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Chart of Day: Buy the Pullback in Gold

Jun 14, 2017

One of the biggest questions I always receive is how to trade gold ahead of the Fed.

The best thing to do in most circumstances is to either continue holding any gold positions, or buy more. That’s because gold typically pulls back on irrational fear.

Whenever the Federal Reserve even hints at higher interest rates, traders sell gold.

They fear gold would lose its shine, as compared to yield-bearing assets when interest rates begin to rise. In fact, it’s why gold had five straight days of losses prior to the June 2017 Federal Reserve meeting on rates. But with history as our guide, that’s a terrible reason to exit the trade.

When interest rates rose to 0.5% from 0.25% in December 2015 followed by a promise of four hikes in 2016, gold bottomed out and ran from $1,063 to $1,199 by February 2016.

By March 15, 2016, the central bank raised rates by 0.25%. The price of gold fell slightly to $1,226 before recovering to $1,306 by May 2016.

By December 14, 2016, gold fell from $1,338 to $1,140, as the Fed raised rates to 0.75% and promised to raise rates another three times in 2017.  Gold would recover to a high of $1,297. Then, as markets approached a new rate hike in June 2017, gold prices pulled back to $1,264 on the same fear of interest rate hikes.

Yet, since 1968, according to Value Walk, “for any given month in which effective fed funds rates rose, gold rallied more than 50% of the time.”  In short, near-term rate hike or not, fear of a sustained gold decline may be overdone.

Chart of Day: This hasn't been this overbought in two years

Jun 13, 2017

The last few times we’ve played YUM, we did fairly well. 

But one look at the latest chart is a clear indication of likely downside.

After an incredible run off its 200-day moving average to $74, the stock has become the most overbought since February 2015. At the time, RSI, MACD and Money Flow were just as over-extended into overbought territory before selling off.

We believe the stock is again setting up for a similar sell-off and want to be in place.

Buy to open the YUM July 21, 2017 72.50 put, which last traded at $2.05.

 

Chart of Day: Why Infrastructure is a Good Bet

Jun 11, 2017

Action to take: Buy to open the VMC July 2017 135 call at market and, or buy to open the JEC July 2017 55 call at market, as well. Use a -35% mental stop loss with each trade.

Infrastructure stocks are just starting to push higher again, as President Trump attempts to push through a $1 trillion program. Even members of the Congressional Progressive Caucus are asking for up to $2 trillion to improve the nation’s roads, bridges, water systems, airports, schools and transit systems.

Two of the hottest opportunities – which we’ve spoken of before are Vulcan Materials (VMC) and Jacobs Engineering (JEC).

From the crumbling dams of California to the potholes that fill U.S. highways, signs of decaying infrastructure are all around us.  Sadly, many of us don’t even care to notice the effects of inaction when it comes to infrastructure -- constant congestion, interrupted flights, closed roads, and bridges that are more than 50 years old. 

The American Society of Civil Engineers (ASCE) says we’ll need that much by 2020 just to bring roads, bridges, dams, ports, and airports up to safety standards.  What’s worse, the ASCE just gave current U.S infrastructure a D+ rating. That tells us we’re in desperate need of repair.

Then, according to the Federal Transit Administration (FTA), there’s an $808.2 billion backlog in deferred maintenance on the nation’s rail and bus lines. That doesn’t include the 56,000 structurally deficient bridges, according to the American Road and Transportation Association. Each time Trump mentioned the word “infrastructure,” related stocks began to move higher.

Chart of Day: How to Really Win Most Trades

Jun 08, 2017

There’s a good reason we use technical analysis. It works.

Fundamental traders may not subscribe to it, but that’s their loss. We’ve consistently proven that it works because it’s a powerful gauge of sentiment.

Look at NVDA, for example. We highlighted it as a buying opportunity at double bottom support around $95 following a laughable downgrade. At the time, RSI was at its 30-line. Money Flow was nearing its 20-line. Williams’ %R was under its 80-line. All confirmed the stock was oversold at support.

Only a fool would have passed up the opportunity at $95 a share.

Each time these three indicators aligned, NVDA popped. And yet folks have ignored it time and time again. We didn’t, though. In fact, we highlighted NVDA as a buy opportunity once those indicators aligned only to watch it do this.

Since finding support at $95, it spiked to $154 in just months. The options on this trade were just as explosive.

 

Chart of Day: The Most Pitiful Disaster

Jun 06, 2017

Despite all of the spin from Sears’ insiders, nothing may keep it from spiraling into bankruptcy. Things have gotten so bad suppliers are suing it. Even One World has threatened to sue Sears if they’re not released from current contracts. On top of that, the company is losing millions each quarter. Same-store sales are crumbling.

The end is near. All Eddie Lampert has to do is stop parading the dead.

On March 30, 2017, we recommended buying to open the June 2017 11 put, as it traded at $2.20. It’s now up to $4.35. We’re recommending that you sell to close half of the trade to secure the win. Hold the second half, as SHLD falls further.

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