, at 8 p.m. EST.

This event will give you the tools and the truth so you can stay ahead of the crowd …

      • You can learn how to trade hedge fund — without the performance pressures… 
      • You can have access to the inside intel from the experts who have operated on the inside.
      • And  can speak directly to pro traders who turn current events into the day’s best trade ideas.

Don’t miss it!

Bring It Home

If you have been reading Power Income for any length of time, you know I have been saying the US is near the end of our long-term debt cycle.

I also have also been saying the tide would turn by the end of Q3 or into Q4… 

We are not far off now and within six weeks there will be a change in the narrative, and you need to know the news ahead of the crowd.

The first step is joining Frank and Andrew on Thursday, July 29, at 8 p.m. EST.

Hope to see you in the room. Until then …

Live and Trade With Passion,

Griff

 

Time to Change Lanes

Hey There Income Hunters,

July is the month you need to change lanes — and there’s still time.

I knew the iShares 20+ Treasury Bond ETF (Ticker: TLT) was telling us something and it crystallized this week …

Take a look at this rally over the past couple of months:

Sixteen dollars in two months — which equates to .60% in interest rate equivalents!

It was tough to jump in because, at the same time, accelerating inflation was all investors could think about….

But here’s the thing, the market has swerved into another lane …

We are officially in a stagflation economic environment.

Now you must adjust.

Stagflation

The stagflation environment will be a tough one for traders to figure out.

Growth slows as inflation accelerates — sounds easy enough, but the hard part is understanding what sector allocation changes need to be made.

We just came from a quarter during which growth and inflation accelerated

It doesn’t get any easier, just stay long commodities, financials, energy, tech and industrials, and Sell bonds and the dollar.

It worked like a charm! (See my trading record.)

However, with slowing growth and accelerating inflation you want to be:

Long: Treasury bonds, gold, commodities, utilities, tech, energy and industrials…. 

Short: Financials, REITs, materials and telecom

Financials were the other sector (along with bonds) that turned bearish over the past month after being a great performer in Q2.

So let’s take a look …

SPDR Select Sector Fund (Ticker: XLF)

XLF peaked at $38.50 and then the day the Fed hinted at tightening earlier than expected, it started melting down.

Once it broke the 50-day moving average on high volume, it spiked lower before it came back and tested the 50 DMA — and failed again:

That is a sure sign of changing trends.

Sellers are now in control and the slow growth, accelerating inflation environment is not good for banks because they own so many financial assets that get slammed during long periods of inflation.

Plus … in a slow growth environment, bank customers suffer, which can lead to loan defaults.

1X2 Put Spread

I mentioned this idea to Andrew Giovanni who has an ideal option trade for all occasions and he suggested the 1X2 put spread

I analyzed a XLF 36/34.5 1X2 put spread to Aug. 27 at around even. Here is the risk profile:

The 1×2 put spread is an ideal trade for XLF, which chops around and doesn’t usually trend in one direction.

Bring It Home

Making the adjustment in trading is critical… 

Whenever you can take out one side of the market — just look to sell XLF on rallies or just looking to buy Gold on dips — you can trade much more efficiently.

Much more to come on stagflation and strategies that will crush it.

Until then…

Live and Trade With Passion My friends,

Griff


A Great Play on the Infrastructure Bill

Hey There Income Hunters,

Welp, we’re back to politics as usual.

Did Chuck Schumer actually think he would get enough Republican votes to begin a debate on blank sheets of paper? (Otherwise known as the infrastructure bill.)

Then you have Bernie Sanders, the lead on the $3.5 trillion budget blueprint running around trying to get all 50 Democrats on board:

Not sure if there is much meat on that budget bone …

We are talking about universal pre-kindergarten, two free years of community college, Medicare coverage of dental and vision and extended child tax credits.

The bill also imposes new energy standards on utilities — the same utilities that are supported by our government …

So we’re talking about more legislation behind this that will be needed to fund an upgrade of our power grid.

(That money, of course, will come from massive corporate and individual tax increases and a carbon tariff.)

I don’t expect the bill to generate much growth, but it will certainly fuel demand for more government spending in 2022 and beyond.

While the fate of the two bills is TBD, I have a trade that is set to make great returns if the bills pass — while also being profitable if they don’t.

A Vertical Option Strategy With Benefits…

I am a huge fan of put and call spreads. The ability to get leverage inexpensively is hard to pass up.

Of course, if you get the direction wrong, you lose everything if held to expiration.

The trick is to find a cheap enough strategy so that you can hedge your bet.

Let me explain …

Look at the iShares Silver Trust (Ticker: SLV) chart …

Notice how low the historic vol is in the chart above (blue line at bottom) …

Next, check the volatility curve in the strikes we are interested in …

I am looking at buying the 23.5-strike at 25.15% vol and selling the 25.5-strike at 28.88% vol. That gives us a bit of an edge in valuation of the spread …

So, I can get the spread on for $.45, which offers over a 3.5:1 risk/reward ratio.

