The Urban Banking Reversal (URBN,C,GLD,FXI)

 

 

Amid all the wailing and round-the-clock attention the damned primaries are getting, you’d think the Super Bowl had been changed to a non-stop, twelve-month televised death match!

 

But this isn’t sport, friends.

 

This is your life.

 

So, in the interest of offering you a brief digression, we offer hereunder a pithy primer on what all the hoopla is really about.

 

And it goes like this –

 

  • If you’re rich and secure and haven’t been overly picked on by government, you vote for Cruz.
  • If you’re poor and secure and haven’t been overly picked on by government, you vote for Hillary.
  • If you’re young and pissed and are looking for someone to hang, you vote for Bernie.
  • If you’re old and pissed and are looking for someone to hang, you vote for Trump.

 

The Essence of the Times in 62 Words!

 

A few trades to run down before we begin.

 

One is simple, the other, not so much.

 

We’ll start with the easy one.

 

On February 23rd we opened a trade using the SPDR Gold Trust ETF (NYSE:GLD) in which we bought the March 24th 113.50 PUT for $1.92 and sold the March 24th 118.50 CALL for $1.79. The debit on the trade was $0.13 and that’s where it ended. Both options expired out-of the-money and we lost thirteen bucks.

 

Now get out your pencils for trade #2.

 

1

 

Pencils, Rudy. With leads.

 

Here we go…

 

The whole affair began back in the summer, when we sold PUTs on the iShares China Large Cap ETF (NYSE:FXI). The result of that trade was less than we’d hoped for – we ended up holding three hundred shares of FXI, purchased at $44 – along with an original debit of $213 for the options.

 

Since then, we’ve been selling PUTs and CALLs to make back the difference.

 

And we’ve done rather well –

 

  • We sold two FXI September 25th50 CALLs for $0.87 each, for a credit of $174.
  • We sold three FXI October 33.50 PUTs for $0.91 each, for a credit of $273.
  • Along the way, we also picked up two extra January 2017 51 CALLs (for a total of three) at a nominal credit of $4.
  • We sold three December 31st 40 CALLs for $0.36 each, for a credit of $108.
  • We were put 200 shares of FXI that we immediately dumped in our March 22nd letter, for a gain of another $142.

 

All told, therefore, we’re underwater on the shares some $3300, but we’ve clawed back $701 to sit at negative $2599, and we’re also holding three January 51 CALLs.

 

All of which leads us to today’s action.

 

Sell the kitchen sink – and the Mrs. chained to it!

 

In an effort to work down our costs while the Chinese market rises, and get ourselves out of a bind, we’re recommending you sell both PUTs and CALLs on FXI in the following fashion –

 

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Wall Street Elite recommends you consider selling three (3) FXI May 35.50 CALLs, now trading at $0.39 and three (3) FXI June 29 PUTs, now selling for $0.53. Total credit on the trade is $2.76.

 

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We’ll get this thing squared soon enough.

 

2

 

For today’s trade we’re going to offer you the following pairing.

 

It’s based on the relative performance of two sectors that have traced significantly divergent courses over the last three months, the consumer discretionaries and the financials.

 

Without getting too wrapped up in it, suffice to say that the discretionaries have outpaced the financials by a wide margin since the New Year, what with Chinese weakness, devaluations, war, and domestic concerns on the earnings and interest rate fronts causing the biggest jitters among the banks and brokers.

 

But we expect those same banks to now be the beneficiaries of a sweeping sector rotation that will make money for… well, those same banks and brokers, as profits are pocketed from the discretionaries and funneled into the financials.

 

And we, not being satisfied with run’o’the mill profits (read: being the greedy bastards that we are), are going to skip the simple ETF matching and go straight to two stocks that are representative of the two sectors in the extreme, and play them against one another.

 

The stocks we’re going to use are Urban Outfitters (URBN:NASDAQ), hip clothing retailer for the younger set, and global banking giant Citigroup (C:NYSE).

 

Here’s a chart of URBN to start –

 

3

 

Note first the overbought RSI read in red at the bottom of the chart. This tells us that URBN shares are due for a pause, at least, if not an outright decline, potentially to cover the large gap higher that opened earlier in the month when the company beat Wall Street profit expectations.

 

Add to that the 70% (!) jump in the stock’s shares in the last sixty days and the strong resistance she’s encountering at the long term moving average at $33 (in black), and we say there’s little to be had from the company’s shares in the near term.

 

Contrast that with Citi’s chart below –

 

4

 

Citi has just seen both her RSI and MACD indicators lift above their respective waterlines (in blue) after a deeply oversold read back in January (red circle). Since then, the action has been steadily higher, but we’re still a long way from the retracement highs set back in November.

 

Resistance falls at $48 and again at $51 with the descending longer term moving averages (green square).

 

All told, the path of least resistance for C shares is higher.

 

That’s why we’re going to move aggressively to trade this pair long/short, with the expectation that the gap between the two will close formidably over the next couple of months.

 

Have a look here –

 

This is a chart of both stocks charted against each other –

 

5

 

The outperformance is apparent.

 

But it won’t last.

 

This recommendation is for members only…

Our recommendations have yielded over 1,247.91% since 2011. Cancel any time – manage your own membership…

Click here to become a member and be a part of the 1000% club and claim your free Special Report “The Seven Deadly Secrets of China”

 

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Wall Street Elite recommends you consider 1) selling the FXI CALLs and PUTs as outlined above, and 2) purchasing the Citigroup September 45 CALL for $1.95 and selling the Urban Outfitters September 35 CALL for the same $1.95. You net out at zero cost to initiate.

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With kind regards,

 

Hugh L. O’Haynew

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