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
September 4, 2020
Fiat Lux
Featured Trade:
Below please find subscribers’ Q&A for the September 2 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Tesla (TSLA) is down 25% today from the Monday high. What are your thoughts?
A: Yes, I've been recommending to people all last week that they dump their big leverage positions, like their one- and two-year LEAPS in Tesla and quite a few people got out at the absolute highs near $2,500 just before the new stock issue was announced. People who bought the Tesla convertible bonds ten years ago got an incredible tenfold return, plus interest!
Q: Are we at-the-money at the bear put spread in (SPY)?
A: Yes, and if we go any higher, you are going to get a stop loss in your inbox because I have good performance this year to protect. I do this automatically without thinking about it. In this kind of crazy market, you cannot run shorts indefinitely. Hope is not a strategy. And it’s easy to stop out of a loser when 90% of the time you know the next one is going to be a winner.
Q: Doesn’t gold (GLD) normally go up in falling stock markets?
A: Yes, in a normal market that’s what it does. The problem is that all asset classes have produced identical charts in the last 2.5 years, and when they all go up in unison, they all go down in unison. This time around, gold will sell off with the stock market and gold miners (GDX) will go down three times as fast. Remember gold miners are stocks first and gold plays second, so when a big stock dive hits, will see big dives in gold miners as well, as we saw in February and March.
Q: Why is JP Morgan (JPM) a good buy?
A: JP Morgan is the quality play in the banks. And once inflation starts to kick in and interest rates rise, and you get a positive yield curve and a strengthening economy—that is fantastic news for banks. They are also one of the few underperforming sectors left in the market, so in any stock market selloff banks will rise. And that’s JP Morgan (JPM), Bank of America (BAC), Citigroup (C) that will lead the charge. Avoid Wells Fargo (WFC). It’s still broken.
Q: I see iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) starting to move up. Should we buy it?
A: Only on dips and only if you expect a dramatic selloff in the stock market very soon, which I do. The (VXX) trade is very high risk. The contango is huge. I tried making money on it a couple of times this year and failed both times; this really is for professional intraday traders in Chicago with an inside look at customer order flows. Retail traders rarely make money on the (VXX) trade—usually, they get killed.
Q: Will gold hold up as interest rates rise?
A: No, it won’t. Rising interest rates are death for gold and other precious metals. Your gold theory is that interest rates stay lower for longer, which the Fed has essentially already promised us.
Q: What do you think of the United States Treasury Bond Fund (TLT)?
A: I’m looking to sell shorts in big size as I did in the spring and I’m looking for five-point rallies to sell into. I missed the last one last week because it just rolled over so fast on an opening gap down that you couldn’t get any trade alerts out, and that’s happening more and more. So, if we get going up to $166-$167, that will be a decent short and then you want to be doing something like the $175-$178 vertical bear put spread in October. I don’t think bonds are going to go to 0% interest rates, I think the real range is 50-95 basis points in a 10-year treasury yield. That is your trading range.
Q: Do you think big oil (USO) will transform into a low carbon energy industry if Biden wins?
A: I’ve been telling big oil that that’s what they’re going to have to do for 20 years. They all read Mad Hedge Fund Trader. And, they always laugh, saying oil will be dominant at least until 2050. Since then, they have become the worst-performing sector of the S&P 500 on a 20-year view, and my thought is that eventually, big oil takes over and buys the entire alternative energy industry, and slowly pulls out of oil. They have the engineering talent to pull it off and they have the cash to make the acquisitions. They will have to reinvent themselves or go out of business, just like everybody else.
Q: What could trigger the stock market pullback you mention in your slides? Because the bullish Fed quantitative easing trade is hard to stop.
A: It’s like the 2000 top, there was no one thing or even a couple things, that could trigger the top. It’s just the sheer weight of prices and exhaustion of new buyers, and that is impossible to see in advance, so all you can do is watch your charts. One down out of the blue the Dow Average ($INDU) will suddenly drop 1,000 points for no reason.
Q: When you say Europe is recovering, which data indicates this?
A: Well, when you look at Q2 GDP growth in Europe, they were only down 10% while the US was down 26%. That is purely a result of Europe having a much more aggressive COVID-19 response than the United States. There is no mask debate in Europe, it’s like 100% compliance. Here you have blue states wearing masks and red states not. The result of that, of course, is that the death rate in the red states is about five times higher than it is in blue states, on a per capita basis. That is why the US has the highest infection rate in the world, the highest death rate, and is why we lost an extra 16% of GDP growth in Q2.
Q: Will you trade a short Tesla again?
A: No, I’ve been hit twice on Tesla shorts in the last six months and we are now in La La land—it’s essentially untradable. I got a lot of people out of Tesla earlier this week, and then they announced their share new $5 billion issue, which they should have done a while ago
Q: Is there any way to play the home mortgage refi boom in the stock market with the 30-year mortgages at a record low 2.88%?