Note: When calculating the maximum you can make on a put or call spread, take the difference in strikes and subtract the cost to get net profit

In this example, the cost is $.45. Gross profit is the difference in strikes — or $200 — and net profit is $200-$.45 = $155…

Rate of return is net profit divided by initial outlay or 155/45 = 340%.

Here is the risk profile on the spread …

How Can I Protect My Downside in SLV?

With volatility priced so low, plus the upward sloping vol curve, the spread is cheap enough to consider buying a put.

Let’s take a look…

I can buy the SLV 22 put to Aug. 13 for $15. That only increases my total cost to $.60.

Let’s take a look at the risk profile now …

That’s right, now we have the downside protection.

A trade down to 21.5 is realistic, considering SLV dropped $2 within 30 days after the Fed started talking tough on inflation.

So, the put protects capital on a larger move down …

With the political battle in Washington and the Delta variant wild card it’s nice to be covered in both directions.

Bring It Home

If the Schumer bill and budget pass, the inflation story is alive and well.

However, I have zero confidence in the government and the Fed. (If you couldn’t tell.)

So, it’s nice to find a trade that ensures your exposure.

The strategy we discussed is ideal for playing the long-term inflation trade, while also attempting to preserve capital on a spike down, which has been a common occurrence with our flip-flopping central bank.

Have a great day, and as always …

Live and Trade With Passion My Friends,

Griff


American Innovation at Its Best

Hey There Income Hunters,

Hats off to the Blue Origin — it was very cool to bring up mementos from the Wright brothers and Amelia Earhart.

It made me think of John F. Kennedy when he gave his “New Frontier” speech, and it’s appropriate to think of where America is today in the same vein …

We may be nearing the end of our reign as the sole global monetary leader — yet, spirit, courage and innovation will bring new beginnings.

The future of technology will bring advancements that will change our lives and transform industries.

I, for one, am truly fascinated by smarthomes and the internet of things (IoT).

In the not too distant future everything around us will be connected to the internet — and that is truly incredible.

Already, our smart watches work as our caretakers, telling us when our vital signs are off …

Our appliances automatically operate in the most energy efficient way — and the fridge can alert us when we need beer …

One day, cars will drive us around on smart roads, which have chips built into them that control traffic via connected lights. 5G will provide much of the fuel, and the chips will be the brains that drive the tech revolution.

In the meantime, check out a couple of stocks that are ripe for the taking and will be essential players in the IoT space.

 

NXP Semiconductors (Ticker: NXPI)

NXPI is a top supplier of semiconductors for the automotive market and major force in the analog and mixed signal chip market…

NXPI holds a barrier to entry or a moat around its business due to switching costs and intangible assets… This powerful position will allow NXPI to earn high Returns on Invested Capital (ROIC), which to me is fundamental to long-term success…

They will also be a major player in the IoT industry due to its strength in microcontrollers (MCUs), that serve as the brains in most electronic functions in cars…

There is real stickiness in the chip space because it is extremely hard to switch out once chips are designed into a device…

NXP Semiconductors (TICKER: NXPI)

NXPI offers a favorable technical setup, just above a rising 200-day moving average and near the lower end of its recent trading range. 

Fair Value

NXPI at a discount to fair value is an attractive opportunity. The company’s barriers to entry are solid and they are all well positioned to capitalize on selling into multiple growth industries …

Ericsson ADR (Ticker: ERIC)

Ericsson is a leading provider of equipment to communication service providers. They are killing it in 5G buildouts and gaining market share…

ERIC recently got caught in a geopolitical battle between Sweden and China as Sweden banned Chinese network equipment for 5G buildouts.

Q2 earnings were lower than expected on this, providing a great opportunity to pick up shares at a discount.

Meanwhile organic sales were up 8% in Q2 as ERIC picked up market share in other geographies amid the 5G build-out cycle.

Overall, ERIC is well-positioned to capitalize on 5G demand for small-cell antenna sites, while also profit from 5G networks creating more product use cases such as the IoT

Chart Pattern for ERIC

Prior to the Q2 results ERIC was trading in a bullish pattern in the short-and long-term time frames. They are still holding on to a longer-term bullish trend, as the 200 DMA continues trending upward.

Fair Value

ERIC has been seeing the fruits of its labor since 2015, when the company slashed the cost of goods and operating expenses and renegotiated unfavorable contracts. They are now on an uptrend and investors have an opportunity to purchase shares at a discount to fair value.

Bring It Home

Here is a great example of full investment analysis by taking a top-down macro approach …

I started with describing the mega opportunities ahead and the main growth industries i.e. IoT and EV…

Then I identified two top companies well-positioned to thrive in the decade ahead…

Lastly, I analyzed their technicals and fundamentals, which align, and both present a compelling investment opportunity at this time.

