This morning’s jobs report posted a better-than-expected gain of 209,000 added payrolls in July. Plus, we saw a downtick in the unemployment rate to 4.3%. But the real kicker was an uptick in hourly earnings, which jumped 2.5% on a year-over-year basis.
The boost in jobs and wages stokes renewed fears that the Federal Reserve is already hopelessly behind the curve on inflation.
Further evidence of this view comes with recent gains in commodities, especially crude oil flirting with $50 a barrel, and Dr. Copper breaking out to a two-year high.
That’s likely to give the Fed cover to follow a more-hawkish monetary policy stance. One that includes a plan to start unwinding its massive $4.5 trillion balance sheet — perhaps more aggressively than previously believed. Plus, another interest-rate hike later in the year is now back on the table.
Markets are reacting in predictable fashion, with the U.S. dollar soaring on the news. It’s up nearly 1% as we pen this. Bonds are getting crushed as interest rates rise. And, of course, precious metals are under selling pressure.
As far as the U.S. dollar, our E-Wave cycle forecast has steadfastly been calling for a rally in the buck. And while the timing was delayed, this looks like the beginning of a big move higher.
Futures speculators and money managers hold a sizeable short position in the dollar. This means we could easily witness a blistering short-covering rally from severely oversold levels.
That’s great news for your PowerShares DB U.S. Dollar Index Bullish Fund (UUP) call options. This rally should deliver a good opportunity to salvage premium from your UUP September $26 Calls, but wait for our signal.
Obviously our precious metals holdings are getting clipped this morning. Right now, we’re looking to exit the Direxion Daily Junior Gold Miners Index Bull 3x ETF (JNUG) and VanEck Vectors Junior Gold Miners ETF (GDXJ), as a cycle turn date is approaching. But it makes no sense to sell into today’s weakness. Let the dust settle, and the knee-jerk selling pass, first. We should get a better selling opportunity at more-attractive prices. Stay tuned.
As stated earlier this week, we view Seabridge Gold (SA) and Sibanye Gold (SBGL) as core, longer-term positions to hold for much-higher prices once precious metals do break out solidly to new highs.
Look, by our estimation, SA is easily worth $45 a share with gold prices at-or-above $2,500 an ounce. That’s four-times today’s share price.
And we expect platinum prices will double from today’s depressed levels. Meaning, Sibanye — one of the world’s largest platinum miners — easily has fivefold upside potential. And perhaps much more.
So you can see why we’re not concerned about these stocks slipping a few dollars lower, and you shouldn’t be either. That’s because we’re looking at massive upside profit potential, and we want to be sure you’re in for the big move.
Recap on Home Depot puts
You should have easily been filled buying Home Depot puts this week, likely below our limit price. In fact, we’re tracking an entry of $2.81 per share ($281 per contract).
HD has been a huge performance drag on the Dow Jones Industrial Average lately. In fact, HD shares were down about 10% in July before rebounding.
But we expect shares of the home improvement retailer to roll over yet again. Here’s why …
Competitive pressure is heating up in this sector of the retail marketplace, and we’re not just talking about Lowe’s or Ace Hardware. Sears Holdings recently inked a deal to start selling its Kenmore line of appliances on Amazon.com … the 800-pound gorilla of internet retailing that has put plenty of brick-and-mortar retailers out of business.
HD is due to report second-quarter earnings on Aug. 15. And we wouldn’t be one bit surprised to see more disappointing news from the retailer due to intensifying online competitive pressures. And with the HD October $145 Puts, we’re well-positioned to profit from the next decline in HD shares.
In the meantime, hold all other open positions. We’re eyeing a batch of new trade recommendations in oil and energy stocks, after a short-term pullback. And today’s downturn in Treasury bonds looks like just the start of a sustained downtrend we can profit from.
Both of these trades, and more, are on our watchlist. We’re just waiting for the right time to pull the trigger. Stay tuned for new trade alerts and updates coming your way soon.
Good investing,
Mike and David
