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Proactive Spreads, March 1st, 2021 – WMT, JPM, CAT

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The chart of the S&P doesn’t show how hard some trades broke last week. Yes, it was a nasty selloff and increased volatility in the indices, but under the surface we saw some blowout trades.

TLT, which tracks long term bonds, saw a liquidation event with a capitulative low put in. Much of the narrative in the markets has been geared towards the reflation trade– copper broke above $4, Oil has been running, and the yield curve has shifted to benefit banks and commodity stocks.

That reflation trade has hurt some sectors. Retail stocks have not participated with this recent rally as investors are starting to get concerned about input costs and margin squeezes… this will be a theme for the rest of the year I think.

In terms of strategy, the best bet this week is to anticipate yields falling off a bit. That most recent capitulative low in bonds can get some decent reversion, and that will *hurt* banks and reflation stocks. If they have weakness I want to start getting long into it.

Trade #1: WMT

WMT had a bad week last week. Earnings followthrough to the downside, odds are investors are spooked about rising input costs and how that can affect margins with the company.

It’s nearly 10% away from its 50 day moving average, something that doesn’t come along very often. I like establishing a position right here.

Trade Setup

Expected Price: 130

Sell to Open WMT 16Apr21 125/120 Put Spread

Tier 1: Enter at 1.2, Exit at 0.55

Tier 2: Enter at 1.68, Exit at 1.01

Tier 3: Enter at 2.16, Exit at 1.36

Stop Out If Close Under 124.89

Trade #2: JPM

JPM is my favorite trading instrument out of all the banks. I want to see a push to test that previous resistance as well as that rising trendline.

Trade Setup

Expected Price: 143.32

Sell to Open JPM 16Apr21 125/120 Put Spread

Tier 1: Enter at 1.12, Exit at 0.46

Tier 2: Enter at 1.568, Exit at 0.87

Tier 3: Enter at 2.016, Exit at 1.17

Stop Out If Close Under 124.89

Trade #3: CAT

As CAT is a proxy for reflation, it’s seen a solid move higher, but got a little bit extended recently. I want to see a retracement of this most recent move, and will start scaling in if we crack 210.

Trade Setup

Expected Price: 207.18

Sell to Open CAT 16Apr21 190/185 Put Spread

Tier 1: Enter at 0.89, Exit at 0.19

Tier 2: Enter at 1.246, Exit at 0.48

Tier 3: Enter at 1.602, Exit at 0.64

Stop Out If Close Under 189.89

 

 

 

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