Top Trade Ideas - June 3rd

The team prepares their thoughts for the week ahead.

As we were drawing towards a close at the end of last week, bears were coming out of the dark. Nasdaq was down 3.2%, led by tech services falling. That got many talking about a drawdown in equity markets after a stronger-than-expected move higher so far this year.

As the chart below suggests, stock market drawdowns are common. Since 1990, the average drawdown in the S&P 500 has been 14% in a calendar year, and drawdowns of at least 10% have occurred in 19 of the past 34 years.

But we must also mention Friday’s rip right towards the close. This was more significant in the S&P and Dow than it was for Nasdaq (the Nasdaq just about pared losses from the morning session).

News over the weekend that Modi is looking set for a landslide win in India helps to eliminate that risk from their markets. As elections draw to an end on Tuesday, some opportunities should present themselves as shorts leave this trade.

In G10 FX, we had a muted week with various national holidays. Up ahead, we look to the ECB meeting on Thursday and US NFPs on Friday.

Equities

ARM Holdings (NASDAQ: ARM) rose higher to start last week, breaking above a downtrend resistance. With market weakness, the move failed to materialise further, remaining rangebound between 115-125.

With price holding above this trend, we look towards ARM to continue this move towards 130. We’ll update this trade in our Substack chat (accessible on the app).

TRADE IDEA - ARM 21 JUNE $130 CALLS

Entry: 120.50

Stop Loss: 115

Take Profit: ITM

Alliance Resource (NASDAQ: ARLP) is a coal production company. The current domestic thermal coal market has greater potential than what is currently reflected in market pricing.

The Newcastle Thermal Coal Index reached its peak at $428/ton in September 2022 but has since experienced a significant decline, with coal futures trading at around $140/ton in recent months. This current price level is substantially higher than the pre-COVID range of $60 to $100/ton at which the index traded. Despite the fluctuations, many coal miners, such as ARLP, continue to operate at a healthy profit margin due to favourable market conditions supported by various significant tailwinds.

TRADE IDEA - ARLP AND COAL

Entry: 24.70

Stop Loss: 23.00

Take Profit: 27.00

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You can also read our month-ahead preview in our latest Money Markets article.