Category: (Not) Trade Ideas

Fundamentals?

If you have been watching the debates, caucuses, or media, then the current odds from the betting website predictit.org should not surprise you.

I do not want to get into the politics. I just stick with the cause and effects. The below image lets you know that Bernie is anti-guns.

The market is likely going to bet on a surge in gun purchases ahead of a potential Bernie victory, thus boosting earnings of gun companies.

Technicals?

A breakout at the drawn resistance in $AOBC would add to conviction.

American Outdoor Brands Company ($AOBC)

Confirmation of a breakout in $VSTO would add to conviction.

Vista Outdoor ($VSTO)

A run and breakout at the long-term resistance line in $RGR would add to conviction, but this one is likely ready to play now.

Sturm, Ruger & Co. ($RGR)

A breakout of $OLN would add to conviction.

Olin Corporation ($OLN)

How do you know that bottom was related to the election?

From 2/13/20 to 2/22/20, Bernie gained 15 cents. That means the odds of him winning the Presidency rose by 68% in less than 2 weeks.

All four of those stocks bottommed in their recent consolidation patterns between 1/10/20 and 2/3/20. Imagine those bottoms as being the buyers that had to bet before the fact in order to fill their position without moving the market.

I also want to say that I believe if other democrats had not performed so poorly Bernie may have even taking cents away from Trump. Trump could not fall because the other democrats (mostly Bloomberg) coughed up so many cents.

I believe that Trump will begin to lose cents to Bernie. This is due to the premise that Trump has run his Presidency on the economy as graded by the stock market. Coronavirus is a serious issue. The left should have an easy time blaming Trump for choosing his stock market over the health of Americans at risk of the coronavirus.

No ETF is available to play gun stocks. These would likely be the components if there was one. Buy breakouts, sell fakeouts here.

A last thought: I wonder if these stocks were too significantly hurt with the rise in ESG (Environmental, Social, and Governance) investing.

Teucrium Agricultural Fund

What is it?

Fundamental idea?

It is quite obvious now that the FED will stop at nothing to give us the wonderful gift of inflation that they say we so desperately need. Gold has snuffed this out, and it seems $TAGS has as well. Agriculture as a commodity has me more interested at the moment than others because many others have ties to economic strength.

Technicals?

Long-term downtrend line violated. Support found with an inverse head and shoulders pattern forming as a launching pad for the re-price.

Sugar is flying. Will it break out on this run or fall back to create a mega inverse head and shoulders pattern? I would add directly to Sugar ($CANE) if that happened.

Corn bottoming would add to conviction.

Wheat looks great. You could consider a direct trade in ($WEAT).

Soybeans still making a decision. Once the long-term downtrend is firmly violated, then conviction will increase.

Back to $TAGS. I would not be surprised to see a new high in the future. If symmetry serves us then you could forecast an over 3x return over 7 years.

Give up on this trade if $TAGS trades below here.

A note: There are many people looking at the demise of fiat currencies as an opportunity to play outlasting currencies against each other. While that is happening, there will be bull markets in commodities in some sort of optimal order over the next decade if you were to invest. I think that is the better framework to take going forward.

Global X Silver Miners ETF

In the long-run, I am essentially bullish Gold and Silver related plays across the board, but if you were looking for an entry point for a Silver trade, then here it is.

Below, is the Gold/Silver ratio. This ratio tells you how many ounces of Silver it takes to buy one ounce of gold. When the ratio is high, it means that Silver is cheap relative to Gold.

Historically, when this ratio comes down, it marks bull markets for the precious metals. I view Silver as a leveraged investment to Gold, so if it is getting more attention than Gold, then that means that people really think that Gold will go up, and are willing to speculate on its more volatile partner.

From the chart below, one may infer from my viewpoint that the precious metals play is historically hated as people have apparently no interest in Silver relative to Gold. From a value standpoint, Silver is at least historically cheap relative to Gold.

