"A fool learns from experience. A wise man learns from the experience of others," said Otto von Bismarck, the first Chancellor of Modern Germany.
While the Global Trading Dispatch focuses on investment over a one week to six-month time frame, Mad Options Trader, provided by Matt Buckley, will focus primarily on the weekly US equity options expirations, with the goal of making profits at all times. Read more
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
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
April 3, 2018
Fiat Lux
Featured Trade:
(TUESDAY, JUNE 12, NEW ORLEANS, LA, GLOBAL STRATEGY LUNCHEON),
(MARCH 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (TBT), (FXY), (GS), (FCX), (CSCO), (INTC), (NEM),
(RIGHTSIZING YOUR TRADING)
Below please find subscribers' Q&A for the Mad Hedge Fund Trader March Global Strategy Webinar with my guest, co-host Bill Davis of the Mad Day Trader.
As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!
Q: Should I hold onto long positions in FANG and Tech through the correction?
A: I would - these market moves happen so fast you won't be able to get back into them when it's time to buy. If you're a longer-term investor, it's better to take the pain if you want to outsmart the market. Keep your long positions; if you have a short-term trading book, you should have come out already.
Q: Would you buy Amazon here?
A: I would. I would start scaling in now, buying a few shares on every one of these big sell-off days. Their business model is stronger than ever. The Trump threats all amount to nothing. And if Amazon weren't doing this job another company would, most likely a Chinese one. This is all political noise, bluff, and posturing. I think (AMZN) could hit $2,000 in the next year.
Q: Every time I try to enter an option spread position in the (TLT) I have difficulty getting filled. Why is that?
A: As we're in a bear market in bonds now, liquidity in the options market is shrinking. Also, as you get extreme moves in the stock market, you're getting similar extreme moves in bonds. It's hard to get any kind of Trade Alert out on anything when markets move 600 points in two hours.
Q: Is this a bear market?
A: No, this is just a correction in a bull market, but it may be a vicious one because we've gone so long without one. We've really gone three years without a major correction like this one.
Q: The Japanese yen (FXY) is hitting new highs, is it time for a short?
A: Yes, but not yet; wait for that capitulation day in the stock market - you will be able to sell the yen short several points higher.
Q: Is Goldman Sachs (GS) still good for the medium term, and are they expecting record profits?
A: Yes, however even the best company in the world with the best earnings cannot stand up in the face of these gigantic selling waves that we're getting on everything. Financials in particular are getting hurt by the dips in interest rates and rising bond prices.
Q: Do we hold the China "A" in tech shares or sell and try to buy back later?
A: For the technology shares, it's really too late to sell here. Your sell day was either two weeks ago or the end of January. If you've already taken a 20% hit on these things, at this point I would hang on and take the last 5% or 10% in downside on these, before they rally back up again. Remember, these things could all hit new highs again in May, which is only a month away, when they report blockbuster earnings.
Q: Which stocks would you buy on this dip?
A: I would go after the laggard techs - the two big ones are Cisco Systems (CSCO) and Intel (INTC). I'm looking to add Cisco Systems for both The Global Trading Dispatch and the Mad Hedge Technology services at the end of this correction.
Q: Why haven't you sold volatility (VIX) yet?
A: I am looking for the final capitulation move I mentioned before - a fake breakdown in the S&P 500 (SPY) below the 200-day moving average at $256 to create another massive volatility spike into the low to mid-$30s.
Q: Will the trade war escalate?
A: Who knows? No one has been able to predict what this administration will do. They have been warning of trade wars for the last 18 months, but could you really stay out of the market for that long because of the risk of a trade war? No.
Q: Is North Korea still a threat?
A: No, they never were a threat. The whole thing is made up for political purposes.
Q: What's the problem with the ProShares Ultra Short 20+ Year Treasury Bond Fund (TBT)?
A: (TBT) costs you 60 basis points/month to maintain a negative carry; that's what it costs you to pay a double coupon on your short Treasuries, plus the management fee and expenses. So, in flat markets you can do OK with a put spread on the (TLT), but the (TBT) loses money in that situation. For that reason, it's a short-term trading vehicle, not a long-term hold.
Q: Should I be selling bonds here?