Live and Trade With Passion My Friends, 

Griff

 

Confidence, Bond Yields Slipping

Hey There Income Hunters,

Well, I called the Fed-engineered correction early last week …

And, sure enough, Fed chairman Jerome “J-Pow” Powell announced during congressional testimony on Thursday that the central bank would raise rates and drain money from the system if inflation remains at current levels.

While I don’t believe the Fed will raise rates, it’s clear to me that officials are talking stocks down to give themselves the cover to print more money later.

And what’s this? The SPDR S&P 500 ETF (Ticker: SPY) is in the danger zone, crossing below the 200-day moving average on high volume.

SPY did the same thing in June (red circle) and snapped back the next day. Today will be interesting.

There are many signs this could be an extended correction …

Check them out below along with the Trade of the Week …

Going Stag

Forward-looking consumer expectations are showing stagflation (low growth/high inflation), and consumers don’t appear to be chomping at the bit to spend …

Higher prices may be part of the reason …

Awfully Bad Timing for the Delta variant

One of the biggest risks facing markets over the next couple months is the Delta variant of Covid-19 …


Global Covid-19 cases.

Some locales, despite rather high vaccination rates, are reinstating some major anti-virus measures.

Los Angeles, for example, brought back a mask mandate this past weekend as public health officials are struggling with an alarming rise in cases tied to the Delta variant.

Not great for consumer confidence!

And stocks in the travel and leisure industry paid the price on Monday.

I SPY

If you are expecting follow through on the SPY downtrade, you’ll be interested in this move …

      • Buy four SPY July 23 420-strike puts and sell four SPY Jul 23 412-strike puts.
      • Also buy one SPY July 23 430-strike call 

That means buying 24.5% vol and selling 28.5% vol. When priced yesterday, it was $1.49 for the put spread and $134 for the call spread.

The risk profile is below …

Bring It Home

Probabilities favor an extended correction here and could lower bond yields be a further warning sign?

I continue to dollar cost average into the quality miners, while all signs point to higher inflation for longer

Live and Trade With Passion My Friends,

Griff

 

This Week In Charts

Hey There Income Hunters,


Another free-flowing capital markets week turned into a toxic, Federal Reserve-manipulated environment …

Oh, and also, good morning!

As I was saying, Fed chairman Jerome “J-Pow” Powell decided to freak the market out during a Congressional hearing last week by saying our central bank had the tools to raise interest rates and drain money from the system.

The fact is, the Fed has a game plan they will not reveal to the American public … because if they did the markets would come unglued.

The plan, for those paying attention, is this:

Inflate money supply to the point where there is so much more money in the system than US debt that GDP goes below 80%.

Debt-to-GDP is the measurement of a government’s health — and the current level of 130% is unsustainable.

The markets will either totally crash or the Fed will keep printing money to inflate the debt away and help things remain elevated for longer.

This is the kick-the-can-down-the-road approach of most fiat or paper currency central banks.

So, the weeks and months ahead will determine the US’s path forward as the dollar steadily approaches the end of reserve currency status.

Check out the charts that matter so you can anticipate where global money is flowing …

Invesco DB USD Index Bullish Fund (Ticker: UUP)

UUP is an ideal ETF to trade to express an opinion about the US dollar.

Now, when a nation is at the end of their reign as the sole reserve currency of the world, their dollar is at risk of a collapse.

The collapse happens when faith is lost in the central bank — the Fed, in this case. The Fed is moving ever closer to this point as it flip-flops to serve its own needs.

The weekly chart pattern for UUP is a descending triangle, which is a bearish pattern.

This is a longer-term pattern and it may take a few months to break down. However, it most likely will, and these levels offer a good opportunity to set up bearish option strategies that will reap rewards before the end of the year.

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

Treasury Bonds are a critical product to monitor and trade.

The most important Fed insight is that for every dollar the central bank prints, the Treasury must issue a dollar of bonds to pay for it.

So, supply in bonds continues to increase as the Fed has to print more money in an attempt to devalue the dollar … 

One of the best trades in the months ahead will be to sell TLT, which is a deeply liquid ETF that closely tracks the US 10-year Treasury Bond.

I’ll wait to sell TLT on a failure on above-average volume against the 200-day moving average, represented by the red line on the chart above.

 

SPDR S&P 500 ETF Trust (Ticker: SPY)

The Fed is desperate to find a way to slow the economy down without having to raise interest rates.

Raising interest rates when the economy is weak and debt is high is like committing economic suicide.

That is why they may be trying to ignite a stock market correction by talking tough.

Notice Friday’s selloff in SPY on higher-than-average volume …

Bring It Home

Every week is important as the global crosscurrents of information and money flow drive the transition to a new monetary system.

Pay close attention to these three markets and jump on unfolding trends to capitalize on the global flows out of US financial assets in the months ahead.

Have a great week, and as always …

Live and Trade With passion My Friends,

Griff