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
June 23, 2020
Fiat Lux
Featured Trade:
(HERE ARE THE FOUR BEST PANDEMIC-INSPIRED TECHNOLOGY TRENDS),
(AMZN), (CHWY), (EBAY), NFLX), (SPOT), (TMUS), (ATVI), (V), (PYPL), (AAPL), (MA), (TDOC), (ISRG), (TMDI)
By now, we have all figured out that the pandemic has irrevocably changed the course of technology investment. Some sectors are enjoying incredible windfalls, while others are getting wiped out.
The digitization of the economy has just received a turbocharger. It has become a stock pickers market en extemus.
The good news is that we are still on the ground floor of trends that have a decade to run, like working from home, more online food purchases, and a rise in touchless payments. This means there's a huge upside for investors willing to make big bets on what’s expected to become some of the most important technologies in the years ahead.
Covid-19 is a wake-up call to accelerate trends that have been around for years and are now greatly speeding up. The pandemic seems to have triggered a new survival instinct: innovate fast or die. Let me list some of the frontrunners.
1. E-commerce
E-commerce is the No. 1 shelter-in-place beneficiary by miles, as a combination of stay-at-home orders, reduced spending on dining, and government stimulus have sent Americans in search of other ways to spend their money. Even though Covid-19 restrictions are now being eased, the e-commerce industry should still see about 25% growth across all of 2020.
The estimated $60 billion spent by consumers from their stimulus checks has also been a tailwind. While the world is now re-opening, we expect these buckets of available dollars to remain e-commerce tailwinds for the foreseeable future as we expect adjusted retail and travel spend to decline an aggregate of 18% in and for as much as half of all small retail stores to potentially close this year.
When Amazon shares were at $1,000, I wrote a report calculating that its breakup value was at least $3,000 a share. It looks like Amazon may hit that target before yearend….without the breakup.
Want to know the winners? Try Amazon (AMZN), Chewy (CHWY), and eBay (EBAY).
2. Digital Entertainment
The Covid-19 pandemic has also left more Americans in search of digital, at-home entertainment, a trend that’s delivered a huge push for companies like Activision Blizzard that develop online games. New users, time spend gaming and in-game purchases are only accelerating and spell even more lasting benefit for game developers.
Content names like video streaming site Netflix (NFLX), as well as bandwidth and connectivity companies including Comcast (CMCSA) and T-Mobile (TMUS), are names to focus on.
This increased use of high bandwidth applications is likely to continue post-COVID-19 and has the impact of similarly increasing the demand for bandwidth and connectivity. This increases the value of upstream assets in the infrastructure sectors like fiber-based wireline broadband networks and nascent 5G build-outs.
Names to play the space: Netflix (NFLX), Spotify (SPOT), T-Mobile (TMUS), Activision Blizzard (ATVI).
3. Touchless payments
Another trend the stock market still underappreciated is a generational surge in contactless payments, which has recently seen a jump higher amid Covid-19 fears and efforts to minimize physical contact. Companies like Visa (V), Mastercard (MA), and PayPal (PYPL), already integral to the payments world, should be major beneficiaries in the years ahead.
The market assumes that COVID-19 related adoption of digital payments is a near-term benefit for payment service providers, offsetting some of the consumer spending headwinds. However, digitization of payments is part of a multi-year secular growth driver, with COVID-19 as just the latest accelerator.
Names to play the space: Visa (V), PayPal (PYPL), Apple (AAPL), and Mastercard (MA).
4. Telemedicine
Healthcare is one of the most inefficient industries left in the United States. I call it a 19th century industry operating with 21st century technology. While progress has been made, those massive stacks of paper records are finally disappearing, there still is a long way to go.
These days, even doctors don’t want to see patients in person, as they may contract the Coronavirus. Far better to see them online, which could address 90% of most patients. Teledoc (TDOC) does exactly that (click here for my full report).
