In the following video, I’m breaking down the supply chain woes that continue to accelerate across this economy.
At some point, the stocks won’t be able to climb anymore and investors are going to take a lot of profits off the table.
Then, there are the oil markets – and I’m breaking those worries down.
Watch the video if you’re serious about making money next week.
The Inflation Trade Heats Up
In March 2021, Federal Reserve Chair Jerome Powell said that the United States didn’t need to worry about inflation. Notice the date at the top.
Six months later, the tune is different. This headline is from Marketwatch this morning…
Inflation isn’t slowing down.
So what do we do now that the Fed has admitted what we already knew?
There are three primary ways to trade inflation.
First is naturally the energy space.
Oil producing companies with strong balance sheets and low levels of debt that own lots of crude. They’ll see a big push in their share price thanks to rising crude.
The Fed is expected to tackle tapering its balance sheet as soon as next month.
I’ve talked about the community banking space over the last few months. You can buy banks that are trading under a price-to-tangible book (P/TBV) of 1.
Then, you just wait.
Finally, you can combine basic materials producers (palladium, platinum, and silver) with emerging markets. I’m warming up to the metals producers that have cheap buyout metrics and low PE ratios.
That seems like the next move for institutional capital looking for a way to manage their cash in the months ahead.
Positions in Play
We’re still holding onto ICICI Bank (NASDAQ:IBN) and Skechers (NASDAQ:SKX). I offered my insights in the video, and I’m expecting these stocks to keep moving higher in the weeks ahead thanks to strong institutional inflows.
Recently, we’ve added Brink’s Company (NYSE:BCO) as a play. The stock is off again today, and we’re looking for a positive reversal. Ahead of the holiday season, we’re facing a lot of Americans sitting on a lot of cash.
Of course, we’re eyeing BCO stock and expecting a strong forecast when the company reports earnings next week. I’ll be back with more insight into that trade as we progress.
Finally, we had some swings with American Axle (NASDAQ:AXL).
If you haven’t sold your November 19, 2021 $9.00 call in American Axle (AXL) (AXL211119C00009000) do so at the best price possible.
Currently, the bid-ask spread is between $1.45 and $1.60.
A trade at the $1.50 range would generate about a 50% return. We’ll take action today.
We’re still holding the stock, and will exit on Monday if it trails lower.
In the following video, I’m talking about the latest challenges to the supply chain.
Listen, I do my best to leave politics out of market commentary. It doesn’t matter to me who is in charge. All that matters is that we can adjust accordingly. What’s happening in the supply chain will not be solved by administrative action. The only cure to supply chain woes today is time.
If you want to profit from this trend, I suggest you watch this video.
Earnings Season Kicks Off
Overall, it was a solid start to the earnings calendar from JPMorgan Chase, Citigroup, and Goldman Sachs.
But we have a lot of work to do before we get excited about the momentum rip that we witnessed on Thursday and Friday. It’s good to see that a lot of money is coming off the sidelines.
Right now, just 45% of stocks are trading under their 50-day moving average. I can’t stress what a positive development this is for mid-cap and small-cap stocks that traded sideways for months.
But a lot of big names are starting to face enormous pressures. I’m talking about stocks like AT&T, Intel Corporation, and United Airlines.
Banks aren’t facing any supply chain issues right now. But these three companies certainly do.
AT&T just laid out a huge promotion for iPhone 13s, and now there may be a shortage of those items.
Intel is at the center of a semiconductor crunch.
And United – well – they face pilot and staff shortages at a time that fuel costs are surging.
Let’s not have any illusions about what we’re facing in the future. We’re going to have supply chain, fuel, and inflationary pressures.
Is it the 1970s all over again? I don’t know. I wasn’t there.
But this does feel a bit more like 2006 right now than at any point.
And I do want to play as much defense as I can in the weeks ahead.
It has been a quiet week for trading, and the reasons are pretty obvious.
If you saw Tuesday’s sharp rise in volatility and listened to me talk about negative momentum on Thursday, you know I’m going to manage my risk and hold cash.
I know there is a deep desire to actively trade, but putting September behind us was important.
Now comes the real storm.
Yesterday, multiple global freight shipping companies announced that the international supply chains are under extreme duress. I’m serious when I say that people should buy their Christmas presents now and get paper supplies by mid-month.
Freight costs have gone up seven-fold from China to the United States on some lines. Costco is renting its own ships. Nike and McCormick – despite high demand – can’t get products across the seas.
