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Looking for the Pre Earnings Run in CRM

crm

As we head into earnings season, one of my favorite trades is to look for stocks that will move in anticipation of their earnings event.

What happens here is that investors, exepcting good news from the company, will start to buy the stock before they release earnings. This casuses a "pre-earnings" run in the stock.

Salesforce.com (CRM) has a lot of potential for this kind of setup. It doesn't report earnings until the middle of August.

And if we start to see good earnings across the board in the tech space (like MSFT, QCOM, and FFIV already have) then we should see the stock start being bid up in anticipation of its event.

On top of all this, it doesn't hurt that the stock is trading just a few points short of all time highs, and has seen volatility compression the entire time since its previous earnings event.

Look for the stock to run another 5 points before its earnings event. I like using bull call spreads, and if you want to be aggressive you can just buy calls straight up as earnings will help to keep the option premiums elevated.

Want more trade ideas like this? Join my service here.

You Have No Choice But To Be Bullish on US Stocks

Just two weeks ago the S&P 500 was down at 2000, and we currently are around 120 points higher.

This "call" may seem a little late, but in the context of the range we've been in, this current move could just simply be a blip.

spx-month

Given the current situation, we have been in a cyclical bear market in the context of a secular bull market.

You  may ask yourself...

"Self, how can we be in a bear market when we haven't seen a 20% drop?"

Remember:

Markets can correct through three ways: price, time, and momentum.

For two years, US stocks have been in a sideways corrective pattern with plenty of shakeouts.

Now let's put in the past two years in the context of a few global macro events:

The Crude Oil Market Collapsed

crude-oil

Too much leverage and too much supply led to a structural collapse in oil. Over the course of two years, oil ran from 110 to 30... basically a 70% drop in prices.

It wasn't just crude oil... the entire energy and materials complex was hit aggressively:

xlb

Over the course of a year, XLB (S&P 500 Materials ETF) dropped over 30%.

And XLE (S&P 500 Energy ETF) was cut in half.

What happens if we look across the pond?

Overseas Markets Finished Their Bear Markets

A look at EEM (Emerging Markets ETF) shows how much damage was done over the past few years:

eem-weekly

A 40% drop.

Similar instances can be found across the globe.

If you've been waiting for a bear market... you missed out. There were and have been plenty of established and mature bear markets and it's possible that those cycles are over.

3 Volatility Events

spy-standard deviation

This is a weekly chart of the S&P 500. The lower study is a standard deviation plot, which shows us how big the week's move was in relation to the past half year's volatility.

We have seen 3 major volatility events over the past two years: the ebola crisis, the China currency crash, and the risk rotation at the beginning of the year.

Three major shakeouts. If investors were scared for any reason whatsoever, they've had plenty of opportunities to sell their stocks.

In fact, that's what we've seen. Equity fund outflows have been negative for basically the entire year.

US Treasuries Have Gone Parabolic

tlt

This is a weekly chart of TLT, an etf that tracks long duration US Treasuries.

The lower study shows us how many weeks in a row that we have seen the etf overbought.

As it stands right now we have had 5 consecutive weeks above the weekly upper bollinger band.

That has happened only 2 other times since 2008.

In fact, for the first tie since the market crash in 2008, the S&P 500 dividend yield is now higher than the 30 year treasury yield.

The reason for this move is pretty simple.

30% of all sovereign debt now have negative yields. That means you have to pay their governments to own their debt. This doesn't make sense to me, but it is what it is.

So we've seen capital flight back into US Treasuries as it is the best yielding instrument right now.

The Total Setup

Let's put this all together.

Over the past two years, we've seen a Brexit, a Chinese currency crisis, an oil shock, and a biological outbreak scare.

During this time, oil stocks got cut in half, emerging markets were down over 30%, the BRIC countries are getting slammed, and European stocks also got nailed.

There was also a crash in the British Pound to levels not seen since 1985, and the Swiss Franc had something like a 20 standard deviation move.

We're also sitting with US Treasury 10 year yield at 1.3%.

Oh and one more thing: the Fed stops their Quantitative Easing at the end of 2014.

Now think about this...

If I came to you back at the end of 2013 and told you all of this would happen in the next two years, where would you put the price of the S&P 500, the Nasdaq, and the Dow Jones Industrial average?

Unchanged? Heck no.

You'd say we'd already be off 20% along with the rest of the global macro landscape.

What we are seeing here is an "in spite of" trade setup.

The S&P 500 is about to hit all time highs in spite of all that has gone on.

