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 Bill Davis, 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
March 26, 2018
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WEEK THAT WASHINGTON FINALLY MATTERED),
(THE IRS LETTER YOU SHOULD DREAD),
(PANW), (CSCO), (FEYE),
(CYBR), (CHKP), (HACK), (SNE)
(TESTIMONIAL)
After ignoring the constant chaos in Washington for 17 months, it finally mattered to the stock market.
Guess what was at the top of the list of retaliatory Chinese import duties announced last week?
California wine!
The great irony here is that half of the Napa Valley wineries are now owned by Chinese investors looking for a bolt-hole from their own government. Billionaires in China have been known to disappear into thin air.
And after years of trying, we were just getting Chinese consumers interested in tasting our fine chardonnays, merlots, and cabernet sauvignons.
It will be a slap in the face for our impoverished farmworkers who actually pick the grapes, who have just been getting back on their feet after last fall's hellacious fires.
Do you suppose they will call the homeless housing camps "Trumpvilles?"
California is on the front line of the new trade war with China.
Not only is the Middle Kingdom the largest foreign buyer of the Golden State's grapes, almonds, raisins, and nuts, it also is the biggest foreign investor, plowing some $16 billion in investments back here in 2016.
Down 1,700 Dow points on the week and a breathtaking 1,400 points in two days. It was the worst week for the markets in two years. And the technology and financial stocks suffered the worst spanking - the two market leaders. The most widely owned stocks are seeing the worst declines.
We certainly are paying the piper for our easy money made last year. The Dow Average is now a loser in 2018, off 4.1% and back to November levels.
The Dow 600 point "flash crash" we saw in the final two hours of trading on Friday was almost an exact repeat of the February 9 swoon that took us to the exact same levels.
There was no institutional selling. It was simply a matter of algorithms gone wild. The news flow that day was actually quite good.
Our favorite stock, Micron Technology (MU) announced blockbuster earnings and high target (for more depth, please read the Mad Hedge Technology Letter).
Dropbox (DBX) went public, and immediately saw its shares soar by 50% in the aftermarket. The president signed an emergency funding bill to keep the government open, despite repeated threats not to do so.
Which means the market fell not because of a fundamental change in the US economy. It is a market event, pure and simple.
I therefore expect a similar outcome. Only this time, we don't have an $8 billion unwind of the short volatility trade ($VIX) to deal with, as we did in February. That's why I thought markets would bottom at higher levels this time around.
There is only one problem with this theory.
The chaos, turmoil, and uncertainty in Washington is finally starting to exact a steep price on shareholders. Uncertain markets commend lower price earnings multiples than safer ones.
As a result, multiples are now 15% lower than the January high at 19.5X, and much more for individual stocks. And multiples have been falling even though earnings have been rising, quite substantially so. Such is the price of chaos.
Will markets bottom out here on a valuation basis as they did last time? Or will the continued destruction of our democracy command a higher price? We will find out soon.
Clearly the S&P 500 200-day moving average at $255.95 is crying out for a revisit, which we probably will see first thing Monday morning. Allow more shorts to get sucked in, and then you probably have a decent entry point to buy stocks for the rest of 2018.
Indeed, it was a week when the black swans alighted every day. First, the twin hits from Facebook (FB), followed by the worst trade war in eight decades. Then came the Chinese retaliation.
While the damage suffered so far has been limited, investors are worried about what is coming next.
One of the last supervising adults left the White House, my friend and comrade in arms, National Security Advisor H.R. McMaster. His replacement is Fox News talk show host John Bolton, who is openly advocating that the US launch a pre-emptive nuclear strike against North Korea.
Bolton has quite a track record. He is the guy who talked President Bush into invading Iraq. Now, that would trigger a new bear market in the extreme!
As I did not predict five black swans in five days, the Mad Hedge Trade Alert Service took a hit this week, backing off of fresh all-time highs.
The trailing 12-month return fell to 46.49%, the 8-year return to 284.01%, bringing the annualized average return down to only 34.08%.
Given all of the above, economic data points for the coming holiday shorted trading week seem almost quaintly irrelevant. But I'll give them to you anyway.
On Monday, March 26, at 10:30 AM, we get the February Dallas Fed Manufacturing Survey.