We’re going to take advantage of Atlas Air Worldwide (AAWW) on Monday. I don’t want to enter a position and hold it over the weekend after the recent downturns to start the week.
We’re also going to be moving on Skechers (SKX), which looks like the breakdown is going to come to an end very soon.
I discuss this and more in my video below. I also offer an update on the current portfolio and how we plan to start deploying cash.
After that nasty downturn in momentum last Friday, we had to take a few companies off the board. But we’re primed for two new trades (including the bonus trade that I laid out earlier today).
As I noted, Evergrande in China lurks as a very ugly domino in the global economy. My concern is that there will not be a structural solution, and we’ll continue to see Band-Aids applied.
It doesn’t instill much confidence that a company that makes $5 billion a year in profits has $300 billion in liabilities. That latter figure is 2% of China’s GDP.
I’ve heard some people say that it won’t spread to the U.S. I don’t agree with this assessment fully. Chinese citizens invest in a lot of real estate in places like Northern California and New York. Any run on capital due to falling prices in China would impact larger U.S. markets.
I have learned from multiple major events to ignore the people in charge at the onset. The head of the European Central Bank said that Europe has very little exposure. I openly laughed at this interview.
As I said this week, I’m watching Australia. If we do experience any serious macroeconomic problems, it will start there. The commodity space has seen some insane moves over the last year, and it appears that the combination of supply chain shocks and labor shortages will persist.
The reason why I didn’t move on shorting the nation was because of the rebound in commodity prices on Tuesday.
So, we have to be patient.
My expectation is that the market will continue to experience a ladder pattern during the week. Some selloffs on Monday, gains for the next three days, and then a Friday downturn.
We have a lot of work to do.
The good news is that momentum remains very strong in the supply chains. Our PSTI position continues to run, and I will use any selloffs moving forward to recommend purchases in global shipping container companies.
The supply chain crunch we are about to experience (get your toilet paper and holiday gifts right now) is going to be as significant as what we saw in 2020, if not more significant.
With S&P 500 momentum volume moving positive again today, we need to actively manage our portfolio.
You’ll notice that it was quiet this week.
With great uncertainty in the market and inflation numbers hitting nosebleed levels, it’s unclear which way the money wants to flow.
Six banks issued dire warnings around the market this week, and the talking heads are screaming about blood in the water.
I’m being cautious until Monday. I want to see where futures start next week before making any sudden moves.
With that in mind, we have a number of winning positions, and our focus on reversion momentum in these choppy conditions is paying off.
Let’s take a look at the portfolio and recent moves.
We exited ZNGA this week when it hit its trailing stop of $8.50. We made a gain on the stock, and we had two nice legs on our options trades. We’ll be ready to deploy capital next week.
Gaming & Leisure Properties (GLPI)
Rival VICI Properties engaged in a stock issuance to fund a new project, and pulled the rest of the sector down with it. This is extremely frustrating. The good news is that the stock has moved into oversold territory, and now we look for investors to scoop it up on the cheap. We will hold this position. I expect it to claw back to the $50 range where the 200-day moving average sits.
Levi Strauss (LEVI)
This is a legacy trade from our original portfolio, and the company can’t seem to catch a break. The big, negative news around the huge jump in supply chain inflation isn’t positive news right now. We will give this one more week to rebound. Otherwise, we’ll have to cut the dead weight.
PAM Transport (PTSI)
PTSI continues to chug along in positive momentum conditions. Shares opened north of $40 today. Based on the recent move up to $40.42, your new trailing stop is $37.59. It’s very important to follow these rules. That will ensure at least a 12.5% gain from our original entry price.
TrueCar moved very close to our trailing 7% trailing stop of $4.00, but it has since bounced back and is now tracking north of $4.27. Our option is flat right now at $0.40, but the momentum is surging higher for this stock. I think that $5.00 is still in the cards. If you’re just buying it, be sure to keep that trailing stop in place. Be patient.
The volatile diagnostic company might be weighing on our patients, but it’s still in play. There’s a move to $12.50 coming, and we’ll be happy to take our profits if we get above $11.75.
ARES Management (ARES)
The stock has moved out of overbought conditions into oversold conditions. Morgan Stanley just upgraded the financial power player to $90, but would be a nice gain. I’m looking for institutional capital to show up and push this higher.
