Puts On Industrial Index

For active traders, there exists opportunity to profit from a correction nearing in the U.S stock market. One trade with a potential triple are the XLI April 21 puts 37 strike with a buy up to price of $1.00 and a $3.00 target (which suggests a move down to the 34 area). The overbought XLI is squeezing together in an acsending triangle while MACD is negative.

The trading approach for the put trade is to stop losses at 50%, and take half profits at a 100% gain. As mentioned previously, several signs point to an imminent correction, perhaps 5-8%, in the overall market, including a sell signal in the NYSE summation index and a recent trip for the Dow Jones Transport Average Bullish Percent Index below its simple 20 day moving average. In the averages, today’s close at the lows was a marked change in character for the market since the start of the year.


About jstradingnotes

I spend a lot of time analyzing the economy and securities. The effort has enabled me to generate multi-thousand percent returns on my trading capital over the past twelve years. The next few years offer an incredible opportunity to take outsized gains from the markets. Large structural imbalances in the major western economies will result in enormous market volatility as the imbalances get resolved, offering generational money-making opportunities. The major imbalances are excessive sovereign debt, crazy risk concentration in major banks, and enormous derivative exposure in the financial sector. A systemic shock can easily create a default cascade through the financial system where one failure precipitates another and another and so on. Central banks are very aware of the risks, and they are filling the financial system with liquidity by printing new money, risking massive inflation in a few short years for the United States and Europe. China has 2-3 trillion in dollar exposure, and they would like to have far less for fear of continued currency devaluation (they've lost billions holding dollars as the value erodes). As the size of their holdings prevent them from rapidly liquidating their dollar assets (which includes U.S. treasuries), they are instead spending their dollars on resources (copper mines, rare earth metal mines, oil wells, etc.). Lately they have been accumulating gold assets, perhaps with a view to making the Renminbi convertible into gold and displacing the U.S. dollar as the international reserve currency. Their gold buying is enormous and presents an easy investment thesis: ride the Chinese horse and buy gold and gold stocks. In this blog, I'd like to share some of my trading ideas and insights on the markets as these exciting times unfold.
Aside | This entry was posted in Investing, Markets, Options, Stocks and tagged , , , , , . Bookmark the permalink.

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