On Tuesday, March 27, at 9:00 AM, we receive an update on the all-important CoreLogic Case-Shiller National Home Price NSA Index for January. A 3-month lagging housing indicator.
On Wednesday, March 28, at 8:30 AM EST, the second read of Q1 GDP comes out.
Thursday, March 29, leads with the Weekly Jobless Claims at 8:30 AM EST, which hit a new 49-year low last week at an amazing 210,000. At 9:45 AM, we get the February Chicago Purchasing Managers Index. At 1:00 PM, we receive the Baker-Hughes Rig Count, which saw a small rise of three last week.
On Friday, March 30, the markets are closed for Good Friday.
As for me, I'll be doing my Christmas shopping early this year before the new Chinese import tariffs jack up the price for everything by 15% to 25%.
I'll be doing all of this courtesy of Amazon (AMZN), of course. Since I arrived here at Lake Tahoe, it has snowed 6 feet in two days in a storm of truly biblical proportions. We got a total of 18 feet of snow in March. By the time I dig out, it will be time to go home.
Good luck and good trading.
John Thomas
Mad Hedge Technology Letter
March 26, 2018
Fiat Lux
Featured Trade:
(MICRON TECHNOLOGY KNOCKS THE COVER OFF THE BALL)
(MU), (WDC)
Micron (MU) was my inaugural stock pick for the first issue of the Mad Hedge Technology Letter on February 1, 2018, and it's time to check this neck of the woods after yesterday's earnings call.
Since I urged readers to jump into this stock at $40, it has skyrocketed to an intraday high of $61.85.
Not bad for a seven-week return.
A bet on Micron is a bet on its visionary leader, Micron CEO and UC Berkeley graduate, Sanjay Mehrotra, who has the propensity to be brilliant.
Mehrotra individually holds 70 chip patents.
He initially was credited for driving outperformance as SanDisk's CEO until Western Digital (WDC) acquired SanDisk in 2016.
Mehrotra has worked at every point on the supply line and knows the industry inside out. He is a pathfinder in a sea of cutthroat competition, and I drop everything to listen to his earnings call. You should do the same.
Rattling off numbers will not do justice to the brilliance of Micron. The great metrics are endless not to mention EPS growth up 15% QOQ, and up over 200% YOY. Cash flow generated from operations was $4.3 billion representing 59% of revenue, which compares to $1.8 billion a year earlier.
Almost every number outperforms sequentially with raised guidance.
The key takeaways were SSD (Solid State Drive) sales up 80% YOY, and the sale of cloud and enterprise solutions more than tripled YOY. Particularly, DRAM chips are Micron's bread and butter, and the DRAM market is suffering from tight supply.
DRAM comprised 71% of total quarterly revenue, and DRAM revenue was up 14% QOQ and 76% YOY.
Shipment volume rose while ASPs (Average Selling Price) increased in the low double-digits. DRAM gross margin was 66% in the quarter and up 22% YOY.
Roaring demand for DRAM and NAND products ushered in record quarterly revenues for the automotive market segment. Strong numbers came from ADAS (Advanced Drive Assistance Systems) and in-vehicle experience applications.
An expanding smorgasbord of DRAM and NAND solutions mean Micron is well-positioned to continue to captain the ship in this rapidly growing market.
A surge in the percolating industrial IoT (Internet of Things) market, expanding factory automation, and surveillance applications mesh nicely with Micron's product offerings.
The newest standards in mobile, automotive devices require rapid data analysis in storage, enterprise and cloud servers, including machine learning, training and inferencing to supplement the computing taking place at the edge.
Automotive clients will thrive from Micron's highest speed LPDDR4 (Low Power Double Data Rate Memory) solutions and other upcoming memory technologies such as the high-bandwidth GDDR6 graphics memory.
The fostering of AI materializes in AI smart cockpits in new automotive models. The instrument dashboard integrates with infotainment and telematics systems with a centralized computer and storage architecture to create a data center on wheels.
Voice and gesture recognition mixed with driver alert monitoring capabilities forge more intelligent and computer intensive automobiles requiring more powerful memory and higher capacity.
Micron has plowed significant investments into the data center to jack up memory and high-performance storage. An important sign is Micron's embedment into the heart of smart car development.
