With the spotlight on retail earnings and the subsequent fallout of earnings disappointment, it’s easy to forget what more important trends are driving trader and investor sentiments – the kind of trends that highlight how you can still pull in a profit.
Don’t let the clobbering that stocks like Target Corporation (TGT) and Ross Stores Inc. (ROST) received this week distract you from where your attention ought to be: inflation and rising rates.
That’s why I’m watching United States Oil Fund (USO), the exchange-traded fund designed to track the price movements of the WTI futures spot month contract.
USO has been trading in a rising-wedge pattern since early March 2021, and I think it could finally breakout as the war in Ukraine drags on, and we move into the summer driving months.
If you’re not familiar with a rising-wedge pattern, it’s characterized by sideways trading with relatively fixed resistance at the top of the range but higher lows every time the stock pulls back down to support. In many cases, those higher lows represent buying support that eventually powers the stock higher through previous resistance.
As I write this, USO is trading at $81.50, up from its Thursday low of $78.45. I think we could see USO break through resistance at $83.00 within the next five to ten sessions.
At this point, I like buying the USO July 1, 2022 $82.5/$83 Call Spread for $0.20 or less. Plan on exiting the USO July 1, 2022 $82.5/$83 Call Spread for a 100% profit or if USO closes below $74.00.
I’m also watching ProShares UltraShort 20+ Year Treasury (TBT), the exchange-traded fund designed to provide 2x inverse exposure, reset daily, to a market-value-weighted index that tracks the performance of US Treasury securities with remaining maturities greater than 20 years.
At this point, the FED is expected to raise rates another 50bps when it meets again on June 14 & 15. With that as the backdrop, I expect we’ll see traders take interest rates higher ahead of the June meeting. If that happens, shares of TBT will climb higher, and we could see an easy 100% profit along the way.
At this point, I like buying the TBT June 17, 2022 $26/$27 Call Spread for $0.40 or less. Plan on exiting the TBT June 17, 2022 $26/$27 Call Spread position for a 100% profit or if TBT closes below $24.75.
Cheers,
— Shah
Source: Total Wealth