Was that it? Was that the correction?
Markets aren’t required to pullback. In fact, we could view the past month’s rotational correction as “good enough.”
And it certainly has been rotational. Banks and “global growth” plays are seeing massive upside moves while much of the tech and momentum space is still seeing some blood-letting.
You put those two together, and you end up with broad markets trading sideways with low correlated assets.
The main narrative risk I saw going into this week was the spectre of inflation… as input costs continue to rise and the labor market is tight, then that can put an upside cap in a lot of individual names.
The jobs report this morning took that narrative and threw it into the trash. It was a terrible jobs number, due to several factors, but this is an environment where bad news is good for stocks. Nobody coming into jobs? That means the Federal Reserve won’t be pressured to hike rates anytime soon, so liquidity will still be pushed into financial markets. Is it completely backwards? Yes, but that’s how it’s been going for over a decade now.
The low correlation allows us to play both sides here. There’s a few spots that are getting a little too overheated, and other areas that still offer good risk/reward to the upside.
Trade #1: BRK/B
Berkshire is moving as it has a few things going for it: banks and rail exposure. Both of those sectors are doing graet, and this week we saw a parabolic liftoff as the rate of change significantly increased. The stock is also about 30% above it’s 50 week moving average, which is a reading we’ve seen only twice in the past twenty years.
Fading the front side of these moves has been VERY VERY tricky so we need to make sure we don’t go “all in” and we wait for one more push before we start scaling in.
Expected Price: 301.2
Sell to Open BRK/B 18Jun21 310/315 Call Spread
Tier 1: Enter at 0.7, Exit at 0.04
Tier 2: Enter at 0.98, Exit at 0.17
Tier 3: Enter at 1.26, Exit at 0.21
Stop Out If Close Over 310.11
Trade #2: FDX
Looking for a pullback to buy into after this nice breakout to new highs.
Expected Price: 298
Sell to Open FDX 18Jun21 280/270 Put Spread
Tier 1: Enter at 1.7, Exit at 0.28
Tier 2: Enter at 2.38, Exit at 0.85
Tier 3: Enter at 3.06, Exit at 1.11
Stop Out If Close Under 279.89
Trade #3: DKNG
Draftkings was hit on earnings, and it’s yet another broken momentum name nobody wants to own.
Well I want to trade it if it comes into it’s previous support level.
Note the expiration– we’re using August options for this to give us more wiggle room as this can stretch further than I think.
Expected Price: 45
Sell to Open DKNG 20Aug21 35/30 Put Spread
Tier 1: Enter at 0.9, Exit at 0.2
Tier 2: Enter at 1.26, Exit at 0.51
Tier 3: Enter at 1.62, Exit at 0.67
Stop Out If Close Under 34.89