So does Intuitive Surgical (ISRG), maker of DaVinci Surgical Systems, which enables remote operations for a whole host of maladies. Titan Medical (TMDI) is another name to look at here.
Names to play the space: (TDOC), (ISRG), (TMDI).
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
Today, I would like to make a suggestion on a stock I mentioned on one of John's webinars. In fact, I suggested it was a buy last week.
And I think we now have the entry.
The stock is Bristol Myers Squibb Co. (BMY).
BMY is trading at $57.33 as I write this and it does have weekly options.
I am going to suggest you trade the July 24th series. This should give us some time to see if BMY follows through as I expect.
My suggestion is going to be a debit spread and here is the trade:
Buy to Open July 24th - $57 Call for $2.44
Sell to Open July 24th - $63 Call for $0.60
The net debit will be $1.84 per spread. The maximum gain on the trade will be $3.16 per spread or 172% return.
Based on the tracking portfolio, limit the buy in to 6 spreads or 1.1% of the tracking portfolio.
I am suggesting a debit spread because the long calls are slightly out of the money.
Mad Hedge Technology Letter
June 22, 2020
Fiat Lux
Featured Trade:
(IS ROKU BREAKING OUT?)
(ROKU)
Roku (ROKU) is another tech growth stock that is a conviction buy in my eyes.
Never sell this company if you plan to be in this long term.
The only way a sell would make sense is if digital ads stopped existing or Roku’s platform somehow managed to blackball itself out of the digital ad landscape.
Both scenarios are highly unlikely.
What does Roku actually do?
This is the company that is single-handedly destroying linear television and is laughing all the way to the bank – or at least the shareholders are.
Roku is a leader in advertising-supported video-on-demand streaming services.
In layman’s terms, they basically run commercials on its own Roku Channel and other third-party channels.
A minor part of their business is involved in making set-top boxes and streaming sticks to plug into internet video services such as Netflix and Hulu.
Plus, it sells licenses to an operating system that is thrown up smart TVs.
To beef up its products and move up in the quality food chain, the streaming platform outperformer Roku (ROKU) has agreed to a data exchange agreement with supermarket giant Kroger (KR).
Roku will apply data from the supermarket chain in its recently launched shopper data program.
The tech firm will finally get a peek deep inside the psyche of the American consumer.
I also believe this is the beginning of a massive wave of data-sharing partnerships as companies desire to understand their consumers deeper at a time when the coronavirus shut their consumers inside their house with nowhere to go.
So, how will Roku parlay this partnership into more revenue?
As people cord cut, the main goal is to seduce advertisers away from linear TV.
Juicing up its targeting abilities by using Kroger’s leading data science KPM (Kroger Precision Marketing) program, Roku will be able to move closer to the customer’s digital wallet enabling them to anticipate what they buy and how much of it they want.
The ads will be pricier because Roku will be able to hyper-target specific audiences due to a higher quality set of data they will have to work with.
From the CPG marketers’ perspective, supermarket brands will apply the data from Kroger’s KPM platform to better target the approximately 40 million and growing households using Roku, thus enabling them to better gauge which ads viewers are more likely to respond to.
Kroger will be able to understand more about their audience by assessing what commercials they consume and how they can adjust and expand their supply of goods to better capture the demand of their shoppers.
Getting more bang for their buck is a winning strategy for Roku as they delve deep into the mystical art of artificial intelligence to offer a better ad funnel.
Kroger Precision Marketing (KPM) spans 60 million US households which is not shabby itself. Marrying the 60 million with the 40 million to create a 100 million data analytics treasury trove means that Roku has just become 20% more valuable in a blink of an eye.
Roku's international growth could experience the same type of meteoric rise as what Netflix had.
If Roku can accumulate 82 million active accounts by 2025, it should have $4.5 billion in annual platform revenue.
This would mean that Roku's market cap would be around $40 billion to $50 billion in 2025. Its current market value is about $16.5 billion.
Roku still has its share of headwinds and are still loss-making.