If we zoom in on this ratio, then we see that it has been bouncing off ~20 year overhead resistance the past few weeks, but it appears to have reversed. This suggests Silver may begin to outperform Gold, and this reversal is further confirmation that the bull market in precious metals may be upon us.

If we view Silver alone, then the move becomes more visible. I have provided 2 different charts of Silver with differing timeframes for you to view the current move.

A run to $16 appears imminent, and a breakthrough of $16 would be very encouraging to further confirm that the precious metals move is on.

January 11, 2016 to July 4, 2016 – Silver moved from ~$14 to ~$20 (~+42%)

January 11, 2016 to July 4, 2016 – SIL moved from ~16 to ~47 (~+194%)

I believe this is a nice time to build a position in SIL due to the recent breakout in Silver. SIL is a basket of silver mining companies. Miners tend to move multiples of their respected commodity due to rapidly increasing margins.

I would exit the position of SIL if Silver falls below $15.20. For long term investors, this position should play out in due time, and short-term fluctuations will be irrelevant. Hopefully, the move is now though.

VanEck Vectors J.P. Morgan EM Local Currency Bond ETF

The June Fed meeting essentially let markets know that the US central bank officially was changing to an “easing bias.” This was the “technical decision-maker” for which way the market for the dollar (DXY) would break out of its ascending triangle pattern. Typically, this is a bullish continuation pattern, but in this instance we had a false breakout to the upside on 2 prior occasions, and then ultimately broke out of the bottom.

The EMLC call is one intended to express the bearish view that technically the dollar is breaking down. This is also fundamentally confirmed by the Fed pivot to the “easing bias.”

The “easing bias” is apparent from the dive to 0% in the probability that the Fed Funds Rate will remain at 2.25-2.5% at the July 31 meeting.

To gain perspective on what to expect from EMLC under a bearish condition of the dollar, let us explore how it reacted under a bullish condition.

From July 2014 to March 2015, the DXY moved from ~80 to ~100. This was about a 25% rise. During the same time period, EMLC fell from ~49 to ~39. This was about a 20% fall. The negative correlation is clear.

The idea from the beginning was to exhibit a bearish dollar play via emerging market assets. Government bonds were chosen as a safeguard to potential economic slowdown and as the end route for “yield seekers.”

Essentially, the world economy is slowing. This is shown below in the JPMorgan Global Manufacturing PMI.

This means that emerging market equities may still be at risk due to economic slowdown taking more toll on emerging market company profits.

The second reason for the choice of emerging market bonds over emerging market equities is that this fund (EMLC) currently averages over a 6% interest rate between all of the ETF’s underlying bond holdings. The high interest rate of emerging market bonds is due to the extra risk associated with emerging market assets, but investors will be more willing to take on this risk as alternative options dissipate. This dissipation of alternatives is occurring as we now have over $13 trillion in negative yielding debt in the world. This comprises 24% of the total global investment-grade bond market.

The bullish case is laid out. I will be entering on a pull back within my technical marker or upon a breakout. I have marked fibonacci lines from the all-time high in 2011 to the bottom in September 2018.

With every trade there are risks. For this trade, it is basically all a dollar story. If the dollar turns up, then this trade will not perform well. This risk is muted though, since the world cannot afford a stronger dollar. More importantly, Trump cannot afford a stronger dollar, therefore the dollar’s upside is limited in my opinion. The reason being is that a stronger dollar will result in a lower U.S. stock market. This is due to the entire world essentially being short dollars.

From April 2018 to August 2018, the dollar (DXY) rose about 8%. This caused, on a lagged-basis, the US Stock market to enter into an official bear market (fell greater than 20%), and also caused the Fed to begin the shift to the “easing bias” due to inability for the US Stock market to handle a stronger dollar.

In conclusion, EMLC could be bought on a pullback below $33 or a breakout above $35. In calculating this position’s total return, do not forget about distributions (interest payments) that will occur in holding this bond ETF.

Should the DXY break out above 99, I would look to close the position.