While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a 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
January 14, 2019
Fiat Lux
Featured Trade:
(THE MARKET FOR THE WEEK AHEAD, or IS THE BULL MARKET BACK?),
(SPY), (TLT), (MSFT), (AMZN), (CRM), (AAPL), (FXE),
(TESTIMONIAL)
During the Christmas Eve Massacre, a close friend sent me a research report he had just received entitled “30 Reasons Equities Will Fall in 2019.” It was laughable in its extreme negativity.
I thought this is it. This is the bottom. ALL of the bad news was there in the market. Stocks could only go up from here.
If I’d had WIFI at 12,000 feet on the ski slopes and if I’d thought you would be there to read them, I would have started shooting out Trade Alerts to followers right then and there. As it turned out, I had to wait a couple of days.
Two weeks later, and here I am basking in the glow of the hottest start to a new year in a decade, up 6.45%. So far in 2019, I am running a success rate of 100% ON MY TRADE ALERTS!
Don’t expect that to continue, but it is nice while it lasts.
I can clearly see how the year is going to play out from here. First of all, my Five Surprises of 2019 will play out during the first half of the year. In case you missed them, here they are.
*The government shutdown ends quickly
*The Chinese trade war ends
*The House makes no moves to impeach the president, focusing on domestic issues instead
*Britain votes to rejoin Europe
*The Mueller investigation concludes that Trump has an unpaid parking ticket in Queens from 1974 and that’s it.
*All of the above are HUGELY risk-positive and will trigger a MONSTER STOCK RALLY.
After that, the Fed will regain its confidence, raise interest rates two more times, and trigger a crash even worse than the one we just saw. We end up down on the year.
My long-held forecast that the bear market will start on May 10, 2019 at 4:00 PM EST is looking better than ever. However, I might be off by an hour. Those last hour algo-driven selloffs can be pretty vicious.
I make all of these predictions firmly with the knowledge that the biggest factors affecting stock prices and the economy are totally unpredictable, random, and could change at any time.
It was certainly an eventful week.
Fed governor Jay Powell essentially flipped from hawk to dove in a heartbeat, prompting a frenetic rally that spilled over into last week.
On the same day, China cut bank reserve requirements, instantly injecting $200 billion worth of stimulus into the economy. That’s the equivalent of spending $400 billion in the US. The last time they did this we saw a huge rally in stocks. It turns out that the Middle Kingdom has a far healthier balance sheet than the US.
Saudi Arabia chopped oil production by 500,000 barrels a day, sending prices soaring. It's not too late to get into what could be a 40% bottom to top rally to $62 (USO).
Macy's (M) disappointed, crushing all of retail with it, and taking down an overbought main market as well. It highlights an accelerating shift from brick and mortar to online, from analog to digital, and from old to new. Online sales in December grew 20% YOY. Will Amazon sponsor those wonderful Thanksgiving Day parades?
Home mortgage rates hit a nine-month low with the conventional 30-year fixed rate loan now wholesaling at an eye-popping 4.4%. Will it be enough to reignite the real estate market? It is actually a pretty decent time to start picking up investment properties with a long view.
My 2019 year to date return recovered to +6.45%, boosting my trailing one-year return back up to 31.68%. 2018 closed out at a respectable +23.67%.
My nine-year return nudged up to +307.35, just short of a new all-time high. The average annualized return revived to +33.90.
I analyzed my Q4 performance on the chart below. While the (SPY) cratered -19.5% in three short months, my Trade Alert Service hung in with only a -4.9% loss. The quarter was all about defense, defense, defense. It was the hardest quarter I ever worked.
While everything failed last year, everything has proven a success this year. I came back from vacation a week early to pile everyone into big tech longs in Salesforce (CRM), Microsoft (MSFT), and Amazon (AMZN). I doubled up my short position in the bond market.
I even added a long position in the Euro (FXE) for the first time in years. If Britain votes to stay in Europe, it is going to go ballistic.
I also top ticketed a near-record rally by laying out a few short positions in Apple (AAPL) and the S&P 500 (SPY). I am now neutral, with “RISK ON” positions “RISK OFF” ones.
