This Week’s Top Trade Ideas – Jan 18

Welcome to a new weekly segment where I take a look at recent trade ideas from across the web and give some of my own picks too. This week, it’s all about Trump’s inauguration and earnings season. Keep reading for some of the best trade ideas that I’ve found.

1. Take Advantage Of Investor Exuberance With TMF

My favourite trade of the week is actually a trade that I think could go on for a month that is a long position in TMF, the 20 Year Treasury 3x leveraged ETF.

As I wrote in another article recently, I believe that markets are pricing in very little risk at present, as shown by a rampant stock market and short-term collapse in bond prices. Commentators are predicting that the Federal Reserve will raise rates at least three times in 2017 and the market is generally optimistic about a Trump presidency.  That has caused many investors to advocate shorting bonds and moving into riskier assets. As an example, TLT is now down 14% from it’s peak.

However, I believe that is now a crowded trade. With volatility still at very low levels (the VIX is currently trading around 12) the smart move is to bet on an increase in volatility.

With Trump’s inauguration and earnings season on the cards (not forgetting China, Brexit and other events) there are plenty of opportunities for volatility in the next few weeks. My favourite choice is to go long TMF which should benefit from the volatility and a subsequent re-pricing of 2017 rate hikes. Short DJIA is also a good option considering the market top that we are seeing.

The only way I can see this trade failing is if earnings season is on the money and stocks enter a short-term blow-off top phase. In that situation, it really will be an opportunity to go short stocks.

2. Amazon Has More Room To Scale Ahead Of Earnings

According to Gary Bourgeault from Seeking Alpha, Amazon is still worth betting on despite the lofty valuation. Amazon continues to outpace its competitors in the online retail industry, showing the ability to adjust to changing market dynamics and to profit from new trends through the launch of AWS cloud service.

The company has posted mostly stronger than expected earnings in the past quarters and might be poised for yet another stellar one, buoyed by stronger holiday spending in November and December. It’s also worth noting that the company has stepped up its hiring commitment, which suggests that it sees stronger business potential down the line.

3. Freeport-McMoran Washout Bounce

The Trade-Ideas team have a history of picking solid trades in their trade of the week segment and this week they have singled out copper producer Freeport-McMoran as a potential ‘washout bounce’ trade.

This scenario looks for stops that were most likely triggered, thus putting most of the near term volatility behind us. This seems to be the case with FCX as weak hands holding this stock were flushed out in the first 30 minutes on Friday only to see the stock bounce back like nothing ever happened.

Trade-Ideas are suggesting an upward price target of $23 and a stop at $14.05. Sign up for the Trade-Ideas trade of the week here.

4. Insys Could Be The Next Major Short Squeeze Play

Wayne Duggan, writing for Benzinga, likes the look of Insys. Insys gains most of its revenues from Subsys, which is an opioid painkiller. However, this product has seen declining volumes throughout the quarter, thereby weighing on the company’s bottomline. Keep in mind also that US President-elect Donald Trump has repeatedly talked down drug companies for overpricing. This sentiment likely took its toll on investor confidence in Insys. The short float currently stands at a whopping 76% setting the stage for a possible short squeeze.

5. Investors Are Ignoring Accounting Issues And 60-70% Downside Potential In MGP Ingredients (MGPI)

Shares of MGP Ingredients Inc have been on a tear due to reports of transforming to a branded liquor producer, but all this is built on shaky fundamentals, particularly accounting issues according to Ben Axler on Seeking Alpha. The company’s brand introductions have also failed to impress, which suggests a buildup in its stockpile of unsold products. So far, it has been trying to keep its revisions to 2015 related-party purchases and sales figures under wraps.

MGPI has dropped around 8% over the last week, but the stock has plenty of downside left – particularly if this $45 level fails to hold.

6. Argos Therapeutics: Significant Unrecognized Value

According to The Game Changer, a company with potential upside is Argos Therapeutics, which is currently working on developing a ground-breaking and potentially game-changing drug, Rocapuldencel-T. If the Phase 3 of clinical trials goes well, the company’s stock could enjoy significant gains since the drug could become the standard of care in a combination therapy setting for solid tumor-based cancers.

This is definitely a speculative play but the stock is coming into a key area of support at $5.

7. HSBC Bearish Pattern Reaction to Company Earnings

The US financial sector is still basking in the afterglow of the Trump rally and the industry could be prime for a correction. Many of the banks will need a near-perfect earnings report (and guidance) if they are to meet street expectations.

In particular, HSBC has shown a historical bearish pattern in reaction to earnings reports and the month of February tends to see a selloff in the company’s stock. Damon Verial writes a solid piece about the historical earnings picture for HSBC this just might be the pick of the trades this week.

Disclosure: I am long TMF

Disclaimer.