Hey There Income Hunters,
During his comments yesterday, Jerome Powell didn’t commit to any taper of the monthly $120 billion in Fed bond purchases. He did, however, promise advance notice to tapering. And that may occur at the next FOMC meeting on Nov. 2.
The betting line states that there is a 50% chance of a .25% rise in rates in December 2022 … so, basically nothing has changed, according to the Fed.
But a lot is changing in the markets.
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- Inflation for the fourth quarter will continue to come in above 5% and we will see explosive growth and inflation.
- Volatility will decrease as the issues hanging over the debt ceiling and the spending bills are resolved.
- Uncertainty will remain in the weeks ahead, but Democrats will ultimately remove the debt ceiling from the spending bill to ensure passage of the government funding measure. They will then raise the debt ceiling by using its fast-track process that bypasses the filibuster.
- Meanwhile the global reopening trade has begun and it will ignite accelerating growth around the world. The US is a bit further behind than others …
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Today I will share which countries and what stocks I think you must own to capitalize the next few months of powerful money flows.
In the BNO
Let’s start off with the US Brent Oil Fund (Ticker: BNO)
If we were in a deflationary environment, Brent would not be making all-time highs. Check out this chart …
This follows my No. 1 rule of trading: If a market goes up on bad news, that means buy it because it is going a lot higher.
Feel the Energy
I have said for the past week that #IncomeHunters should buy energy stocks. I am long the Select Sector SPDR Energy ETF (Ticker: XLE) …
I think crude oil will hit $80 before the end of the year. Right now I am long the XLE 11/19 49/50 call spread for $.33 and I will roll into higher spreads and outright calls when XLE breaks above the 50-day moving average on good volume, which is currently at $48.69 …
Notice in the chart that the moving averages are converging just above the $48 price with Wednesday’s trade closing above all three averages on high volume.
When a commodity breaks through the 50 and 200 DMAs, you get an explosive move because short- and long-term players jump in on the break.
Once Congress gets its act together we could see a swift move towards $54.
Capitalize on People’s Bank of China (PBOC) Liquidity Injections
I called the lack of systemic risk brought on by Evergrande problems and predicted that China would come to Evergrande’s rescue. That is very good news for the beaten down sectors of China’s stock market …
You can see from the chart below that PBOC has been adding liquidity. I also think they will back off from the tight regulatory pressure put on the Tech companies and allow the market to rally into 2022 …
Now is the time to look for a snapback in Alibaba Group Holdings (Ticker: BABA) in the weeks ahead.
The bottom line here is, just as the Evergrande narrative got way out of hand, so has the BABA developments. Three important points here …
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- Yes, uncertainties abound however, but their core business remains intact and is still essential during the uncertainties.
- The fines and pledges BABA has committed to paying are only about 10% of the company’s net worth.
- The market already reacted with a worse case scenario stock price crash of 53%.
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There is Quick Money to Make Here
A conservitive view is to look for a move to the 30 DMA at $167.62. I like buying the $BABA 10/15 160/165 call spread for $1.45.
If BABA expires above 165 #IncomeHunters are gaining 240% on capital invested (see risk profile below) …
Bring It Home
There is an opportunity now to jump on a psychological shift in the market.
China’s asset prices have been beaten down on headlines. Meanwhile the government has tons of room to inject money into the economy — and it will.
BABA has committed over $15bn to “common prosperity” and President Xi will back off now.
There will be many more low risk/high reward trades available in the coming days, and I’ll bring the best ones to you.
Live and Trade With Passion My Friends,
Griff