A dirty, dirty hedge.
De down1.97% at $80.35, Cat down 3.76% at $105.87.
INDU down 1.14%, S&P down 1.17%
From Dragonfly Capital:
Big Machines Pairs Trade
One of the ‘Money’ trades has been a pairs trade using Caterpillar, $CAT, and Deere, $DE, and it just triggered. Look at the ratio chart for $CAT vs $DE below. What is significant about where it is now is that the RSI has crossed 70 going lower, like it has 5 times previously, and the MACD is crossing negative, like it has 5 times previously on the chart, and each time this has lead to a move sharply lower in the ratio. Currently at 1.36 look for it to pullback to the 1.30 area at least and
See also Friday's: "Negative Divergences on Caterpillar (CAT)"
history suggests 1.26 or lower. To trade this you need to buy Deere, $DE and sell Caterpillar, $CAT at the ratio of 1.36.
Buy 15 shares of $DE and Sell short 11 shares of $CAT
This approximates the ratio and uses no cash. Use a stop of 1.375 in the ratio, which risks about $16 to make about $90 at a ratio of 1.26, or a reward to risk ratio of 5.6:1.
*The dirty, dirty reminded me of the comment by Senatory Larry "Wide Stance" Craig back in 1999:
"...Bill Clinton is probably even a nasty, bad, naughty boy."