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Trade tensions laid the smackdown on stocks on Friday… and that was a reminder the market is still in a fragile state — and just because we’re still close to all-time highs… it doesn’t mean the market can’t experience violent pullbacks.

There have been some signs that traders are preparing for the worst:

  • Rotation into gold and bonds for months already
  • Flows into real-estate and consumer staples ETFs (stocks that are thought to be defensive during economic downturns.
  • Weakness in growth stocks (ROKU, NFLX, AMZN, FB — to name a few — have been weaker than the overall market)


With the Fed out of the picture for now… market participants will be focused on trade war, as well as upcoming earnings — trying to figure out what’s going to be their next “safe haven”.

The big question now: Does the market just rocket through all-time highs, or do stocks pull the ol’ fake out break out and take a dive?

Either way stocks decide to go… I’ll be reaching into my grab-bag of strategies and ideas to reel in profits from the options market.

In this week’s edition of The Jump, I’ll be focused on the macro view, charts and catalysts… and the upcoming earnings and IPO calendar.

 

Traders Are Nervously Bulletproofing Their Portfolios

Despite some recent strength in the U.S. economy and quelled recession fears, traders are still fearful of a potential pullback.

I don’t blame them… especially when we’ve seen the same story multiple times… signs of economic strength, optimism in the trade war, the market rallies and gets to all-time highs… then gets rocked.

Here’s a look at the weekly chart in the SPDR S&P 500 ETF (SPY).

In the chart above, you’ll notice three blue lines… that shows you how the market performs around all-time highs.

For the most part, we’ve seen stocks overshoot all-time highs… followed by a violent pullback.

Who could forget in 2018 when the market made all-time highs in early September… only to sell off into the year-end?

With the market stalling around this key… it’s reminiscent of last year’s massive crash… and it seems as if traders are planning for that and getting on the defensive.

However, they’re getting crafty with their portfolio hedges… looking to utility stocks.

Just take a look at the XLU — an ETF that tracks utility stocks.

 

Electricity and energy stocks are thought to be “safe” because those companies provide services people need… and they’ll still generate revenues and earnings, even during the bleakest of times.

However, traders using utilities as a defensive play and they’re paying a hefty premium.

The S&P 500 Utilities Sector is trading at more than 20 times earnings — the most expensive valuation in its history.

 

Not only are we seeing traders bid up utility stocks… we’ve also seen some flows into real-estate stocks.

It’s quite clear that many are forgoing bonds right now… and looking for other asset classes that move in lockstep with them… like real-estate stocks.

Check out the weekly chart in the Vanguard Real Estate ETF (VNQ).

 

We’ve just seen relentless buying in VNQ, as well as XLU, and they haven’t experienced any violent pullbacks all year… not even when the market dropped in August.

The markets have clearly indicated a slowdown is in the cards… and traders are throwing caution to the wind and buying every single safe haven they can get their hands on.

So what’s the play here?

Well, I certainly won’t be chasing up these overvalued stocks and I won’t be throwing down large sums of money on long-term hedges

Instead, I’ll look for my chart setups and place short-term strategic options trades.

Some trades I’m currently watching include:

Call spreads

FB, DE, IWM, ROKU, AMZN, NKE, FDX, TLT

Put spreads

FIVE, TWLO, BYND, TWTR, DIS, NOW, YETI, STNE, WYNN, RACE, WWE, W, CVNA, PLNT

I’ll also be looking for macro clues this week, especially since we’ve got a lot going on… in terms of economic catalysts.

 

Economic Calendar

 

Monday, September 23

  • 8:30 AM EST                   Chicago Fed Nat Activity Index
  • 9:45 AM EST                   Markit US Manufacturing PMI
  • 9:45 AM EST                   Markit US Services PMI
  • 9:50 AM EST                   Fed’s Williams speaks at Treasury Market Conference
  • 1:00 PM EST                   Fed’s Bullard speaks on Economy and Monetary Policy

Tuesday, September 24

  • 7:45 AM EST                   ICSC Weekly Retail Sales
  • 8:55 AM EST                   Johnson/Redbook Weekly Sales
  • 9:00 AM EST                   FHFA House Price Index
  • 9:00 AM EST                   S&P CoreLogic CS Index
  • 10:00 AM EST                 Consumer Confidence
  • 4:30 PM EST                   API Weekly Inventory Data

Wednesday, September 25  

  • 7:00 AM EST                   MBA Mortgage Applications Data
  • 8:00 AM EST                   Fed’s Evans speaks on the US Economy and Monetary Policy
  • 10:00 AM EST                 New Home Sales
  • 10:30 AM EST                 Weekly DOE Inventory Data

Thursday, September 26

  • 8:30 AM EST                   Gross Domestic Product (GDP)
  • 8:30 AM EST                   Advance Goods Trade Balance
  • 8:30 AM EST                   Weekly Jobless Claims
  • 9:30 AM EST                   Fed’s Kaplan give opening remarks at Dallas Fed Conference
  • 10:00 AM EST                 Pending Home Sales
  • 10:30 AM EST                 Weekly EIA Natural Gas Inventory Data
  • 11:00 AM EST                 Kansas City Fed Manufacturing

Friday, September 27

  • 8:30 AM EST                   Personal Income
  • 8:30 AM EST                   Personal Spending
  • 8:30 AM EST                   Durable Goods Orders
  • 8:30 AM EST                   PCE Deflator
  • 10:00 AM EST                 University of Michigan Sentiment
  • 1:00 PM EST                   Baker Hughes Weekly Rig Count
  • 1:00 PM EST                   Fed’s Harker speaks to Shadow Open Market Committee

 

On the earnings front, there are a few names I’m keeping an eye on:

 

IPO Calendar

  • Sept. 27 — Endeavor Group (EDR) 19.354M share IPO expected to price between $30-$32 per share
  • Sept. 26 — Peloton (PTON) 40M share IPO expected to price between $26-$29 per share
  • Sept. 26 — Oportun Financial (OPRT) 6.25M share IPO expected to price between $15-$17 per share

[Important Announcement]

Nathan Bear has been quietly knocking down massive winners… and pulling in triple-digit returns regularly.

This Thursday, September 26 at 8 PM EST… Nathan will reveal his Million Dollar Options Strategy — as he sits down with myself and Jason Bond in a rare, tell-all interview.

Since Nathan doesn’t do live events open to the public often… we’re seeing traders pour in — trying to get a seat… and some might get locked out if they don’t register now and secure their spot.

Don’t put this off until later… all you have to do is register here.

Join our community:

 

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