How I’m Trading In A Market Full Of Breaking News…
Keeping up with the news has become challenging. There’s so much going on right now… and that means investors might be missing stories that are still important but aren’t grabbing headlines. I think we saw an example of this yesterday.
There was a lot in the news. One story that got a lot of attention was Dr. Fauci’s testimony before the Senate. Fauci is one of the most recognized figures leading the response to the pandemic. He struck a cautious tone, and the questioning highlighted the reality that risks, and uncertainty remain high.
On the other side of the Capitol, there was another major event getting a lot of attention: The House scheduled a vote on a $3 trillion relief bill. The specifics of the bill weren’t important because there will be extensive negotiations before additional legislation is passed. But the size of the bill highlighted the amount of damage to the economy.
But let’s get to a story that was less noticed.
There was an order from the White House to the Labor Department instructing the board managing the government pension program to avoid investing in China.
According to CNBC, “At issue is the management of the TSP, a retirement savings fund for federal employees and members of the military. A federal investment fund within the TSP called the I Fund, which offers federal employees exposure to international stock markets, held about $41 billion in assets out of a total of $557 billion in the TSP as of the end of March.”
That’s a simple process since the programs use index funds and will simply switch to a different index. But the importance of this story is that it shows the White House intends to pursue some level of action against China. And we can expect more to come. This will have an impact on the economy and on stocks of companies with exposure to China.
How I’m Trading Right Now
Among those stocks showing volatility because of the news about China was Cummins Inc. (NYSE: CMI). The company designs, manufactures, and services diesel engines for medium and heavy-duty trucks as well as other commercial vehicles. It also makes turbochargers, power generation equipment and a host of other products and components.
Recent gains came after the company beat earnings expectations. CMI recently announced earnings per share of $3.18 in the first quarter, well above analysts’ expectations of $2.18. Revenue also beat expectations.
As a heavy equipment maker, it’s widely assumed the company has significant exposure to China. But the company’s most recent earnings report indicated just 10% of revenue came from China.
That report also shows CMI had cash and cash equivalents of almost $1.7 billion on its balance sheet, an amount that exceeds the company’s long-term debt of $1.6 billion.
Little exposure to China and a strong balance sheet should allow the company to prosper in the difficult times that lie ahead. Management acknowledged the company does expect some turbulence, noting that they expect a steep decline in second-quarter earnings. To meet that challenge, the company reduced salaries and will cut spending on large projects by 25%.
As you can see in the chart above, the stock is on an Income Trader Volatility (ITV) “buy” signal. For those who are not aware, ITV is the award-winning indicator I developed that works similar to the “fear index,” or VIX. But where the VIX provides a volatility signal for the broader market, ITV can be applied to individual stocks. And we’ve been using since 2013 to make winning income trades better than 90% of the time over at my premium service, Income Trader.
The point is, these factors tell us that the recent volatility in CMI is a high-income opportunity for traders. So rather than buy the stock and simply hope for the best, my readers and I plan to make a quick income trade. This will allow us to earn the same amount of income as buy-and-hold investors would get in a year, instantly.
Unfortunately, out of fairness to my subscribers, I can’t share the exact details of the trade with you. But just know that it is possible to make successful trades in this market. It also helps to have an award-winning indicator like ITV working for you. And my followers have earned tens of thousands of dollars in income in the process (even hundreds of thousands for some). To learn more about ITV and join their ranks, go here now.