Tuesday Target | 51/52
Black Swan: Profit from Panic
With or without market frenzy and speculation, a retrace—or a bigger crash—is always just a matter of time. And you know what’s better than slowly making money in an uptrend? Making it without fear—or even making a boatload—when a Black Swan attacks from the bushes. We’re talking 1:10 risk-reward overnight.
And yes, hedging works like insurance—it can be pricey. But there are smarter, more cost-efficient ways to set it up. And yes again, markets tend to experience retraces more often than full-on crashes, but you can use those retraces to turn your hedge into a regular profit tool, instead of letting them weigh down your portfolio. Check out the last section of today’s piece—see if it tickles your toes.
Below, as always, the minimum you need to know to get a feel for what's cooking:
Slower Moves Ahead!
Despite the near-certain rate cut, the tone may become hawkish as Chairman Powell emphasizes a slower, more measured approach going forward. We will have to deal with a future defined by on-the-fly decisions and minimal forward guidance. The Fed's summary of economic projections is likely to be skewed to the upside, suggesting fewer cuts next year and a prolonged wrestling match with inflation.
Future Shock for the Mag-7
Although the Magnificent Seven have soared in 2024, investor surveys reveal deep skepticism about their staying power in 2025. Many expect these high-flyers to stumble or even halve in value. This highlights a tense contradiction - while performance momentum has favored them, sentiment and valuations suggest that you should prepare for a scenario where these titans no longer support the market.
The Liquidity Squeeze Threat
Stock valuations have risen sky-high, thanks in part to abundant liquidity. But if the U.S. Treasury chooses to finance deficits with more bonds rather than bills, money will be drained from the system. History shows that when bond issuance finances too much of the deficit, risk assets suffer. The lesson is simple: stay nimble, because a repricing could be just around the corner.
Europe’s Quiet Revival
While the U.S. market dominates the headlines, Europe is quietly shaking off its blues. As the ECB eases and the euro weakens, European exporters stand to benefit and gain a competitive edge in global markets. With investors holding record underweights in Europe, any incremental positive developments - further Chinese stimulus, improved credit conditions, a more stable geopolitical backdrop - could spark a revaluation of these deeply discounted opportunities.
Get Rich Overnight with Options? Yeah Right...
TUESDAY TARGET: A smart, cost-efficient VIX hedge: a 90-day-out 22/30 call debit spread with a risk-return ratio of 1:11. The orange line shows that you could cash in before the official break-even at expiry if you wanted. This would mean giving up the hedge in exchange for locking in gains early, depending on your portfolio situation, strategy, and wits.
Please note, all content is for educational purposes and isn't personalized for individual portfolios or financial advice. Curious about putting any of these ideas into action? Juri von Randow is here to offer guidance or connect you with the right resources.