Cameco Corporation (CCJ)
The uranium player has been an emotional rollercoaster over the last 48 hours, but a 4.2% move this morning has the stock up to around $24 per share. Can it go higher? It could break to $30 by the end of the month if this surge in uranium prices continues. As I explained in the video, Sprott Management is buying up supply, and CCJ is going to be the big winner.
We’ve bought the stock and taken a tight trailing stop. We also bought the Oct. 15, 2021 $22 call for under $1.50.
This afternoon, I recommended that you take 50% of the position off the table. By securing more than 100% gain on your first half of the trade, you’ve locked in a free trade. In fact, since the return is likely higher than 100%, you’ve locked in a guaranteed win. But we will manage this actively. If the stock pulls back, we can take the rest of the gain, but given this incredible momentum, I think there’s plenty of room to run.
Terminix Holdings (TMX)
Speaking of gains, TMX is running as well. After that double upgrade by Bank of America, this continues to perform. I recommended TMX when it was trading around $42.30. It’s now north of $45.70. That’s an 8% move in a week, and that’s a great reversion momentum trade.
Now, we also tagged that Feb. 22, 2022 $40 call at $4.50 or better. The Bid-Ask spread puts the contract around $7.00. That’s about 55% on a contract that hasn’t seen a lot of volume. If you got into this trade, you’ll want to manage this closely. I’ll monitor it as well. It may be time to take profits off the table if the stock hits $46.00 and move onto the next trade with money in your pocket.
We entered this position at $33.40 on Aug. 24, and we’ve seen about a 9.3% run on the stock. I expect the company will continue to run as higher freight costs and competitive advantages pay off in the fall.
I think the stock can easily go to $40 in the weeks ahead. Keep that trailing stop at 7% right now, which would be an exit at $33.96.
As I noted in the video, Sprott Management has made huge purchases in uranium on the spot market. As a result, the price of uranium has been soaring.
This was a bonus pick today, and it carries a more speculative flair to it. But it is possible that in the week ahead, we will see a lot of investors chase Cameco (the largest publicly traded uranium company) higher.
We’ve bought the stock and taken a tight trailing stop. We are also speculating on the Oct. 15, 2021 $22 call for under $1.50. I’m very excited about this position.
As I’ve noted, I’m looking for another trade today as we head into the afternoon session.
I’ll also be back with a watchlist for you on Tuesday morning. I hope that you all have a wonderful Labor Day weekend.
Action to Take: Raise Your Zynga Trailing Stop to $8.70Market Price
Dear Fellow Investor,
Travel has sent me on a walkabout in Baltimore.
I waited a little bit to send you this write up for the most obvious reason.
Federal Reserve Chairman Jerome Powell delivered his speech from the virtual Jackson Hole symposium. Naturally, this day was make-or-break for speculators. Would the Fed start its tapering and bomb the market immediately?
Or would it delay its policy decisions?
Knowing the Fed, you really didn’t need to guess. They have kicked the can down the road just a little bit. Powell said that the central bank still has a lot of work to get done. That’s an understatement considering the damage they have created over the last decade.
The Fed’s balance sheet has been a massive source of optimism and speculation over the last few years. It has allowed unprofitable company’s stocks to rally, while good businesses with profits and strong fundamentals lag the market. Basically, the Fed turned the entire market on its side back in 2003 and never looked back.
It’s always fun when the Fed says that there isn’t much inflation in the economy, yet fails to understand how its policies have fueled asset bubbles for 20 years.
Oh well. I guess the best we can do is just play the new game.
And that’s what we’ve been doing.
Zynga Inc. (ZNGA)
This week, we took profits off our Zynga options trade. After locking in near 100% gains of the first leg of the stock, we took the remainder off at a smaller gain in the 60% range. I’m content with this. I know that Zynga has rebounded since its recent pullback. However, I’d prefer to protect gains than risk any breakdown.
The other day, I witnessed selling of calls at the $9 range for October in very large blocks. To me, this felt like a large institution setting a line in the sand on the stock for the next two weeks. So, I was happy to rotate out of this company and move into another options trade that looks like it’s ready to bounce in TrueCar.
Meanwhile, we continue to hold the underlying Zynga stock. With shares trading north of $9, we are fortunate enough now to raise our trailing stop to $8.50. I might look to protect even more of these gains if we can.
