I’ve been handing out free money to iBankCoin readers for the past few weeks and I’d like to summarize my take on the markets and my recommendations up to this point.  This is done in an effort to be transparent with my ideas, calling out my own mistakes and tooting my own horn when I’ve made money.

First of all, if you’re short the Fed Trade School Basket you’re doing very well for yourself, I’ve updated my recommendations below:

Stay short the country basket, Brazil (EWZ), China (FXI), Mexico (EWW), Russia (RSX or ERUS), and Australia (EWA), you should be up on all of these except EWZ, be patient these will continue to work well, especially if you are long some of your favorite US equities as well.

Take some profits on Freeport-McMoran (FCX), you should’ve made some nice gains on this one, personally my options were up around 85% when I took profits on Thursday (too early).  If you’re still short I recommend taking profits and perhaps leaving a piece on, depending on your trading style.

Currencies are still a good play,  although my recommendation was to use Friday’s highs (11/6/15) as a stop loss, you would’ve been stopped out however, I believe these will still work; “Short the Aussie Dollar (FXA), and Short the Canadian Dollar (FXC)”.

Stay short Oil (USO), you’re making a killing here!  No reason to to cover, especially after we had war escalating events over the weekend (Paris attacks) and crude oil was still down today – very bearish.  Perhaps move your stops down depending on your trading style.

From last week’s post, Commodity Not-So Super Cycle you should be short ConocoPhillips (COP).  Depending on your entry you should be doing okay in this one.

Stay short COP, use Wednesday’s (11/11/15) high around $54.75 as a stop.

Finally, my call on coal (perhaps) bottoming in King Coal’s Big Bounce? is still a wait and see event driven idea.

Keep an Eye on ACI, for the signal to buy BTU, when it’s apparent that Arch Coal (ACI) is in fact going bankrupt, depending on the reaction in Peabody Energy’s (BTU) shares, go long BTU for a potential bottom in coal.

I think overall the markets should bounce early in the week and most likely give up those gains by the close on Friday.  The easy trade is to stay short commodity exposure (as described above) and stay long US equities until they break down again.  I personally doubt we’ll see any fireworks until the end of the year.

I’m working on a few ideas for this week, they’ll be associated with transportation (rail) stocks and perhaps THE momentum trade of 2016.

Feel free to comment below, let me know if I’m adding any value here or if you’d rather me go back into my own little trading cave.

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The picture above is the Pasha Bulker, which ran aground near Newcastle, Australia in 2007.  I’ve been to that beach and what an amazing sight that must have been!  Now that the Fed is going to hike rates in December, I figured it illustrated perfectly what could well be the (continued) fate of many commodities around the globe.  Not to get too “macro” here because academic economists are typically full of it- trying to explain things after the fact- but it should be apparent by now that the US Fed is running a monetary tightening policy whereas the rest of the world’s central banks are easing.

The effects of this are obvious:

1. The US Dollar is going to get stronger relative the rest of the worlds currencies
2. Things prices in US Dollars are therefore going to get weaker
3. Companies that produce and sale things prices in US Dollars will lose income/revenue
4. Countries exposed to exporting things priced in US Dollars are also going to feel the negative effects

See the chart below, Commodities ($GTX) vs the US Dollar (UUP), shown at the bottom:

 

 

Now that this is set to continue, at least until mid-December…

Here’s the Trade:

Countries: Short Brazil (EWZ), Short China (FXI), Short Mexico (EWW), Short Russia (RSX or ERUS), and Short Australia (EWA).  Use their respective recent highs as a stop loss, and use their recent lows as profit targets.

Companies: Short Freeport-McMoran (FCX), use Friday’s high as a stop loss; $11.25.

Currencies: Short the Aussie Dollar (FXA), and Short the Canadian Dollar (FXC), use Friday’s high as a stop loss.

Commodities: Short Crude Oil (USO), and Short Gold (GLD) – only on a break to new lows.

I’ll probably use options for that basket of positions since it’s a fairly short duration trade and I’ll be able to use a minimum amount of cash – allowing me to enter each one.  These trades are not that ingenious, they seem fairly obvious right?  There’s beauty in simplicity, and simple usually makes money.  Key Note: I think this strategy should be closed out by the day of the Fed decision, December 16 – It might self destruct Mission Impossible style, and here’s why I think so:

If they hike rates, the Fed will most likely hint at a “one and done” policy in order to talk the US Dollar back down.  More on this idea to come… but I think Dec. 16 could be the current commodity cycle’s low.  I think the Fed will begin to ‘turn their battleship around’ and start the slow process of changing the narrative back to easy money.  This is of course dependent on how weak the Q4 GDP estimates (and Q3 revisions) come in.   They could be hiking into weakness which is not good.  Furthermore, if you’re a little uneasy about staying long the market after one of the largest monthly rallies ever, the short ideas listed above are a good way to balance (hedge) your portfolio.

Last thing to keep in mind, it doesn’t matter if the Fed actually hike rates, what matters is that the jawboning and the perception of tightening is effectively tightening in and of itself.  That’s why these trades should work.

 

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