Trade of the Day: Dynegy Inc. (NYSE:DYN)

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When I look at the market today, I’m reminded of two of my key rules for trading: Don’t fight the Fed and don’t fight the tape. Those two tenets apply here because, as I’ve shared, the Federal Reserve is very dovish, and equities continue to roll higher even though they are not supported by the fundamentals.

So, we’ll keep playing the bullish side with short-term options trades. I have one for you today in Dynegy Inc. (NYSE:DYN).

Buy to open the Dynegy (DYN) June 17.50 Calls (DYN160617C00017500) at $1.25 or lower.

After entry, take profits if Dynegy  hits $19.20 or the option price hits $2.60. Exit if Dynegey closes below $15.60.

As I mentioned last week, investors can look at the IPATH SP500 VIX ST FUT CAD HDG ETN (TSE:VIXto get a better idea of when the market winds will change. In my opinion, the VIX will have to go up to about 17 to make any kind of an impact on this market.

If there’s one thing we can always rely on, besides death and taxes, it is that the market is always trying to fool everyone all of the time. That’s why it’s important to take a contrary view while the rest of the investment crowd goes for the easy bait.

For example, the iShares Barclays 20+ Yr Treas.Bond (ETF) (NASDAQ:TLT)  has been falling this month, and nobody believed that it would. Based on that, interest rates will probably begin to move higher from here. We also know that professionals in the bond market are very, very short. These are the people who make money in that market, so it kind of tells you a little something about what’s happening below the surface.

One inescapable truth is that the world is still overwhelmed with debt. More specifically, Chinese debt is at a bubble stage, which means that it’s not going to take much to cause that bubble to burst — and it’s much worse than any other place in the world. In my estimation, European countries are the second most vulnerable group, but the Chinese really have over-extended themselves on that end with little to no transparency.

The true nature of the debt hole will likely not be revealed until another major crisis hits. And so, the party continues for now. However, at some point, the hangover will begin to kick in. That said, I believe the Chinese government will try to loosen trading and debt restrictions further, leading to a bailout of the coming mess that today’s policies are creating.

Here in the United States, the latest reading of new applications for unemployment insurance fell to the lowest level in 42 years, with initial claims falling by roughly 6,000 to 247,000. So we’ve got about 2.4 million people that are collecting weekly unemployment benefits. But the accuracy of the data comes into play when we consider those who leave the workforce altogether and the degree to which those numbers are being represented in the statistics.

Unfortunately, Gross Domestic Product (GDP) is expected to decelerate in the first quarter from an already uninspiring 1.4% growth rate reported for the final quarter of 2015. Additionally, we need keep our eye on tax revenue as a percentage of GDP because, when those levels exceed 18%, as has been the case over the past few months, a recession is likely to be looming around the corner.

Shifting our focus to commodities, my technical indicators are starting to suggest that gold may be ready for a decline. Technically, gold doesn’t look that healthy right now, but we’ll see how developments that have an impact on the precious metal unfold in the weeks to come.

And the world simply has too much oil right now, which is a funny thing to say. On the charts, I’m seeing a ceiling for crude at around $42, with downside to about $32, so we’re probably at the top of that trading range now. And, based on futures prices, I’d say that oil is not likely to go much higher at this point.

With our indicators giving bullish readings once again, the market may continue to rally. However, I mentioned that the market is always trying to fool investors, so keep your portfolio fairly equally weighted in bullish and bearish equities.

InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. It’s the perfect ‘bridge’ between investing in ordinary stocks and the turbocharged world of options trading.

Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990. To receive further updates on this trade as well as an alert when it’s time to take profitstry Power Options Weekly today and receive 4 weeks for the price of 1 for only $19.95.


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