These Long Picks Should Soar as the Rally Takes Hold

I feel like I'm trapped in a never-ending nightmare installment of "Deal or No Deal" right now. And I bet you feel the same way.

On Friday, traders were biting like trout; market vibes were upbeat on word of a "partial deal." But then, Chinese government media outlets said, not in so many words, "Whoah - don't break out the champagne just yet!"

So the Chinese have thrown cold water on things, but the administration's still calling this "phase one" of a deal.

I watched Treasury Secretary Steve Mnuchin on CNBC yesterday morning talking about the deal. Questions were coming left and right... and Mnuchin was dodging right and left. It's clear there are a lot of details still to be ironed out, and no one in the White House feels like talking about them.

But still, most of the pieces are in place for a decent run higher, maybe even back to all-time highs. When we see stocks and volatility hit the levels I'm going to show you, we'll know that a respectable bull run is underway.

Make sure you've got a position in these stocks poised to move higher when the bull is confirmed...

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Today Is a Make-or-Break Day for the Rally

Right now, investors, like trout, are taking the synthetic bait that is being cast into the waters. Whether it's temporary deals, interest rate drops, dovish Fed talk, or any other trickery, they're going for it.

Trading was really light yesterday because of the holiday; indexes struggled to put on 1% in gains, but they were gaining.

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It's today's action that's really going to tell the tale. That means one of my 10 Commandments of Trading is in play right now...

Commandment III: Don't fight the tape - or "Don't pick up pennies in front of a steamroller." Always know your breaking point. Losses are simply tuition for a smart trader.

This market has been waiting for the moment that we get some clarity - even if it is laden with conditionals, cold water, "phase one," equivocating, etc. - on the trade war.

Guess what? It's here. Traders just got a green light to assume the best-case scenario, so we're going to see money flow into the market today.

Is that smart in the long term? I'm not sure. Maybe not. Yesterday's tepid, low-volume rally could get red-hot, or it could get walked back. But then again, it really doesn't matter. What does matter is that you don't fight that tape.

So to determine whether the bull is real or just a blip, these are the important levels I'm watching on the indexes:

  • I want to see a sustained break back above 3,000 on the S&P 500.
  • I'm hoping the Nasdaq Composite can get above 8,100 and park itself there.
  • I'd sure love it if the CBOE Volatility Index could stay below 15.

That's it! That's all we need to get a sense for whether the rally has staying power. Now, for how to profit on it...

Three ETFs to Own to Maximize Your Gains

Let me run down my shortlist of what I think are going to be great shares for making bullish trades should things kick off nicely this morning.

You'll notice this list is all about the "spiders," but I'll be digging deeper into specific companies with specific trading recommendations for my paid-up subscribers.

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The U.S. housing sector, as tracked by the SPDR S&P Homebuilders ETF (NYSEArca: XHB).

The consumer staples should see a lift when the bulls come back. These are economic cycle-agnostic companies in food, beverages, non-durable goods, and personal products, as tracked by the Consumer Staples Select Sector SPDR ETF (NYSEArca: XLP).

And I think some of the technology firms tracked in the Technology Select Sector SPDR ETF (NYSEArca: XLK) will move higher this week.

These make smart speculative buys right now, and they could all be good for a double-digit gain by the end of the year if, as I suspect, we head back to new highs. If you'd like to trade these recommendations with options, use long calls, bull call spreads, or if you're feeling really risk-tolerant, a bull put spread. Approach that last one with caution, by the way.

Note: Tom Gentile loves teaching people how to trade options; he's taught nearly 300,000 people how to do it. You can click right here for a FREE e-mail subscription to his Power Profit Trades weekly how-to and trading research publication. It's the most lucrative (and fun) way to learn trading.

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About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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