Shortly after the open today, I filmed my weekly In The Money segment with Fidelity Investments. Click below to watch and see my notes below the video:
Macro: Two Main Near-Term Market Drivers
1. Vaccine Distribution vs Mitigation attempts.
Citizens are being inoculated, but businesses, schools, and municipalities are closing down. Markets are pricing a smooth vaccine and quick economic recovery at a time where job gains are slowing, consumer confidence and spending are waning, and aid is far in the rearview mirror.
2. Fiscal Stimulus and GA Senate RunOff
The persistence of enthusiasm suggests the market is pricing in near-term fiscal stimulus. I suspect it is fairly unlikely there will be anything meaningful until Feb or March. Jan 5 GA runoff will quickly be the biggest market driver, if Dems were to win both seats, then investors need to start pricing in higher taxes and greater regulation…
Trade Idea #1: GLD has had a sustained pullback since making a new all-time early August. Treasury yields were testing all-time lows, with the 10-year treasury yield at 50 bps, now 90 bps. I suspect in the absence of further fiscal stimulus, U.S. yields go lower, at a time where 1 in 4 global sovereign bonds have a neg yield, equaling close to $20 trillion… Bitcoin has stolen some of Gold’s thunder in this environment, but I suspect they can both go up in this environment where economic growth has plateaued and monetary stimulus might be the only game in town, forcing rates lower.
Bullish Trade Idea: GLD ($174) Buy Feb 175 – 195 call spread for $4
-Buy to open 1 Feb 175 call for $5
-Sell to open 1 Feb 195 call at $1
Break-even on Feb expiration:
Profits of up to 16 between 179 and 195 with a max gain of 16 above 195
Losses of up to 4 between 175 and 179
Rationale: this trade idea risks 2.3% of the stock price, breaks even up 3%, and has a max potential gain of 9% up 12% from current levels, targeting a retest over the next two months of the prior high from August.
Trade Idea #2: Bearish HD... housing trade slowing… work from home will come to an end in mid-2021…HD has NOT kept pace with the SPX, down 9% from its all-time highs in late August… technical set up looks bad, with key support at $260:
Bearish Trade Idea: HD ($270) Buy Jan 22nd weekly 265 – 240 Put Spread for $4.50
-Buy to open 1 Jan 265 put for $5.50
-Sell to open 1 Jan 240 put a $1
Break-even on Jan 22nd weekly expiration:
Profits of up to 20.50 between 260.50 and 240 with max gain of 20.50 below 240
Losses of up to 4.50 between 260.50 and 265 with max loss of 4.50 above 265
Rationale: this trade idea risks a little less than 2% of the stock price, breaks even down 3.5%, and has a max possible gain of 7.5% of the stock price down ~10%, or 4x the premium at risk.
Look Back: last week I detailed a portfolio hedge in the SPY when it was trading $370, from Dec 9th:
Bearish Trade/Hedge Idea: SPY ($370) Buy Feb 370 – 320 Put Spread for $10
-Buy to open 1 Feb 370 put for $13
-Sell to open 1 Feb 320 put at $3
SPY 1yr… resistance 370, intermediate support 340 near Feb high and long term support near 2000day moving average near 320