Will the falling dollar remain fodder for the global bulls?
08/02/17

The global rally rampages on, and some traders are looking for the trend to continue.

The S&P 500 may still be within striking distance of record levels, but it’s moved to the back of the pack internationally as countries like Brazil, India, and China buzz up the rankings. Analysts credit the moves to sluggish growth here at home and a tumbling U.S. dollar -- especially in light of better numbers overseas.1 Yesterday options traders built positions that stand to benefit from those trends continuing. 

First to cross the tape was Hecla Mining (NYSE: HL), with more than 14,000 September 5 calls purchased, mostly for $0.61 to $0.65. Those investors now have the right to buy shares in the silver producer for $5 through expiration – no matter how high it may run. The contracts break even around $5.65 and will double in value from a 14 percent move to $6.30. They’ll go worthless if the stock falls below $5. HL rose 2.40 percent to $5.54.

Some eyebrows were raised at the timing of the activity because it appeared barely a minute after the one-two punch of disappointing manufacturing data for July and an unexpected drop in June construction activity.2 That helped push the greenback lower, which is typically a boon for precious metals like silver.

Next up, Newmont Mining (NYSE: NEM). The world’s No. 2 gold miner was already running on the heels of a strong quarterly report3 and is back near the $38 level that chart watchers have eyed since a drop last summer. This time over 14,000 December 37 calls were bought, mostly for $2.40 to $2.61. NEM slipped 0.51 percent to $36.98.

Hecla Mining (HL) 1/4/17-8/1/17

Source: OptionsHouse by E*TRADE

Rookie traders twisted their brows in confusion. Why now? What’s the point of looking all the way out to yearend in the dead of summer? Market veterans pointed to the calendar, which shows ADP’s private-sector payrolls report this morning and the Labor Department’s closely watched non-farm tally on Friday. Say those headlines keep up the recent drum beat of mediocrity and the greenback falls deeper in the red. What happens to gold? Youngsters nod in understanding.

Speaking of the global trends, investors with their noses buried in quarterly earnings have noticed something else: Some of the most impressive showings from U.S. companies have resulted from business overseas. Caterpillar (NYSE: CAT), for instance, shot to a five-year high amid strong demand in China. Netflix (NASDAQ: NFLX), is now bigger overseas than in the U.S. Boeing (NYSE: BA) also followed a strong quarter with a boatload of new orders from India.4

Itau Unibanco (NYSE: ITUB), Brazil’s top lender, was another global stock to turn heads on Tuesday. It rallied more than 3 percent to $12.28 after management cited a sharp gain in profitability.5 Call buyers followed the move by amassing over 5,000 September 13 calls for $0.15.

Bottom line: Global remains a dominant theme this week, and some traders seem to think the trend will continue.

 

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1. RTT News: China Manufacturing Sector Accelerates In July. 7/31/17.

2. Marketwatch: Construction spending slips in June, led by a public spending swoon; U.S. manufacturers still going strong in July, ISM finds. 8/1/17.

3. Reuters: Rising gold production pushes Newmont past profit estimates. 7/25/17.

4. Reuters: Boeing expects India to order up to 2,100 aircraft over 20 years. 7/31/17. Reuters: Netflix beats subscriber targets, shares jump over 10 percent. 7/17/17. Reuters: Caterpillar bulldozes expectations, raises 2017 forecast again. 7/25/17.

5. Reuters: Itaú's credit ROE may surpass cost of capital, CEO says. 8/1/17.