Top 3 Trade Opportunities

Top 3 Trade Opportunities

The coming trading week reveals some interesting circumstances that could cause volatility to jump and that means opportunity

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Government shutdown part 2. As of yet, no deal has been reached between feuding democrats and republicans to fund the U.S. government as we approach Friday’s deadline for another government shutdown. Some 600,000 to 800,000 federal workers could be furloughed or asked to work without pay. The closer we get to that deadline, the more likely a small equity market selloff becomes. The possibility of another continuing resolution is likely which would show the increasing distaste on both sides, politically for shutdowns. If there is a minor equity index selloff that can be identified as shutdown-driven, lower-risk long trades could be beneficial, as politicians come together at the last minute to save their own skins

Earnings and data. 265 companies report earnings this week including influential stocks like Michelin, Nissan, Cisco, Vivendi, Nvidia, Nestle, Coca-Cola and Credit Suisse. As of Friday, with 66% of the companies in the S&P 500 reporting actual results for the quarter, 71% of S&P 500 companies have reported a positive EPS surprise and 62% have reported a positive revenue surprise. While that’s not bad, of the 75 S&P 500 companies that have issued forward guidance, 53 have issued negative guidance and only 12 have issued positive guidance. That balance needs to change for a sustained stock market rally to take place. This also a big week for the global economic data calendar. The UK already missed on GDP, while awaiting price data to be released on Tuesday. There is also price being released for the US and China along with GDP for the EU and Japan. On top of all that, Brexit talks continue as the deadline for a deal approaches, so currencies could be first movers this week.

Trade talks resume. China/U.S. trade talks are underway again with the backdrop of President Trump considering an executive order banning Chinese telecom giants from participating in U.S. markets. If that order is signed, talks could become contentious which would hurt equities, but also copper and crude oil as their demand stories weaken. Both commodities sold off last week but still have strong bases, from which to rally if a deal looks doable.

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