Smartphone makers paraded around high-end smartphones with bigger 4K displays, multiple high-resolution cameras, and 4K HDR video recording at the Mobile World Congress.
Capacity for SSDs are rising in new flagship models using 64GB of flash memory at a minimum. Micron's NAND solution is tailor-made to meet the demand, and Micron is best of breed in TLC (Thin Layer Chromatography) utilization.
Consumers will see a new emphasis on the implementation of A.I. and A.R. into new phones by OEMs (Original Equipment Manufacturer).
It soon will be standard to include facial and voice recognition, real-time translation, fast image search, and scene detection. This is the next gap up for smartphones.
Micron is perfectly positioned for the onslaught of fresh data the world will grapple with soon. High-end smartphones are traversing toward 6GB of LPDRAM, boding well for Micron considering Micron's preeminence in LPDRAM.
The hallmark of this technology is power efficiency essential for optimizing battery life. The LPDDR4's goal is to double data rates (up to 3200 Mb/s) over last generation RAM. Faster memory speeds will support the new migration toward this progression.
Capital investments of $7.5 billion will sustain Micron's leadership status, and Micron targets R&D at 30% to total revenue. Cost will incur transforming to high-value solutions and accelerate with revenue. Steps have been put in place to begin execution of funding the development of the fourth generation of 3D NAND technology.
Micron is in the midst of improving its R&D facilities to accommodate the future of 3D NAND nodes. The trend of higher R&D costs is universal in the semiconductor area as optimal bit growth makes a huge difference in how products are formulated.
The only hiccup in an extraordinary quarter was a maintenance issue at a Taiwan DRAM fab plant, reducing production and dragging down revenue for next quarter by 2%.
However, if you stand back a few feet, Micron's results were nothing short of spectacular. Mehrotra's way of laying out the awe-inspiring future, and Micron's ability to cross-intersect with almost every major secular trend especially pinpoint attention to automotive vehicles is genius.
Micron sold off hard on the earnings and was down more than 8% aftermarket, but this is certainly a case of rising too far too fast mixed with the broad-based China tariff sell-off.
This stock is a tap in to pierce the $100 mark and is pivotal to the future of American technology. It should be at the vanguard of any serious portfolio, and a slew of Micron Trade Alerts is waiting in the pipeline.
The fascinating thing here is that the dynamics of the chip industry are totally changing. It used to be highly cyclical and volatile. But chips are becoming so endemic to the modern economy that they are stabilizing the industry on a long-term basis.
These earnings are no flash in the pan, no one-hit wonder.
Load up on Micron shares on any serious dip.
__________________________________________________________________________________________________
Quote of the Day
"Two years from now, spam will be solved." - said Bill Gates, founder of Microsoft, at the World Economic Forum in 2004
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. 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 Bill Davis, 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
March 23, 2018
Fiat Lux
Featured Trade:
(DON'T MISS THE MARCH 28 GLOBAL STRATEGY WEBINAR),
(FRIDAY, APRIL 6, INCLINE VILLAGE, NEVADA, STRATEGY LUNCHEON)
(WHY US BONDS LOVE CHINESE TARIFFS),
(TLT), (TBT), (SOYB), (BA), (GM)
My next global strategy webinar will be held live from Silicon Valley on Wednesday, March 28, at 12:00 PM EST.
Co-hosting the show will be my friend Jim Kenny from Option Professor.
I'll be giving you my updated outlook on stocks, bonds, commodities, currencies, precious metal, and real estate.
The goal is to find the cheapest assets in the world to buy, the most expensive to sell short, and the appropriate securities with which to take these positions.
I will also be opining on recent political events around the world and the investment implications therein.
I usually include some charts to highlight the most interesting new developments in the capital markets. There will be a live chat window with which you can pose your own questions.
The webinar will last 45 minutes to an hour. International readers who are unable to participate in the webinar live will find it posted on my website within a few hours.
I look forward to hearing from you.
To log into the webinar, please click on the link we emailed you entitled, "Next Bi-Weekly Webinar - March 28, 2018" or click here.
Mad Hedge Technology Letter
March 23, 2018
Fiat Lux
Featured Trade:
(HOW ENVIRONMENTALISTS MAY KILL OFF BITCOIN)
(BTC), (ETH), (TWTR), (SQ)