The US Markets have "zagged" while everthing else "zigged."

Absence of a trading signal is just as important as the obvious one.

Think very carefully about how you want to position yourself headed into the Fall of this year.

How to Get the 10,000 Foot View

I'm a believer that knowing the big picture will help you better frame your trading decisions in the short term.

Yet there is a problem...

You can end up getting lost in the wash.

Too many headlines, too many talking heads, too much noise.

That's why it's absolutely critical that you follow price action instead of the headlines.

Because if you'd listened to everyone else over the past two years, then you're probably one of those people that contributed to net outflows in stocks.

Yet if you follow price and keep a level head about you, it's much simpler and much more profitable as an investor.

I'd like to introduce you to the Macro Investing Course.

This is a 13-video course that covers everything I know about the global markets and how they relate to one another.

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We're Seeing a Blow Off Top in Silver

If you haven't been paying attention, Silver has been on quite a tear lately.

Here's a daily chart of silver futures:

slv

The chart also has Bollinger Bands, which show us when a market is seeing movement larger than normal.

And for three days in a row now, silver has been above its upper Bollingr Band. That defines a parabolic move, and often it is a blowoff top.

That last candle?

Silver moved from 19.84 and hit a high of 21.22. 7% in a single day.

That in and of itself is interesting, but here's the kicker...

... that entire move happened during a 3-day weekend, not regular trading hours.

When we see a big move like that and it's not during a normal market session, we tend to see yet another attempt of those recent highs. I wouldn't be surprised if it cracked back above 20 this week.

Into any short term strength and I'll be looking to fade it.

Keep in mind, this is a short term trade. If we look at where silver sits on a longer term basis, this is probably the start of a new trend higher.

silver-weekly

Timeframes matter. Short term, I'm bearish and it's worth a look to take the short side.

Yet into any weakness that feels like the bulls giving up, then it's worth a look to start a new longer term position and play for the move into the 27 level.

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Breaking Down the Brexit

During a slow summer trade, Great Britain rocked the markets by voting to leave the eurozone.

The Dow Jones Industrial Average plummeted 800 points.

It looked as though the end of western civilization was upon us.

This harbinger of doom would bring plagues, locusts, rivers of fire...

Cats and dogs living together! Madness!

Yet, all it took was a single week, and we are already back to post-Brexit levels.

dow futures

What the heck happened?

I'm going to lay it all out for you so you can get a better feel for how markets actually work.

Don't Look at The Dow

If all you do is focus on the "big 3," you'll never see the entire picture.

The big 3 are the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100.

What do they all have in common?

They are all US-based indexes, and the are large cap stocks.

If you had been paying attention at all for the past few months, you would have seen a sustained "risk off" trade going on in stocks.

For example, look at the Russell 2000 index. This is made up of smallcap stocks, which tend to be viewed as riskier instruments as they can move around a lot more.

When the Russell underperforms the S&P 500, it means that there is a "risk off" feel for US stocks.

So while the S&P 500 is within spitting distance of all time highs, the past year's action has not been great for small cap stocks.

rut

Watch Across the Pond

The Brexit news would mainly affect two areas: Britain, and the rest of Europe.

How have those indexes performed over the past few months?

First, let's look at the FTSE 100-- it's like the Dow Jones in Great Britain:

ftse

From the highs from May 2015, the index dropped 22% to the lows put in back in February of 2016. Since then, it's been a choppy mess.

We can also look at Germany for the other side... the DAX is the main index to watch for German stocks:

dax

Same kind of movement as Great Britain... dropping almost 30% off the highs from 2015.

Clearly, the narrative in these markets is different than what we are seeing in the US. While the Dow doesn't look half bad, there has been siginficant technical damage in European markets, even before the Brexit vote took place.

It Was A Known Unknown

Often times when we have an event like the "Brexit," it has a tendency to fade the first move.

And the bigger the hype of the event, the higher the odds that the event will be faded.

The phrase is called "buy the rumour, sell the news."

So we came into June knowing that the Brexit vote was going to happen.

It was all anyone could really talk about.

And if fund managers were scared about the risks, maybe they would park their money into safer stocks and divest out of Europe for a while.

It's possible that the drops we saw in the markets several months ago had already started to price in some of the Brexit risks.

So when everyone is expecting the markets to run lower... it's possible that those investors who were anticipating that are already out before the event, or have hedged their bets. This creates a floor so the market doesn't find followthrough.

How To View the Field and Profit From Global Events

To get a better edge in the markets, you have to take a step back and look at other things besides the Dow Jones.

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