A: Absolutely, yes, but give it a few more basis points of upside.
Q: With oil strong, should I buy oil stocks here (XLE)?
A: No, the performance has been terrible even with oil prices rising. What happens to oil stocks when oil goes back down again? They fall.
Q: Is the Japanese yen (FXY) a buy, now that it has broken out?
A: No, you do not buy break outs, you buy breakdowns. I would wait for the Japanese yen to peak here and then sell.
Q: Should I sell Freeport McMoRan (FCX)?
A: A short term yes, long term, no. The global synchronized recovery story will come back once the trade war news goes away.
Q: What is your Newmont Mining (NEM) outlook?
A: I would be buying the dips here but only in small sizes.
Q: Can you go over exactly what the coming capitulation in the S&P 500 (SPY) would look like?
A: Break of the 200-day moving average on high volume.
Q: What do you see as the low on the 10-year US Treasury yield (TLT)?
A: I would think 2.70% would be the bottom on this move, maybe another point in the (TLT) and that would be a very ripe, short-selling area.
Good Luck and Good Trading!
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
April 3, 2018
Fiat Lux
Featured Trade:
(THE BIG WINNER FROM THE PHOENIX CAR CRASH),
(WAYMO), (TSLA), (GOOGL), (AAPL), (AMZN), (UBER), (GM), (FB)
In 2014, the juicy sound clips recorded by NFL legend Chris Carter at the annual NFL rookie symposium would be enough for those at league headquarters to have nervous breakdowns.
During a keynote speech, Chris Carter recommended that every rookie about to kick-start a sports career should find a "fall guy" just in case they found themselves on the wrong side of the law.
Carter later rescinded his comments and sincerely apologized for insinuating marginal tactics.
Lo and behold, it seems the most attentive listeners at the symposium weren't the players but the swashbuckling chauffeur-share service that has become the "fall guy" of Big Tech, none other than Uber.
The great thing (read: sarcastic here) for Uber about killing a pedestrian with autonomous vehicle technology is that it does not need to change its Silicon Valley mind-set of "move fast and break things."
Everything Uber touches seems to turn to mush. At least lately.
This revelation is extremely bullish for the other big players in the A.I. (Artificial Intelligence) driverless car space, mainly Waymo and General Motors (GM).
Granted, Uber came late to the party, but that cannot be an excuse for the myriad of shortcuts it promotes to build its business.
Waymo, the autonomous subsidiary of Google (GOOGL), has been honing its software, algorithms, and sensors for the past nine years like a sage samurai swordsmith from Kyoto. This type of detailed nurturing has led Waymo to rack up more than 5 million miles of testing on live roads.
The company recently commenced the first niche ride-hailing service in Phoenix, AZ, and just announced that it will purchase up to 20,000 electric cars from Jaguar Land Rover in a $1 billion deal to outfit with its cutting-edge technology.
Every day is a joyous day for Waymo because the first mover advantage is in full effect.
GM, another laggard, though considered in the top three, won't commence its robotic car fleet until late 2019. However, by that time, Waymo could be on the verge of mass rollouts if there are no setbacks.
The cherry on top for Waymo is Uber's knack of making a dog's breakfast of anything it pursues, magnifying an insurmountable lead for Waymo to possess.
Granted, the autonomous vehicle brain trust expected casualties, and the firm that made news for this mishap would be stuck with this label along with suspended operations.
Waymo missed a direct hit thanks to Uber and Tesla.
Tesla also took a direct hit when it announced that Walter Huang, an Apple engineer, sadly was killed in a Model X accident last weekend while his car was on autopilot.
It capped a horrible week by announcing a comprehensive recall of every Model S made before April 2016 for a faulty part. After fighting tooth and nail to maintain the $300 support level, Tesla swiftly sold off down to $250.
The disruption fetish permeating the ranks of the tech industry has its merits. Often the end result manifests through cheaper prices and better consumer services.
However, Uber's over-aggressiveness has placed it at the forefront of the regulation backlash along with Facebook (FB).
Google has certainly been playing its cards right, and having not run over a pedestrian consolidates its leading position
Luckily, the National Transportation Safety Board does not punish every participant using this technology.
