Hey There Income Hunter,
In spite of an awful home builder confidence report and Apple cutting iPhone production, the technicals continued to support SPY for the second day on Tuesday.
After a gap opened that failed right at strong resistance around the SPX 3750 level, the market had to contend with a National Association of Homebuilders (NAHB) sentiment index of 38, which was 80 at this time last year
Next, it was reported that Apple has told at least one manufacturer in China to immediately halt production of iPhone 14 Plus components while its procurement team reevaluates demand for the product.
Each headline brought in selling, with SPY bouncing back as it was pinned to the 3700 strike into the close.
The close back below the important 3725 gamma pivot level is key, and we’ll take a look at the trades my #IncomeHunters and I put on yesterday – and why they make sense.
Sell EU Stocks
A headline item yesterday that highlighted risks in the Euro area was an ECB warning on the risks associated with a bill introduced to the Spanish parliament to create a temporary levy on banks and large energy companies aimed at raising $3 billion euros by 2024.
The UK is toying with similar spending cuts and tax hikes, and they will simply crush their economies and potentially push the governments into a sovereign debt crisis …
Two other key headlines were:
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GERMAN CURRENT ECONOMIC CONDITIONS ACTUAL -72.2 (FORECAST -68.5, PREVIOUS -60.5)
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FITCH RATINGS: GLOBAL CREDIT RISKS RISE AS RECESSIONS, GAS CRISIS LOOM
Keep Selling Rips
I looked at yesterday’s gap open higher as a gift and executed bearish option trades in the iShares MSCI Germany ETF (Ticker: EWG) and the Financial Select Sector SPDR Fund (Ticker: XLF).
I rate Germany as the economy that is in the worst position due to the fact that it imports most of its energy …
Due to losing access to Russia’s cheap energy, Germany has gone from the third largest industrial manufacturing powerhouses in the world to a debtor nation that will struggle to survive.
Notice the EWG bounce below back up to the previous high and failing …
I purchased a simple Nov. 18 22/19 put vertical spread for just above $1, offering a potential net gain of 200%.
I think we will see a new low before the contract expires.
US Banks Will Suffer from Inverted Yield Curve
US Banks have also experienced a significant bounce as earnings came in better than expected.
Here is the thing on that …
All the income was from net interest income earned on the bonds they own in their portfolios, while they don’t pay depositors anything on their deposits.
That is great for them, but they have yet to see the losses coming their way as the higher rates begin to cause defaults on loans they also have on their books.
As you can see in the chart below I think it will be hard for XLF to get much above $33 as new forward looking economic data is reported in the weeks ahead.
Here I bought a Nov. 18 33/31 put vertical for $.80.
Bring It Home
I do have a couple of longs against these shorts …
One in Uranium and one in agricultural ETFs.
I am also considering bearish strategies in European banks because I just see how the EU area will avoid a pretty hard landing for the economy throughout the winter.
Think about this …
The ECB will be hiking interest rates .75% a week from Thursday into an economy that is sinking fast …
It has been a simple strategy all year to sell rips and buy when everyone else is selling.
Eventually something will break forcing central banks to shaft back to printing money but I don’t think we are there yet …
Good luck today and as always …
Live and Trade With passion My Friends,
Griff