The company reported a 45-cent loss per share for the first quarter, in-line with analyst expectations and revenue of $321 million beating the estimates by $13 million.
Since the company is still a “growth” company, investors still look through the losses to glorify growth, and Roku reporting 39.8 million active accounts, up 37% from a year ago, means they are on track.
Another concern is the higher-than-normal number of cancellations in the short-term even though its long-term runway is still solid.
However, I would say the biggest problem Roku faces is that the stock is just too hot pricing around many investors looking to put new money to work in shares.
The stock has doubled since the March lows.
In short, unless the government bans digital ads, Roku is poised to harvest the lion’s share of the spoils of the streaming revolution.
I am highly bullish on Roku shares.
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
June 22, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR THE FED RIDES AGAIN),
(TLT), (SPY), (TSLA), (IBB), (AMGN), (GILD), (ILMN)
The free Fed put was tested once again last week, and once again it held. It seems that the line in the sand is $300 for the (SPY), and if that doesn’t hold, $270 will do. At least, for a month.
How long this game will last is anyone’s guess. $14 trillion is a lot of money to throw at the problem. But then so are US Covid-19 deaths approaching 1,000 a day. Who knows what Jay Powell has up his sleeve? Probably quite a lot.
A large chunk of the US economy has gone missing and is never coming back, especially the portion represented by small companies. Whether stock investors will notice this will be the big bet for the remainder of 2020. My bet is they will if the spread of the epidemic can’t be stopped. I give it a 50/50 chance.
If the worst-case scenario happens, get ready to load the boat of LEAPS once again, for we have a Roaring Twenties and second American Golden Age ahead of us, if you can live to see it. We are one wonder drug discovery away from that starting tomorrow morning at 9:00 AM.
We got encouraging news last week with the commonplace steroid dexamethasone, which reduces deaths by 30%. Publishing the Mad Hedge Biotechnology & Health Care Letter, I can tell you there are hundreds more drugs like this under rapid development. Click here.
There is no doubt that biotech stocks (IBB) are breaking out to the upside. Take a look at the ten largest components of the iShares NASDAQ Biotechnology ETF and you’ll see they all have virtually the same chart (click here), stocks like Amgen (AMGN), Gilead Sciences (GILD), and Illumina (ILMN)
The trillions of dollars pouring into Covid-19 research is a big driver. In the meantime, past headaches have magically gone away, like the threat of a nationalization and drug price controls. No one feels like regulating drug companies in this environment. Almost all impediments to research have been tossed away. Relative to the rest of the superheated stock market, biotech shares are still cheap.
The Fed is to starting to buy individual bonds, in another unprecedented expansion of quantitative easing. They are clearly worried about exploding Corona cases, as I am. US Treasury bonds (TLT) dove two points on the news as this may represent a diversion of Fed buying from that market. Stocks soared 1,000 points.
The big message is more QE to come. Another election play? It is called “QE Infinity” for a reason. It’s a great level to trade against. I hope you loaded up on tech LEAPS at the bottom, as I begged you to do.
The Fed balance sheet soars, from $4 trillion to $7 trillion this year, says Fed governor Jay Powell. It is the fastest debt blow up in history. That’s $18,750 per taxpayer in four months. It could be $10 trillion by yearend. If you received less than this stimulus money, you got screwed. This always ends in stagflation….high inflation and slow growth, like we saw after the Vietnam War. Your grandkids are going to have to take side jobs driving for Uber to pay off this bill.
Reopening states see corona cases explode, tossing the “V” shaped economic recovery out the window. Some 25 states are seeing a rapid rise in new cases. Is this the second wave or an extension of the first? The green shoots have been squashed. Stocks won’t like it. The free pass is over.
Stocks pop on miracle steroid drug that reduces Covid-19 death rates. Dexamethasone is the drug in question, normally used for arthritis treatments. It’s just in time as Beijing is closing down schools again in the wake of a second wave.
