Post-Election Trading Opportunities Emerge

It has been eight days since Americans took to the voting booths to elect Donald Trump. Since then, we have seen the market dominated by rotations in and out of sectors and asset classes.

This fact is evident in how the Dow, S&P 500 and Nasdaq all have moved somewhat independently from each other during the last few days, as some indices registered gains and others absorbed losses. As we wrote last Friday, this rotation seems way overdone and things should begin to settle down again soon.

We understand that some sectors and assets will underperform or outperform during a given time frame but the simple fact remains that President-elect Trump will not take office until Jan. 20. Even then, he can’t approve his own agenda unilaterally.

This sense of too much too fast led us to execute the trades we did last Friday. In addition to adding the TLT and EEM calls that day, we closed out some positions and took a net gain with our HYG puts picking up 117% as UVXY gave back about 78%.

We also executed additional trades earlier today when we recommended that you sell the iShares Barclays 20+ Year Treasury Bond (TLT) Jan. 20 $115 puts (TLT170120P00115000), which last traded at $0.76 cents, to pair against our long call position, the TLT Jan. 20 $129 calls. The goal is to lower our out-of-pocket cost and to give us a better gain potential.

Again, while over the long term rates might be headed higher, our trade is shorter in term as we look to profit from the move lower in rates as things begin to settle down a bit. We also initiated a spread trade in United States Oil Fund (USO) by advising the purchase of the USO Jan. 20 $11 calls (USO170120C00011000) and the sale of the USO Jan. 20 $9.50 puts (USO170120P00009500).

We have had a lot of success trading USO in the past and we believe this time will be no different. While supply continues to be a challenging headwind, we again see the OPEC trying to rally its members for production cuts on Nov. 30 at the group’s next scheduled meeting. Also, in terms of technicals, the low $40s per barrel in crude oil prices has proved to be formidable support. With crude oil now at $45 a barrel, we think the risk/reward is in our favor for a rally higher to let us close out our position at a gain.

With respect to our position in gold, while we are watching it very closely, we remain encouraged by the stabilization we have seen the last couple of days. Despite the challenging longer-term fundamentals, both gold and the miners are deeply oversold and we are expecting a nice bounce higher. We believe the sustainability of the rally will be an important indicator if it is a longer-term prospect.

We are seeing a lot of tradeable opportunities arise in some select sectors and exchange-traded funds (ETFs). As such, we will send out a special alert on Friday to take advantage of any other money making trades we see in the coming days.

Sincerely,

Doug and Tom