The upcoming week is very iffy on the data front because of the government shutdown. Some data may be delayed and other completely missing. All of the data will be completely skewed for at least the next three months. You can count on the shutdown to dominate all media until it is over.
On Monday, January 14 Citigroup (C) announces earnings.
On Tuesday, January 15, 8:30 AM EST, the December Producer Price Index is out. Delta Airlines (DAL), JP Morgan Chase (JPM), and Wells Fargo (WFC) announce earnings.
On Wednesday, January 16 at 8:30 AM EST, we learn December Retail Sales. Alcoa (AA) and Goldman Sachs (GS) announce earnings.
At 10:30 AM EST the Energy Information Administration announces oil inventory figures with its Petroleum Status Report.
Thursday, January 17 at 8:30 AM EST, we get the usual Weekly Jobless Claims. At the same time, December Housing Starts are published. Netflix (NFLX) announces earnings.
On Friday, January 18, at 9:15 AM EST, December Industrial Production is out. The Baker-Hughes Rig Count follows at 1:00 PM. Schlumberger (SLB) announces earnings.
As for me, my girls have joined the Boy Scouts which has been renamed “Scouts.” Their goal is to become the first female Eagle Scouts.
So, I will retrieve my worn and dog-eared 1962 Boy Scout Manual and refresh myself with the ins and outs of square knots, taut line hitches, sheepshanks, and bowlines. Some pages are missing as they were used to start fires 55 years ago. I am already signed up to lead a 50-mile hike at Philmont in New Mexico next summer.
As for the Girl Scouts, they are suing the Boy Scouts to get the girls back, claiming that the BSA is infringing on its trademark, engaging in unfair competition, and causing “an extraordinary level of confusion among the public.”
Is there a merit badge for “Frivolous Lawsuits”?
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
January 14, 2019
Fiat Lux
Featured Trade:
(THE TECH DARLING OF 2019),
(TWLO), (MSFT)
Winter 2018 was a time to remember as American tech shares were caught up in a perfect storm of a global growth scares, interest rate gyrations, and a political tug of war that sees no end in sight.
All of this made investors run for the hills after a huge run-up of tech shares since the February correction in 2018.
Even after all the chaos, there is one tech stock that has muscled out the noise and is hovering at all-time highs.
Coincidently, this is a name that I recommended last year as a strong 2019 play and I would like to reaffirm my prognosis by doubling down on cloud communications company Twilio.
Twilio will be a darling of 2019 because it seeks to upgrade a whole swath of communications in legacy companies that are scurrying to compete with the rest who have forged ahead.
The start of 2019 has been a positive omen for Twilio shares, and are almost 10% higher in this short span of time.
It’s discernable that it is not only me who believes in this company and naysayers are few and far between.
Twilio doesn’t get as much PR as it should because making sure the back-end communication channels are executing at optimum levels is not exactly a sexy part of tech with shiny smartphones and wearable gadgets.
This company produces software and are good at what they do.
Many of you might not have even heard of them but I am sure you have heard of companies such as Uber, Lyft, and Airbnb.
Why do I mention these three private tech companies that are on the verge of going public this year?
Because this trio of unicorns is all powered by Twilio’s communication technology that is best of breed in their genre of cloud software.
More specifically, Twilio is a platform as a service (PaaS) firm offering programmatic phone call functions, can automate sending and receiving text messages, and performs other communication functions using its web service APIs.
When your shaggy-haired Uber driver calls asking you to reveal yourself out of a concrete apartment block or your lavish gated community, this is all facilitated by Twilio’s technology.
At the 2018 Twilio Signal Conference in San Francisco, Twilio indicated that its latest “call center in a box” product called Flex was up and running after announcing in March last year.
Prior to Twilio’s roll-out, this type of call center functionality was only reserved for the Fortune 500 companies that could afford expensive software to serve its minions of customers.
The small guy was left out in the cold as usual.
Twilio has reshaped the call center and, at $1 per hour or $150 per month, has made itself a gamechanger for SMEs who don’t have the manpower or capital to fund exorbitant back-end operations.
Twilio is really going after anyone with a light or bulky-shaped wallet as you see from their all-star lineup of customers. U-Haul, real estate website Trulia, and data analytic firms Scorpion and Centerfield are just a few of their customers proving the incredible flexibility and inclusive nature of the software.
