Let’s get right to it.
A hawkish tone from the Federal Reserve earlier this week injected a dose of volatility into capital markets.
While an interest-rate hike was widely expected, the surprise came with a more hawkish tone. And market reaction was more pronounced because it came just hours after softer U.S. inflation readings – that had many looking for a “dovish rate hike”.
The Fed’s plan to unwind their $4.5 trillion balance sheet later this year and its firm commitment for another rate hike this year were unexpected and very supportive to the U.S. dollar.
As a result, we expect a larger disruption in the optimistic Euro currency vs. U.S. dollar outlook that’s been instrumental in lifting European equities.
Additionally, this year’s slide in the greenback renewed activity in carry trades – where investors sell U.S. dollars and use proceeds to purchase emerging markets.
In fact, data from EPFR Global indicated that emerging markets attracted $29.4 billion in capital this year. This is important because these funds are increasingly vulnerable to flight on a firmer U.S. economic outlook, uptick in U.S. interest rates, and stronger U.S. dollar.
But it’s not just a hawkish Fed putting the carry/emerging market trade in jeopardy. It’s also geopolitical uncertainty around the globe.
For these reasons, we think selling emerging markets represents an ideal risk-reward scenario.
And the vehicle to use is the Direxion Daily Emerging Markets Bear 3x Shares (EDZ).
Here’s what we recommend:
Using 5% of the funds you have allocated to this service, buy Direxion Daily Emerging Markets Bear 3x Shares., symbol EDZ, at the market, to open. Place a good-till-canceled protective sell-stop at $13.19.
Get this order in right away.
Now for a quick update on Sibanye Gold…
Good News! The rights offering for Sibanye Gold (SBGL) closed this week, so your additional shares should now be sitting in your brokerage account.
Your SBGL position should now look like this:
We’re currently tracking 150 shares of Sibanye in the E-Wave Trade Portfolio at an entry level of $8.75.
By exercising the rights offering, we purchased an additional 193 shares (150 multiplied by 1.29) at a price of $3.48 for an additional cost of $671.64 before commissions.
The combined transactions provide us with an average entry cost of about $5.79 per share on a total of 343 shares.
We will be providing a new stop-loss target on your combined shares soon, but for now, we are monitoring the stop for you.
Hold all other positions and stay tuned for new trading ideas coming your way again very soon.
Good investing,
Mike and David
