Global Market Comments
August 29, 2019
Fiat Lux
Featured Trade:
(HOW THE MARKETS WILL PLAY OUT FOR THE REST OF 2019),
(SPY), ($INDU), (USO), (TLT), (UUP), (COPX), (GLD),
(HOW THE MAD HEDGE MARKET TIMING ALGORITHM WORKS)
We are currently caught between a rock and a hard place.
The whims of one man will dictate whether after a brutal summer, markets recover to new all-time highs, or plunge into the depths of despair in a bear market and recession.
My bet is that the S&P 500 (SPY) will trade between the 50-day moving average at $294 and the 200-day moving average at $278. Right now, we are dead in the middle of that range.
Then on September 18, the Federal Open Market Committee convenes to deliver a decision on interest rates. I believe that no matter what the decision is, whether they cut rates or leave them unchanged, you will see another sharp selloff in stocks, possibly as much as another 2,000 Dow points. That will bring us a December 2018 repeat.
So why does falling interest rates bring cratering stock prices? For a start, you can take your traditional playbook on how markets are supposed to work and throw it in the trash. Low rates USED to bring high stock prices, but no more.
What is driving markets now is not the absolute level of interest rates today, no matter how low they may be historically. It is how many interest rate cuts are left until we get to zero. So an August 1 25-basis point rate cut meant there are fewer rate cuts in the future so a heart-stopping 2,000-point plunge in the Dow average ensued.
The same twisted logic will apply on September 18, only 16 trading days away. By the way, I plan to be 100% in cash by September 18.
Long term, the outlook gets more complicated.
If the trade war ends in September, then the stock market could rocket up to new all-time highs, surpassing 3,200 by the end of the year, up 14.2% from present levels.
If the trade war drags on, a recession is a sure thing in 12-24 months. That means a bear market in stocks is a sure thing in 6-15 months. And that assumes we are not already in a bear market. After all, the major indexes have been unable to top new highs made in January 2018.
The next bear market will likely take the indexes ($INDU) down 40%. They are, after all, the most overvalued assets in the world.
Oil (USO) will plunge to $25 a barrel. Ten-year US Treasury bond yield (TLT) will collapse to 0%, as I have long been advertising. The US dollar (UUP) leaps, deepening the recession. Commodity prices collapse (COPX) and gold (GLD) soars. We might even get into a shooting war in the South China Sea, as there will be nothing for the Beijing leadership to lose.
Again, it all depends on the whim of one man, one who has never done business in China, and who is constantly surprised by Chinese reactions to his own moves. There is no Trump Hotel in Beijing, nor one planned.
Good luck with that.
Just thought you’d like to know.
Getting Ready for Hard Times
Since we have just taken in a large number of new subscribers from around the world, I will go through the basics of my Mad Hedge Market Timing Index one more time.
I have tried to make this as easy to use as possible, even devoid of the thought process.
When the index is reading 20 or below, you only consider “BUY” ideas. When it reads over 80, it’s time to “SELL.” Everything in between is a varying shade of grey. Most of the time, the index fluctuates between 20-80, which means that there is absolutely nothing to do.
To identify a coming market reversal, it’s good to see the index chop around for at least a few weeks at an extreme reading. Look at the three-year chart of the Mad Hedge Market Timing Index.
After three years of battle-testing, the algorithm has earned its stripes. I started posting it at the top of every newsletter and Trade Alert two years ago and will continue to do so in the future.
Once I implemented my proprietary Mad Hedge Market Timing Index in October 2016, the average annualized performance of my Trade Alert service has soared to an eye-popping 34.61%.
As a result, new subscribers have been beating down the doors trying to get in.
Let me list the highpoints of having a friendly algorithm looking over your shoulder on every trade.
*Algorithms have become so dominant in the market, accounting for up to 90% of total trading volume, that you should never trade without one
*It does the work of a seasoned 100-man research department in seconds
*It runs real-time and optimizes returns with the addition of every new data point far faster than any human can. Imagine a trading strategy that upgrades itself 30 times a day!