It’s not a shock that this stock has gone ballistic in 2018 surging over 200% and I must admit investors need to wait for this molten hot stock to cool down.
But how can you blame a company that habitually beats any expectations by investors because of its super growth model and rapid broad-based adoption?
From the fourth quarter of last year, revenue accelerated to 48% YOY and Twilio followed that up with a blistering 54% YOY quarter.
Then they pulled a shocker guiding down only expecting 35% to 37% growth but dismantled any whiff of jangling investors' nerves by posting another quarterly growth rate of 54%.
If you average out the three-year sales growth rate, few can topple the 57% Twilio has registered.
Performance has been fantastic, to say the least, and Flex could be the product that widens their industry lead and fortifies the moat around them.
Airbnb, Uber, and Lyft will avoid tinkering with the back end of their operations before their 2019 IPOs boding well for Twilio who are on a hot streak scoring a series of big contracts.
And as their IPO dates creep closer, I firmly believe that the quiet story of Twilio will jump to the fore.
There is only so long this brilliant company can be kept under wraps.
If you take a long-term view of companies, this cloud company will be investor’s ticket to early retirement.
Even though Twilio has failed to become profitable, this year bodes well with EPS growth expected to be over 10%.
This year will be the precursor to 2020 when Twilio really invigorates earnings capability with analysts forecasting over 48% EPS growth in 2020.
Sometimes cloud companies must move mountains and absorb years of losses to finally breach the profitability marker, that time is about to come for Twilio and along with maintaining its riveting growth, the business model will become more sustainable with a vast improvement in cash flow.
Although Twilio’s competitive advantage is not as large as Microsoft (MSFT), this company has the same type of momentum going into 2019.
I believe many institutional investors have yet to hear this name echo around investment offices, and if any tech stock is going to be the darling of 2019, it will be Twilio.
I expect Twilio shares to shortly eclipse the $100 mark and maintain that level with an infusion of zeal that mimics Microsoft’s share price.
Notice that through hell and high water, any massive sell-off that crushes Microsoft swan diving below $100, shares find itself above $100 again in a jiffy.
I expect Twilio to exude similar characteristics, albeit with more volatility.
Twilio has the ability to rise 10% or even 15% on any given day on good news.
Being at all-time highs again only illustrates the attractiveness of the name.
In general, this should really be a software-as-a-service (SaaS) year for investors as the migration to these services picks up speed.
Any meaningful dip that can be attributed to outside forces should be bought because there are no fundamental problems with Twilio.
Don’t chase the stock here because it’s up almost 300% in the past 365 days - wait for it to fall into your wheelhouse.
To add the cherry on top, this company is far away from the geopolitical trade winds.
And even though fundamental differences have yet to be hashed out, at least it debugs one potential headwind to the fundamental story.
Twilio should outperform this year relative to the large tech stocks, it’s up to you if you want to ride on the coattails of this story or try your luck on less qualified names.
And not to toot my own horn, but this stock is already up almost 30% since I urged readers to pile into it.
I am strongly bullish Twilio.
“I think the most diverse group will produce the best product; I firmly believe that.” – Said CEO of Apple Tim Cook
Mad Hedge Hot Tips
January 11, 2019
Fiat Lux
The Five Most Important Things That Happened Today
(and what to do about them)
2) 2019 Earnings Forecasts Just Got Chopped, from 10% growth to 6%. Will they get cut more? Your retirement portfolio cares. Click here.
3) Junk-Bond Issuance Returns, after a 40-day absence. It had shut down during the stock market crash. Maybe the bull market really is resuming again? Click here.
4) Home Mortgage Rates Hit a 9-Month Low, with the conventional 30-year fixed rate loan now wholesaling at 4.4%. Will it be enough to reignite the real estate market? Buy Lennar (LEN). Click here.
5) Will China’s Top Trade Negotiator Visit the US This Month? It could be worth another 1,000 points in the Dow. Click here.
Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:
(WHY THE MARKET CRASHED IN DECEMBER),
(SPY), ($INDU), (VIX)
(THE GOVERNMENT’S WAR ON MONEY),
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to the 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
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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