A US dollar crash is a sure thing, says my old Morgan Stanley colleague, Steven Roach. I couldn’t agree more. Steve is expecting a 35% swan dive for Uncle Buck. A negative savings rate combined with a retreat from Globalization is a toxic combo. A 1970s type stagflation could ensue.
Weekly Jobless Claims are still sky-high, at 1.51 million, far above estimates. The Dow gave up 300 points at the opening, then quickly clawed it back. Walk down Main Street these days and they are still filled with empty storefronts. Many companies are simply running out of money, unable to wait for a recovery. In the meantime, Corona cases are hitting new records every day. Florida cases are off the charts. Things will get worse before they get better.
Retail Sales posted record pop, up 17.7% in May. You are going to see a lot of these record data points because we are coming off a near-zero base. It will actually take years to get to January business levels. I’m sorry, but the higher the free Fed put drives the stock market, the worse the long-term outlook for the economy is going to be.
Homebuilder Confidence is off the charts, with Sales Expectations jumping 22 points to 68. It’s a positive perfect storm, with record-low 2.90% 30-year fixed rate mortgage, Fed buying of mortgage securities and a massive Millennial tailwind that I have been calling for years. A sudden Corona-driven urban flight is sending customers into the arms of suburban builders. Get into Lennar Homes (LEN), KB Homes (KBH), and Pulte Homes (PHM) on dips if you can.
Tesla (TSLA) to open the second US factory this year, somewhere in the southwest as demand overwhelms supply for electric vehicles, exacerbated by the two-month Corona shutdown. The tax break bidding war has already begun, with Texas and Oklahoma slugging it out. The factory comes with 5,000 jobs. Tesla got its first factory for free, giving stock to Toyota for $10 a share. It was the best investment Toyota ever made.
The Mad Hedge June 4 Traders & Investors Summit recording is up. For those who missed it, I have posted all 9:15 hours of recordings of every speaker. This is a collection of some of the best traders and investors I have stumbled across over the past five decades. To find it, please click here.
When we come out on the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade.
My Global Trading Dispatch performance nicely recouped the pasting we took last week, taking in a nice 7%, bringing June in at +1.21%. With the June options expiration, we managed to cash in on the accelerated time decay in seven positions for Global Trading Dispatch and another three for the Mad Hedge Technology Letter. My eleven-year performance stands at a new all-time high of 367.44%.
That takes my 2020 YTD return up to a more robust +11.53%. This compares to a loss for the Dow Average of -9.2%, up from -37% on March 23. My trailing one-year return popped back up to 51.92%. My eleven-year average annualized profit recovered to +34.99%.
The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here. On the economic front, some low-grade inflation numbers are published.
On Monday, June 22 at 11:00 AM EST, the May Existing Home Sales are out.
On Tuesday, June 23 at 11:00 AM EST, May New Home Sales are published.
On Wednesday, June 24, at 8:15 AM EST, the National Home Price Index is printed. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are published.
On Thursday, June 25 at 8:30 AM EST, Weekly Jobless Claims are announced. Also out it the final figure for Q1 GDP.
On Friday, June 26, at 10:00 AM EST, the Baker Hughes Rig Count is out. At 11:00, we get the University of Michigan Inflation Expectations.
As for me, I’ll spend the weekend modernizing my camping equipment, some pieces of which are WWII surplus, or are at least 50 years old. Since all of the Boy Scout summer camps for the year have been cancelled, such a Philmont and Catalina Island, I’m creating my own.
We’re going on a 50-mile hike around California’s High Sierra Desolation Wilderness, a part of Northern California my family has been fishing at for a hundred years.
We’ll be trekking on the Pacific Crest Trail featured in the film Wild. I’ll try to regale you with pictures on my return and wild fish stories.
It’s easier said than done, for there is a national camping boom going on. It can be difficult to get simple things, like maps, without an August delivery date. Some of my WWII stuff may have to suffice after all.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