*It is artificial intelligence-driven and self-learning.
*Don’t go to a gunfight with a knife. If you are trading against algos alone,
you WILL lose!
*Algorithms provide you with a defined systematic trading discipline that will enhance your profits.
And here’s the amazing thing. My Mad Hedge Market Timing Index correctly predicted the outcome of the presidential election, while I got it dead wrong.
You saw this in stocks like US Steel, which took off like a scalded chimp the week before the election.
When my and the Market Timing Index’s views sharply diverge, I go into cash rather than bet against it.
Since then, my Trade Alert performance has been on an absolute tear. In 2017, we earned an eye-popping 57.39%. In 2018, I clocked 23.67% while the Dow Average was down 8%, a beat of 31%. So far in 2019, we are up 18.10%.
Here are just a handful of some of the elements which the Mad Hedge Market Timing Index analyzes real-time, 24/7.
50 and 200-day moving averages across all markets and industries
The Volatility Index (VIX)
The junk bond (JNK)/US Treasury bond spread (TLT)
Stocks hitting 52-day highs versus 52-day lows
McClellan Volume Summation Index
20-day stock bond performance spread
5-day put/call ratio
Stocks with rising versus falling volume
Relative Strength Indicator
12-month US GDP Trend
Case Shiller S&P 500 National Home Price Index
Of course, the Trade Alert service is not entirely algorithm-drive. It is just one tool to use among many others.
Yes, 50 years of experience trading the markets is still worth quite a lot.
I plan to constantly revise and upgrade the algorithm that drives the Mad Hedge Market Timing Index continuously as new data sets become available.
It Seems I’m Not the Only One Using Algorithms
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 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
August 28, 2019
Fiat Lux
Featured Trade:
(RIGHT SIZING YOUR TRADING)
(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS), (TLT)
"Savers are losers," said a radio ad for a mortgage broker in Reno, Nevada.
Mad Hedge Technology Letter
August 28, 2019
Fiat Lux
Featured Trade:
(WHY ROKU WENT BALLISTIC)
(ROKU)
Roku has had a year to remember and the party isn’t over yet after a tech analyst issued another upgrade.
This company was one of my picks to knock it out of the park this year and it has delivered in full force.
The premise behind the upgrade was that Roku (ROKU) could have 82 million active accounts by 2025 as it expands internationally.
What does Roku do?
Roku is a leader in advertising-supported video-on-demand streaming services. It does this by running commercials on its Roku Channel and other channels.
A minor part of their business is involved in making set-top boxes and streaming sticks to access internet video services such as Netflix and Hulu. Plus, it licenses an operating system to makers of smart TVs.
Roku currently relies on the U.S. market totaling 30.5 million active accounts, up 1.4 million from the prior quarter.
As the analyst reemphasized his outperform rating on Roku stock, the stock levitated, and this morning crossed the intraday level of $146 and finished the day over $147.
Roku's international growth could echo Netflix.
The company has been tagged to experience the same type of uber-growth that Netflix experienced as it went global.
If Roku can accumulate 82 million active accounts by 2025, it should have $4.5 billion in annual platform revenue.
This would make Roku's market capitalization around $40 billion to $50 billion in 2025. Its current market value is about $16.5 billion.
Operational superiority filters into the financial results with Roku expanding revenue to $250 million, up 59% year over year.
Roku posted a loss per share of $0.08, both metrics were better than analysts' consensus estimates.
Roku distributes content from a powerful list of streaming providers providing both paid and free ad-supported options. This allows the company to collect not only a piece of each paid subscription on its platform but also benefits from a growing advertising base.
Unless the government bans digital ads, Roku is poised to harvest the lion’s share of the spoils for the streaming revolution.
The unfortunate side to Roku’s stardom is the herculean task of trading a stock that moves up and down in dramatic fashion.
If the stock ever exhausts back to the $100 level, buy and hold long term.
If you try to trade this beast, your positions will get roughed around on the massive swings in the price action.
A great company deserves its plaudits and Roku positioned itself as the tech company in the right place and the right time in 2019.
