Alpha Trader #6 - Talking Gold and Stocks with Scott Bauer and Ryan Detrick

The sixth episode of Alpha Trader features not one, but two guests, with hosts Aaron Task and Stephen Alpher speaking to longtime gold trader Scott Bauer and stock market strategist Ryan Detrick. First up is Detrick, who talks about the record-breaking length of this economic cycle - currently 124 months and counting. While this may suggest the bull run is getting long in the tooth, Detrick notes nominal GDP has grown just 50% over the 10 years, or roughly inline with post-war economic up-cycles. It suggests to him that there's room to run. Detrick also reminds that the Fed has just completed a series of three 25-basis point rate cuts. The central bank did the same in 1975, 1995, and 1998, and on average, the S&P 500 was up 10% six months later and 20% a year later. As for sectors, Detrick is excited that the financials (XLF) and industrials (XLI) look to be rotating into market leadership. Another favorite headed into 2020 is technology (XLK). But aren't stocks expensive? At 17.5 next year's earnings, says Detrick, the valuation of the S&P 500 isn't all that fancy when you factor in just 2% inflation. And the question on everyone's mind: Holiday rally? Detrick checked the stats for years (like this one) where the S&P 500 has been up 20% YTD going into November. In those years, the market was green in November 100% of the time (7 out of 7), and green in December 86% of the time (6 out of 7). While looking for a bounce in gold in the short term, Scott Bauer isn't as bullish on the longer-term prospect for the yellow metal. Why? Gold this year has benefitted from geopolitical worries and sluggish economic growth. Over coming years, Bauer expects many of these concerns to fade and global economies to synch upward - both should work to pressure gold prices. As for actionable trades, Bauer is looking at the options market, and taking advantage of the current low volatility and his bullish short-term outlook. Low vol means options are relatively cheap, and he's got his eye on a March call spread at the CME struck nicely above the current price. The potential payoff, says Bauer, is 5-to-1. Longer-term, Bauer isn't a huge fan of options as the premium can get too expensive. Instead he would recommend the Micro Gold contract on the CME, which has much lower margin requirements, thus allowing individual investors easier entry and the ability to scale into larger positions.