Underground and Behind the Scenes (XLF, FXU, DIA)

Things just aren’t as they seem.

oh

Consider the following –

1. Is there really a bull market underway?

Many believe it to be the case.

But is it possible that rising stocks are really the product of a carefully engineered government effort to drug the masses – to hoodwink them into thinking that all is peachy, nothing’s amiss, and that we’re all just groovin’ – so don’t make waves.

couple

2. And is there really a burgeoning conflict in the Middle East?

It appears so – replete with head choppers and body snatchers and suicide bombers and slingshots.

But could it be that it’s actually a well-hatched plot to sequester the world’s gold reserves and funnel them to some subterranean hideout in the middle of the Arabian Desert?

desert

3. Is the Ukraine/Russia border war is the result of a spontaneous ethnic Russian desire to return to their Muscovite roots?

So it seems.

Or are we again witnessing a low grade, western-inspired battle whose goal is to carve out a sharper divide between opposing Slavic cultures – those who lean more toward their Western roots vs. those who adhere to what was once termed a ‘Slavophile’ orientation. And all this, of course, to better delineate the battle lines for the upcoming ‘Clash of Civilizations’, first (and most eloquently) discussed by Samuel Huntington in his book of the same name.

And the Answer is…

 

To give an honest answer to the above, and other similar questions would require far more time and space than we have here. Nor, we understand, is everyone interested in these issues. And that’s perfectly fine. We believe, however, that it’s helpful to understand the vectors along which the world is running, whether those vectors are, in some cases, parallel and therefore reinforcing, or in opposition, and therefore likely to result in friction and/or possibly a full blown collision that completely upsets the global economic apple cart.

We won’t comment any more except to offer you the following, riveting reading –

• This Wall Street Journal article discusses America supplying small arms to Ukraine “to help deter Russia.”

• And this Huffington Post piece describes the astounding number of American ‘black ops’ missions conducted in recent years – already in 105 separate countries in 2015 alone!

• And here you’ll read about the declining rate of home-ownership in the U.S., a deterioration that has set us back to levels not seen for over 20 years.

Have a look –

ownership

To sum, there are active currents beneath the surface that we’re not informed of and in some cases completely unaware of, that will eventually form the core of the narrative that we get from mainstream media sources. Until then, know that there’s more to the picture than meets the eye. And stay tuned to Normandy to get all the latest, up-to-date briefs on market moving news.

And Now We Trade

 

Before we get to this week’s initiative, we’re going to shut down a number we opened back on January 6th. The letter was called Houston – We have a Situation, and in it we advised you to purchase DIA February 167 PUTs, then trading for $1.96.

At the time, DIA was changing hands for a hair under $175 per share. It’s now slightly lower, at 173.27, but we don’t like the way things look.

How do they look?

Well, not to put too fine a point on it – kinda like plastic surgery gone way wrong.

itchy

Not a disaster, to be sure, just that we don’t trust the trade anymore.

Have a look at the chart –

djia23

From our vantage point it looks like the Dow has caught strong support at the 137-day moving average (in red). It’s also our opinion that both RSI and MACD indicators have cooled measurably (in black) – certainly since their near overbought readings of late November, when the market began to buckle after some clearly excessive buying.

All of which leads us to expect more sideways movement from the indexes in the weeks leading up to the close of our trade. Remember – the PUTs are due to close in just over two weeks, and we feel it’s best not to risk losing everything if we have a chance to escape with something.

So we’re acting as follows –

First, we’ll take what’s left of the option today – some $0.91. Then we’ll go one step further.

Instead of just selling one PUT, we’re going to sell an additional two, to take advantage of what we see as a change in direction for the Dow and to recoup the loss we’d otherwise have taken.

We’re selling one to close and two to open, for a total of $2.73.

That puts us up $0.77 (2.73 – 1.96) for the trade, and that’s where the trust it will end.

Stay tuned.

crazy

Your Trade for this Week

 

We’re ever searching the investment landscape for pairings that we believe will prove profitable. We match flagging sectors with strong ones, individual stocks against their broader sector, and sometimes two stocks within the same sector against one another. And the goal is always the same – to buy the stronger and sell the weaker in an effort to 1) spend less money on the trade and 2) profit from the outperformance of one security over another.

And so we arrived at the following –

Over the last two months’ general weakness in the market, the worst performing sector in the S&P 500 was the financials. Among the best performers were the utilities.

It makes sense to us to match these two against one another, looking for a stronger performance out of the financials than the utilities in the event of a market rebound.

Why? First, because utilities are seen as a safe haven in times of market trouble. And second, because corporate growth and economic expansion are always more closely tied to the financials than any other group of equities.

When the turn higher occurs, we expect the Select Sector SPDR Financial ETF (NYSE:XLF) to outperform the First Trust Utilities ETF (NYSE:FXU).

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Options Trader Elite recommends 1) you sell your DIA PUT options as specified above and 2) (our first-ever non-options trade!) – consider buying XLF stock for $23.38 and selling FXU for $25.30. Total credit per hundred shares traded is $192.

 

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Options Trader Elite recommends 1) you sell your DIA PUT options as specified above and 2) (our first-ever non-options trade!) – consider buying XLF stock for $23.38 and selling FXU for $25.30. Total credit per hundred shares traded is $192.

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It was too good to pass up.

With love of the hunt,

Hugh L. O’Haynew, Senior Analyst, Normandy Research

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