Short Cyclical Stocks as Q2 Earnings Good For Banks But Disappointing for Big Tech

It should come as no surprise that this week wasn’t the strongest for markets. On top of earnings season warming up, we’re still not seeing coronavirus cases declining. Unemployment claims for the previous week were also slightly higher than estimated. The reality is that we won’t have a COVID vaccine available until early 2021 at least.

The biggest hit for U.S. equities was without a doubt Big Tech. Tech has rallied consistently since March and has been considered a safe haven for many investors. Netflix is the first of FAANG stocks to report its Q2 earnings, which disappointed investors as expected. The sharp decline has consequently dragged down the performance of major indices, most notably Nasdaq.

The slowed down pacing of a reopening economy deeply affects travel and hospitality – one of the most coronavirus sensitive industries – and our AI Models were sure to take that into account. Wynn Resorts (WYNN) and Yelp Inc (YELP) are ranked Top Short for the following week, and Royal Carribean Cruises Ltd (RCL) and Park Hotels & Resorts (PK) top the list of Top Shorts for the next 30 days. 

Update: The daily investing slack channel is live! To ensure that it is a positive experience for all members, we will be inviting our subscribers in batches. The first 1,000 invites went out Wednesday. For those who have received be sure to claim your invite. We will be sending the next batch out this week.

Below are this week's top option trades:

Put Spread Collar on iShares iBoxx $ High Yield Corp Bond (HYG) –  Leveraged bearish hedge on high yield credit.  Great way to get downside protection for stocks without actually shorting the S&P 500 with the VIX still at elevated levels.

Put Spread Collar on Invesco QQQ Trust (QQQ) –  A leveraged bearish hedge for those of you that have a lot of tech stocks in your portfolio.  After the recent run-up, might be a smart move to start hedging your tech exposure.

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