While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
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As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
July 8, 2014
Fiat Lux
Featured Trade:
(JULY 18 BARCELONA, SPAIN STRATEGY LUNCHEON)
(TIME TO TAKE ANOTHER RIDE WITH GENERAL MOTORS), (GM), (F), (TM),
(TESTIMONIAL),
(QUANTITATIVE EASING EXPLAINED TO A 12 YEAR OLD)
General Motors Company (GM)
Ford Motor Co. (F)
Toyota Motor Corporation (TM)
?Few people think more than two or three times a year; I have made an international reputation for myself by thinking once or twice a week,? said the Irish Nobel Prize winning playwright and cofounder of the London School of Economics, George Bernard Shaw.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
July 7, 2014
Fiat Lux
Featured Trade:
(THE TIME TO DUMP THE EURO IS HERE),
(FXE), (EUO), (UUP),
(TAKING PROFITS ON CATERPILLAR), (CAT)
?CurrencyShares Euro Trust (FXE)
ProShares UltraShort Euro (EUO)
PowerShares DB US Dollar Index Bullish (UUP)
Caterpillar Inc. (CAT)
The blockbuster nonfarm payroll on Friday, coming in at a heady 288,000 has certainly removed any doubt that the US economy will reaccelerate in the fall. Earlier months were substantially revised up.
Monthly job growth of 200,000 plus now seems to be the new norm, after five consecutive months of such prints.
The headline unemployment rate plunged to 6.1%, a new six year low. American H2 GDP growth of 4% or more now seems to be firmly back on the table.
The gob smacking data has left many hedge fund managers confused, befuddled, and questioning the meaning of life. Loads have been playing the short bond, short equity trade all year, to the unmitigated grief of their investors.
Is smart now the new dumb?
As for me, I have been on the long equity side for almost the entire year, except for a few fleeting moments of mental degradation here and there. After spending most of June unwinding a sizeable US equity position into the rally, I now have little choice but to slap some new positions back on.
Still, there is a way to stay invested in the market and sleep at night. That is to focus on sectors and companies that, so far, have been left at the station during the 2014 bull market.
This is why I charged into a long in General Motors (GM) on Friday, the stock, until now, weighed down by past management?s unfortunate proclivity for killing off their customers.
The housing stocks (ITB), inhabitants of the doghouse for the past year, also look pretty interesting here. May pending home sales came in at a robust 6.1%, the best in four years, while pending home sales (contracts signed) leapt a positively eye popping 18.1%, a six year apex.
Revival of a moribund housing market is another piece of the puzzle that gets us to 4% GDP growth this year.
Bonds seemed to sniff out the great things coming by rolling over two days ahead of the June payroll news, diving some two points. Did they have advance notice, or are bond guys just smarter than we dullards in the equity world (true!)?
Rising US interest rates, a byproduct of a strengthening economy, will certainly lead to one thing: a more virile Uncle Buck and a sagging Euro. Interest rate differentials are the primary driver of foreign exchange movements.
So, you always want to be long the currency with rising rates (ours), and short the one with falling rates (theirs). So I am happy to sell short the beleaguered European currency here.
We saw the multi month selloff in the Euro going into the European Central Bank?s announcement of interest rate cuts and quantitative easing last month. Since then we have seen a classic ?buy the rumor, sell the news? short covering rally that has taken the euro up a counterintuitive two points.
The second move is just about to run out of steam.
Weakening data from the European economy, which is trailing that of the US, Japan, Australia, and even China, suggests that the Euro zone will see more easing before it experiences a tightening.
In proposing the Currency Shares Euro Trust (FXE) August, 2014 $136-$138 in-the-money bear put spread, I have been devious in the selection of my strikes. The near $136 put strike that I am shorting here against the long $138 put is exactly 50% of the move down from the double top at the March and May highs.
It also helps that the (FXE) was firmly rejected from the 50 day moving average on the charts.
We are getting a further assist from the calendar, which is giving us an unusually short monthly expiration on August 15. Most of Europe will be closed until then, not a bad time to be short Euro volatility.
I was also in a rush to get these out before the long July 4 weekend sucks out what little premium is left in the options market.
For those who don?t have options coursing through their veins, the ProShares Ultra Short Euro ETF (EUO) makes an ideal second choice. This 2X leveraged fund rises when the Euro falls, not by two times, but enough to make it worth the trouble. Or you can just sell short the 1X Currency Shares Euro Trust ETF (FXE).
Finally, if you are looking for another way to slumber like a baby with your long equity position, you can use a short position in the Euro to partially hedge your stock portfolio as well. US stock market weakness generally triggers a strong dollar and a weak Euro, as financial assets rush into a flight to safety mode.
The Time to Dump the Euro is Here
The Time to Dump the Euro is Here
So, I?m sitting here in my Turkish redoubt, fighting off unusually aggressive flies and going over my charts. It?s further proof that no matter where in the world you travel, work follows you.
There is truly no rest for the wicked.
As a respite, I have the Best of the Guess Who playing on iTunes.
I noticed that the market priced our Caterpillar (CAT) July, 2014 $97.50-$100 in-the-money bull call spread at $2.50 at last night?s close. This is despite the options still having ten days left to the July 18 expiration. This means that the market is effectively pricing the inverse, the Caterpillar (CAT) July, 2014 $97.50-$100 in-the-money bear put spread at zero.
It?s not just Caterpillar that is doing this. I see this happening across the market, where downside protection is being thrown away for nothing. I see anomalies like this happening from time to time, but not very often. Think of it as complacency in the extreme, on adrenaline and with a turbocharger.
It always ends in tears, but who knows when? I priced the alert at $2.48 just to allow two cents for you to get an execution done. This should add 1.04% to your total return for 2014. If some high frequency dummy is willing to work for pennies, that?s fine with me. Nobody works for free.
If you don?t get done today, then re-enter the order on Monday. You will almost certainly get taken out after they remove the long weekend time decay.
Taking profits here does give you some black swan protection. We could have a flash crash at any time, if not in the main market, then certainly in single names. It also removes a 9/11 type risk. Sure, you say, this is all very improbable. But then, 9/11 was viewed as an impossibility on 9/10.
This has been a bang up trade for us in an otherwise detestable trading environment. We caught a nearly 10% rise in the shares in a market that was otherwise quiescent. I managed to do this with a half dozen other names as well.
It?s not that I have suddenly fallen out of love with the maker of heavy construction and mining equipment. I think (CAT) will continue to appreciate for the rest of 2014, possibly rising to $120-$130/share.
I have been following this company for 40 years and it is one of the most solid, best-managed companies out there. And I love their cool, yellow baseball caps.
(CAT) has finally crossed the wide desert and will continue from strength to strength (there goes those Middle East metaphors again!). And if China manages to engineer a recovery, then it will be really off to the races. So will the rest of the entire industrials sector for that matter.
The other problem with taking off a trade here is that there is nothing to replace it. Zero premiums mean there is not another risk-controlled position to replace the outgoing (CAT) position.
So don?t expect a lot of joy from me on the Trade Alert front until August.
I always take this as an invitation to say, ?Thank you very much, Mr. Market? and take a profit. It is also a sign of how far volatility has fallen, and by implication, option premiums.
Thank you, Mr. Caterpillar!
?Everybody has a plan until they get punched in the nose,? said former heavyweight champion, Mike Tyson.
