Today we wanted to share some longer-term swing pair trade ideas driven by relative strength. They all have common themes, that have to do with a weakening economic and earnings picture, where safety is preferred over the idea of growth.
Long Dow 30, short Russell 2000
Blue chips look attractive vs small caps. After all the Russell 2000’s composition is about 41% unprofitable companies which are not likely to fare well in an environment of rising rates and increasingly tight credit conditions.
Long medical devices, short biotech
Medical devices are a necessity, experimental biotech research tends to be very risky. I’d rather go with a part of the market that is in-demand than one with an astoundingly high cash burn rate in a rather challenging financial environment where raising capital is likely to be tricky.
Long Visa, short Synchrony Financial
We know that credit cards aren’t going anywhere anytime soon, but at the same time the risk of consumers walking away from bills is rising as 40% struggle to pay what they owe on time. I think that Visa’s network and lack of risk of consumer debt makes them quite attractive, and Synchrony is exposed to that rising risk of consumer delinquency rates and even defaults as the economy further slows.
These are meant to be ideas based on relative strength and thematic trends. This article does not constitute investing or trading advice. Please consult with your financial advisor before taking on any trades or investments to ensure they meet your financial goals and risk profile. The author has no positions in any of these trades at this time.
Thank you MM and Ayesha. In terms of medical devices, I am looking at ABT, MDT, SYK, and ISRG. All seems to be extended. Will wait for a pull back.