No news is good news.
An extensive review of internal processes will hit team morale, and the burden of blame with fall upon the engineers.
The fallout from the tragic incidents will set back Tesla and Uber at least three to six months.
The suspension of their operations is akin to a white flag because Waymo is currently leaps ahead and plans to ramp up the mass rollout in the next two years with technology that is best of breed.
The running joke in the industry is that Uber's autonomous vehicle engineers are comprised of Waymo rejects.
Waymo already has more than 600 for-profit vehicles in operation in Arizona. And as every day without a fatality is considered a success, the Jaguars are next in line to be tricked-out with sensors and software.
Unceremoniously, Waymo has focused on safety as the pillar of its autonomous driving operation. Its conservative attitude toward danger will serve it well in the future. Waymo even spouted that its technology would have avoided the Uber accident.
Waymo has no desire to physically produce cars, but it aspires to sell licenses to the technology that could be installed in trucks and delivery vehicles, too.
The licenses could act as de-facto SaaS (software as a service) reoccurring revenue that has catapulted cloud companies to untold heights.
Google would also be able to integrate Google Maps, Google Docs, and all Google services into the robot-cab experience. The robo-taxi would merely serve as an incubation chamber to use the plethora of Google services while being transported from point A to point B.
And with Uber temporarily wiped off the map, Waymo seems like a great bet to monetize this segment at massive scale.
Google is truly on a roll as of late, even finding the perfect fall guy for the big data leak that has roiled the tech world, inducing a wicked tech sell-off - Facebook.
Instead of extracting data from user-posted content, Google's search builds a profile on users' search tendencies, and it is just as culpable in this ordeal.
Ironically, all the heat is coming down on Facebook's plate, and Mark Zuckerberg's lack of tactical PR noise is cause for investor concern.
The mountains of cash vaulted up over the years has made barriers of entry into new fields simple.
For example, Amazon's desire to lead health care came out of left field, and 10 years ago nobody ever thought the iPod company would make smart watches.
The interesting development in broader tech is the disintegration of unity that once supported the backbone of these firms.
Tim Cook, chief executive officer of Apple, railed on Facebook's business model and trashed Mark Zuckerberg's blatant disregard for privacy in order to profit from people's personal lives.
Large cap tech has never had as much overlap as it does now, and the new normal is throwing others under the bus.
If Google is dragged into the Facebook regulatory orbit, the silver lining is that the world's best autonomous driving technology will soon transform its narrative and put its incredibly profitable search business on the back burner.
Markets are forward looking and reward outstanding growth stories.
Tech is growth.
Morgan Stanley issued a report claiming the repercussions of mass-integrating this technology would be to the tune of about half a trillion dollars. That includes the $18 billion saved in annual health costs to automotive injuries. Also, 42% of police work ignites from a simple traffic stop. This would vanish overnight as well as concrete parking garages that blight cities. Car insurance is another industry that will be swept into the dustbin of ancient history.
Yes, tech has evolved that fast when Google can start claiming its revered search business as the daunted L word - legacy business.
The fog of war is starting to burn off and the visible winner is Waymo.
The shaping of its autonomous vehicle business is starting to take concrete form and although this won't affect earnings in the next few years, it will be a game changer of monumental proportions.
Uber is seriously in the throes of having an existential problem because of Waymo's outperformance. Venture capitalists heavily invested in Uber because of the promises of autonomous vehicle technology.
This is its entire growth story of the future.
Without it, it is a simple taxi company run on an app. There is no competitive advantage.
Waymo is on the verge of creating a scintillating growth business that is effectively Uber without a driver while simultaneously destroying Uber.
Ouch!
It speaks volumes to the ascendancy. And if Waymo miraculously capitulates, Google can always call Chris Carter and find another "fall guy."
__________________________________________________________________________________________________
Quote of the Day
Asked what he would do if he was Mark Zuckerberg, Apple CEO Tim Cook said, "I wouldn't be in this situation."
While the Global Trading Dispatch focuses on investment over a one week to six-month time frame, Mad Options Trader, provided by Matt Buckley, will focus primarily on the weekly US equity options expirations, with the goal of making profits at all times. Read more