One alert went off today and we acted upon it. Tomorrow is a huge day and the markets showed their butterflies ahead of the big Fed meeting on inflation. I won't be trading much until we know exactly how the Fed's stance is. Of course, Powell has said nothing but the same up until now which is: The Fed won't start the tapering process to curb inflation until 2022, at least, because this inflation we are experiencing right now is 'transitory'.
I more or less agree with this. Since we are opening up, across the world, it is expected that there is a lot of pent up demand and lack of supply, production and manufacturing therefore prices of materials should rise.
The question is if the Fed and Powell is lying to us, and in my opinion it seems that the markets think they are.
If they start to taper early and inflation drops, materials and industrials, who usually thrive in high inflation environments, won't be thriving anymore. I have to assume these stocks such as $BHP or an ETF like $UYM will suffer. However, more than likely I believe that the Fed will stick to what they said all the time that they won't do anything because the inflation is just 'transitory'. Doing nothing means they are letting inflation run up and those materials stocks will be a huge play.
In fact, Paul Tudor Jones, a billionaire investor recently said, “If they say, ‘We’re on path, things are good,’ then I would just go all in on the inflation trades. I’d probably buy commodities, buy crypto, buy gold,”.
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So, what happens on the flip side, if the Fed starts to taper early? There are some that think there will be a 'taper tantrum', that there will be a correction in stocks.
In my opinion, the market is forward looking. Big moves get priced in before they happen, usually, and it is no secret that a lot of people, including the media, that is pushing the idea that the Fed will start tapering early since the economic data is coming out very positive over the past few months. So assume that this is already priced in for a moment and how are the markets reacting now? Actually, since the beginning of June, commodities, materials, industrials and financials (inflation trade) area all going down and tech and growth is going up. Point is, if the Fed does taper early and announces it tomorrow, investors will sell inflation trade and buy what, maybe it is tech. After all, that's what's been going on.
This is completely my opinion and pure speculation. I will be waiting until after the major announcements to really see what is going on. I'm with Tudor Jones on this one though. I'm buying more $BHP calls and $UYM shares if nothing is new.
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Alert triggered: Swing Commons Through July on GPS, bounce I decided to go with a commons swing trade on this one since there is limited upwards movement. Even if GPS rides along the current support, commons work, options wouldn't. Go with commons until we see a bigger movement up.
$CAT is one of those inflation trades that have not been doing well recently and more makes me believe my theory that tech will good with an inflation taper. However, I still think that the most likely scenario is that the Fed does nothing, therefore I like $CAT a lot here. It is almost at lower support and when it touches let's get into October calls.
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$BHP is getting close to support which is also intersecting with a big volume shelf. Let's see how the Fed meeting goes and if nothing happens, I like calls expiring in the last quarter.
$UYM "The investment seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the Dow Jones U.S. Basic MaterialsSM Index."
I like UYM as a basic materials play. It is a leveraged ETF so I am satisfied with just buying commons, although nothing wrong with options. Currently the price is touching the 50 day MA and there is a significant volume shelf. This is one that I would not buy unless the Fed signals no early tapering. Fundamentals will prove to be much more important than technical. However, I have still set an alert.
Waiting for set ups to trigger on the following before entering options:
"The stock market is a device for transferring money from the impatient to the patient." -- Warren Buffett.
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