Has The Sun Set On The Trump Euphoria Trade?
That was an ugly end to Wednesday's session, following the December FOMC meeting. As ZeroHedge summarized it in their headline: "Trump-Dump: Markets Plunge As Post-Election Powell 'Unexpectedly' Turns Ultra Hawkish". Before we consider where we go from here, let's review what we wrote about this last month.
Our Post-Election Euphoria Post
Back then, we posted a trade alert titled, "Euphoria". In that post, we considered whether we were in a bubble and how long it would last.
As we wrote then:
What If This Is A Bubble?
It most certainly is a bubble, but bubbles are when you can make the most money in short periods of time. The key is to get out before it bursts. If I had to guess how long this bubble would last, I’d say until about the end of the year.
Between now and then, traders are free to imagine all sorts of positive impacts from a Trump 2.0 administration—maybe they’ll start a Strategic Bitcoin Reserve? And so on. Once Trump enters the White House in late January, those hopes will meet some resistance and Trump trades may need to be repriced.
So, we are going to try to take profits before the end of the year.
What You Should Have Done Before Now
Let's talk briefly about what you should have done before now, and then we'll talk about a gameplan for going forward.
Take profits on the way up.
In our Euphoria post, we mentioned we were going to try to do that before the end of the year. We did so with the two of our four Trump trades that were in the money:
- Robinhood Markets, Inc. (HOOD): We exited half of our calls on HOOD for a 253% gain.
- Tesla, Inc. (TSLA): We exited our call spread on TSLA for a 368% gain this week.
Our other two Trump Euphoria trades, a call spread on Coinbase Global, Inc. (COIN) and calls on private prison operator The Geo Group, Inc. (GEO) will end up if the market doesn't bounce back by the end of next week.
Hedge
In most of our recent posts, we have reminded readers concerned about downside risk to hedge. We have also noted that we developed an iPhone app to facilitate that, which you can download by aiming your iPhone camera at the QR code below. You can also download it by tapping here, if you are reading this on your iPhone.
A Gameplan For Going Forward
- Hedging still makes sense. It will be a little more expensive now, but you can take advantage of the next up day to add some downside protection.
- Think about sustainable investment themes and market leaders. AI, for example, isn't going away anytime soon, and neither will the demand for energy and equipment to fuel it.
- Consider valuation in the context of market leadership. For a market leader like Nvidia, Inc. (NVDA), we would consider a Chartmill valuation rating of 6 to be a signal to buy. For secondary AI names, we'd look for valuation ratings of 7.
- We will also look at Portfolio Armor's top names as a source of trade ideas. Those have beaten the market considerably over the last two years. It will be interesting to see if they lean toward recent leaders or highlight a market rotation. If you would like a heads up when we place our next trade, you can subscribe to our trading Substack/occasional email list below.
If you'd like to stay in touch
You can scan for optimal hedges for individual securities, find our current top ten names, and create hedged portfolios on our website. You can also follow Portfolio Armor on X here, or become a free subscriber to our trading Substack using the link below (we're using that for our occasional emails now).
