Hey There Income Hunter,
Jerome Powell finally got what he wanted.
But there’s a reason they say be careful what you wish for.
It may be time to put on your crash helmet.
The VIX finally crossed 30. In many parts, they have some colorful language for that barrier. When we get above 30 VIX, oversold does not carry much weight.
Next week will be spicy as we head toward lower lows.
It did feel like a bit of a capitulation trade on Friday, especially in the gold and miners.
I’ve been waiting patiently for that.
GDX, the senior gold miners ETF made a new low, which triggered a positive RSI/price divergence …
That allowed me to execute an interesting trade that will guarantee you catch a Fed rate hike pause in tightening with very little risk.
Today, I’ll share this idea and why I think the Fed will pause before Thanksgiving.
The Big Midterm Election Push
We all know politics are always and everywhere.
The administration has done a great job of lining everything up to help them get the votes needed at the midterms.
Biden sat down with Powell a couple of months ago and then announced to the world that fighting inflation was in the hands of Jerome Powell.
Classic deflection!
I think that is also why Powell is fighting so hard to get it done … maybe a little too hard in my opinion.
Next Biden authorized tapping into our emergency supply of strategic oil reserves to force gasoline prices lower and then touting how they are getting inflation down.
Lastly, Janet Yellen is running this wrecking ball policy with the dollar to improve the optics of how the US looks globally.
The Pre-Thanksgiving Pause
This may help survive heavy losses in the election, but it will also force Powell to pause tightening because everything they have done to win will quickly unravel.
Soon after the election, the US will go from seller of oil to buyer of oil and higher oil prices will inflict even more pain on the economy.
The melt up in the dollar will also reverse because it is causing a global currency crisis and crushing corporations who earn much of their revenues abroad.
These issues will show through in the data in the weeks ahead. With the next Fed meeting not until Nov. 2 and midterms Nov. 8, you know there will be pressure on Powell to soften up.
My concern is the market will look ahead to the pause beforehand and gold will rally ahead of time …
So, I came up with the following trade.
VanEck Gold Miners ETF (GDX)
With GDX trading at $22.25, I bought the Nov. 18 25 call and sold the 20 put.
This gave me similar exposure to buying the stock, but it only costs $.04.
Now, in the short-term, I think the market will continue to trade down, and since the long exposure costs nothing, I used my capital to protect the shorter-term downside.
I bought two Oct. 22 puts and sold one each of the 21 and 20 puts to match up better with the long call/short put leg.
I was able to put the whole trade on for under a dollar and now I have unlimited exposure to the upside and am protected down to 20 on the downside.
Gold has already corrected, so I am comfortable with the protection this strategy provides.
The cool aspect of the trade is I don’t have to bleed money waiting for the trade to work. If it goes down a couple of bucks I can unwind and reset without any loss.
The bottom line is,options give you options …
Bring It Home
This is just one of the trades I executed and alerted Power Income Trader subscribers to on Friday. The other two provide protection against inflation while giving you plenty of upside potential ..
Monday morning I will be reviewing all the trades and provide a watchlist of stocks and trade ideas for the week.
You can get ready for that now when you join me on Power Income Trader.
This market offers tremendous opportunity, and in the next couple of months Power Income Trader is set up to capture the wild moves with trades like the one above …
Very low risk for the potential to capture very high rewards.
I’ll see you on Monday, have a great weekend and as always …
Live and Trade With Passion My Friend,
Griff