Commodities, Crypto and China Head Up This Week’s Long-Short Watchlist

by | Oct 5, 2021 | Stocks

Just one day removed from “tape bombs” implying an imminent market implosion due to debt ceiling shenanigans, Tuesday’s mainstream financial media headlines are cheering the rebound and trumpeting Goldman Sachs’ forecast of a “big fourth quarter.”

Source: CNBC

I’m just embarrassed for them.

I’ve spent the better part of my career trying to predict market behavior, and one thing that I’ve learned over the years is that you’re going to be wrong from time to time. 

There’s absolutely nothing wrong with that… In fact, that process is specifically how we all get better at our jobs, no matter what they are.

But when an information source is wrong that often and that unapologetically, it’s best just to kick it to the curb.

And although Bloomberg often joins in on the headline hype train — to their credit, their clickbait manufacturers are faring better this time — pointing out three things that are directly impacting global markets: 

  • Falling Treasuries, which make interest rates rise. 
  • Resurging bullishness in the crypto space.
  • The raging bear market in China.

Source: Bloomberg

Falling treasuries and rising interest rates in particular are of interest to us, because in this analyst’s opinion there is no better indicator of inflationary pressure.

But if you need any further confirmation, all you have to do is look at commodities.

Source: Bloomberg

Just incredible.

Natural gas up 70% … Coking coal up 92%… Thermal coal up 100%… Bitcoin up 68%… all in the past three months.

And yes, I lumped Bitcoin in with commodities.

Fortune Research Weekly Watchlist: Oct. 5, 2021

For the Fortune Research weekly watchlist for Oct. 5, 2021 on the long side, we want to make sure we have exposure to as many of those commodity asset classes as possible.

That means we’re going back to our old friends the United States Natural Gas Fund (NYSEArca: UNG) and thermal coal producer CONSOL Energy Inc. (NYSE: CEIX).

I should point out here that most of these coal and natural gas stocks are smaller cap companies with very high beta compared to the rest of the market.

We already have a play out there on the iShares Russell 2000 ETF (NYSEArca: IWM), but let’s also add in the Invesco S&P 500 High Beta ETF (NYSEArca: SPHB) for yet another option on how to play that asset class.

If we get the rip in earnings that most analysts are projecting, this will shape up to be an incredible quarter for all of them.

And with the likely uplift in forward guidance out of the coal and natural gas sectors this quarter, it will only add fuel to the small-cap fire.

Sorry… had to lean into that pun.

Our legacy recommendations on the GrayScale Ethereum Trust (OTC: ETHE), long the S&P 500 (SPXL), long large-cap tech (TQQQ) and long financials (XLF) wrap up that side of the watchlist.

But I did promise to go full switch-hitter this time around, and I’m a man of my word.

As Bloomberg pointed out, funds and investors from Elliott Management to George Soros have pointed out the raging bear market in China, and we want short exposure there.

From my perspective, the easiest way to short China is through the iShares China Large-Cap ETF (NYSEArca: FXI).

But the weakness in China is also affecting neighboring countries like South Korea and Hong Kong, so the iShares MSCI South Korea ETF (NYSEArca: EWY) and the iShares MSCI Hong Kong ETF (NYSEArca: EWH) need to go on our short list as well.

Rounding out the shorts are the iShares 20 Plus Year Treasury Bond ETF (Nasdaq: TLT) and perhaps a surprising one… gold, in the form of the SPDR Gold Trust (NYSEArca: GLD).

Both fare terribly when interest rates rise rapidly, so they make the list.

And if I put up a one-month chart, you can see for yourself.

Source: Bloomberg

Down, down, down they go.

While I’m not sure which direction we’re going to play this week, I’m certain we need the ability to go either way, especially with options expiry next week.

Source: Bloomberg

So while it’s a big watchlist, it gives us both flexibility and access to upside.

I’m excited to see where this goes and I hope you are too. So be sure and keep an eye on that inbox for Wednesday’s free trade.

One thing it won’t be… is boring.

All the best,

Matt Warder

Fortune Research

WRITTEN BY<br>Matt Warder

WRITTEN BY
Matt Warder

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