Another week, another climb above $11 for this diagnostic stock. It feels like this is ready to break resistance and get back to $14 in the near term. That said, we are happy to hold this stock and enjoy our gains so far. If you’re just buying into the stock, remember this can be a bit volatile. That’s why we’re sitting on a stop down around $9.50.
Let’s continue to enjoy the ride.
TrueCar announced the fourth straight month of slowing vehicle sales. But that was a headline. What people need to understand is that there remains a severe shortage of vehicles. So, the company broke even on earnings, but the stock sank quickly. I think that this was in oversold territory last week, and we’re looking for investors to start picking up pennies.
The stock is up another 2.6% on Friday. This looks like a nice cool burn back toward $5. The $4 call for October is still where we recommended it. And we need to see a move above about $4.25 in the underlying shares before this position starts to run.
The good news is that I have a $5 price target in this stock for late September. Buy the stock, and hold that 7% trailing stop.
P.A.M. Transportation Systems
We’re combining strong price trends with a more illiquid stock. That can drive big moves on price in a short period of time. I still like the flatbed trucking industry heading into the fall. More important, I like the fact that the stock is about to split, the company is going to increase its dividend, and it has plans to buy back more than 200,000 shares for more than the current price. I think this stock is about to surge in September.
Let’s ride that truck into the profit station.
I’ll be back on Monday with a full watchlist.
For now, I need to go watch some horses run in a circle.
The markets remain in a sideways trend as investors try to make sense of the final days of August ahead. This is one of the strangest markets that we’ve witnessed in history.
For evidence, note that we haven’t had a 5% pullback from recent S&P 500 highs in 200 consecutive trading sessions. A lack of selling fuels that support. And that streak has only happened eight times in market history dating back to the 1950s.
What’s remarkable about this small sample size is that it has set up a relatively bullish long-term thesis. After the streak breaks, the average one-year return is 6.5%, while the two-year post-streak average return is 27.4%. Stretch this out to a five-year price trend, and you’re looking at an average post-streak return of 64%.
Now, again, this is a small sample size. And past performance does not guarantee future returns, according to every pitch deck you’ve ever seen as an investor. But it’s a reminder that despite all the worries about stretched valuations, the markets can always defy odds.
And with a long-term bias to the upside and a significant amount of cash on the sidelines, there’s certainly a case to be made that more money will chase higher returns. However, the key point out in my weekly video is that investors aren’t chasing higher small-cap stocks.
Watch it here:
The small-cap space as a whole – and other categories – all had bad weeks. The Russell 2000 has been range-bound since February. And we’re looking for some semblance of rotation out of the extensive stocks and into the smaller-cap ones. That might take time, and with momentum still negative in the market – especially at the lower ends – we have to continue to play defense while taking structured shots at the higher upside.
Again, we maintain strong trailing stops on our positions to protect gains and principal.
We’re keeping a tight portfolio right now in this market. On Wednesday, the S&P 500 momentum went negative after the Federal Reserve released preliminary plans to taper its balance sheet.
With that said, let’s allow Zynga to run. The company is coming off a sharp post-earnings selloff, and it was clearly in oversold territory, as I pointed out with the recommendation.
This week, we’re looking for a nice run on our most recent trade in Zynga Inc. (ZNGA). I previously recommended that traders purchase the Zynga September $8 call for $0.50 or less.
Based on that price, the contract is up more than 50% so far, and we’re looking for a bigger gain in the weeks ahead. Zynga stock has very little volume support between $8.50 and $9.60, signaling that a big gap is possible in the week ahead. We will let this trade run a little bit and hope to secure a 100% gain.
I still recommend the stock as a Buy so long as you set a trailing stop of 7% as a trade.
I had noted rival Quest Diagnostics as a proxy for what we’re seeing with the much smaller Co-Diagnostics, a producer of COVID-19 saliva tests. This has been a trader’s stock over the last few months. Shares climbed as high as $20.69 back during February when markets topped out in the smaller-cap arena. With that said, this company’s valuation remains low, and it continues to swing between ranges of $9.50 and $11.50.
I’m looking for this to bounce back to where it was recently after the 20-day moving average crossed back over the 50-day moving average. This stock is up 3.6% today, and it will look to climb higher again a strong price-trend stock.
Continue to HOLD shares of CODX.
We’ll be looking at some new trades early next week if we see weaker earnings of some best-in-class stocks. We’ll also be eyeing vaccine stocks heading into the fall. This will be a wild market in the weeks ahead, and I look forward to shooting for the moon with you.