A: You buy the banks. If you call your bank and ask for a refi quote, it might be a week before they get back to you, they are so busy. Banks are also getting enormous subsidies from all these various lending and stimulus type programs, so money is raining down on them right now. Banks are now the cheapest sector in the market, selling at 6x earnings. It is probably the single greatest sector in the stock market right now to buy.
Q: I’ve been holding the ProShares UltraShort 20 year Plus Treasury fund (TBT) and it is moving up and down in the short-range. Should I sell?
A: No, I think we have more room to go on the (TBT), I think we could get to $18, which is about a 0.90% yield in the US Treasury bond market.
Q: Do you have a target on Tesla?
A: Well, my downside target would be its old breakout level. So, divide by five and you get $300. That equates to $1450 in the pre-split price. So, we could have a real monster selloff, like 40%, once this market loses momentum. It’s safe to say don’t buy Tesla up here.
Q: Is the ProShares UltraShort S&P 500 ETF (SDS) offering a good entry point here?
A: It is as soon as we rollover. In these momentum-driven markets, it’s best to wait for proof of a top before you start getting fancy with short plays. You can see how I got hammered several times in the last month by being too early on my shorts; and fortunately, I was able to hedge out most of those losses. You might not be able to do so.
Q: Are you planning on keeping your Fortinet spread?
A: Yes, to expiration, which is only 11 days off, unless we get an out-of-the-blue meltdown.
Q: Do you like Ali Baba (BABA)?
A: Yes; that is essentially a play on a Biden win in the election. If he wins, our war with China will cease and all of the China plays will go ballistic as we return to international trade, which has been powering our economy for the last 70 years.
Q: What about cruise lines like Carnival (CCL)?
A: I know they’re cheap. They’re selling out their 2021 summer cruises with customers betting that there will be a corona vaccine by then, or simply not caring whether there is a pandemic or not. The dedicated cruisers are desperate to cruise. That’s one reason why these stocks are holding up, but I don’t want to touch them. I think the recovery will take much longer than people realize.
Q: When do you buy gold?
A: Wait for a bigger dip.
Q: Should I be holding gold for the long term?
A: Yes; if you don’t want to trade it, just sitting on your position is fine. I think gold eventually goes to 3,000 after hitting an initial target of 2,200.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
“Bonds are now offering return-free risk. I expect a relatively modest return for an extended period of time,” said my former hedge fund investor friend, Leon Cooperman of Omega Family Office.
Mad Hedge Biotech & Healthcare Letter
September 3, 2020
Fiat Lux
Featured Trade:
(BRACE YOURSELF FOR ANOTHER PANDEMIC)
(AMGN), (NVS), (CYTK), (GILD), (RHHBY), (LLY), (SNY), (REGN)
“Anything that can go wrong will go wrong.”
It looks like Murphy’s law is about to strike again this year. The number of COVID-19 cases has reached almost 15 million worldwide, with about 4 million found in the US alone. However, the pandemic isn’t showing signs of slowing down.
Now, another deadly virus described to manifest “all the essential hallmarks of a candidate pandemic virus” has been found.
Earlier this month, a team of scientists revealed that there’s a newly discovered influenza strain, which could be a variation of the H1N1 swine flu—the same virus that triggered a global pandemic back in 2009.
That health crisis infected roughly 61 million Americans and more than 700 million people across the globe.
Although there’s still no conclusive evidence, this H1N1 influenza strain also traces its origins in China.
We witnessed how the stock market plummeted as the COVID-19 pandemic broke out. It eventually bounced back, which provided us with insights on how to deal with this potential second deadly virus.
Taking into consideration the uncertainty caused by these health and financial crises, I no longer put all my energy on near-term investments.
Instead, I train my eyes on stable and strong stocks with attractive revenue potential.
One of the companies that meet my criteria is Amgen (AMGN).
Amid the coronavirus pandemonium, Amgen has been aggressive in keeping its stronghold, particularly in its key moneymakers.
The latest win for the company is against Novartis (NVS), which challenged Amgen’s patent rights on the blockbuster anti-inflammatory treatment Enbrel.
This patent victory secured exclusivity for the top-selling rheumatoid arthritis injection, which generated $5.1 billion in sales in 2019 and could rake in at least $4.5 billion in 2020, against low-priced copycats until 2029.
Although Amgen has been struggling with biosimilar competition in the past years, the company’s first quarter earnings reports indicate that things are turning around for them.
Amgen reported an 11% year-over-year increase in revenue for the first quarter of 2020 to reach $6.2 billion, with global product sales jumping by 12%, boosted by a remarkable 15% in volume growth.
The company’s free cash flow for the first quarter also went up to $2 billion compared to the $1.7 billion it recorded in the same period in 2019.
The spike in Amgen’s numbers could be attributed to the new products in its pipeline. Apart from Enbrel, there are several other moneymakers generating solid growth for the company.
An obvious game-changer is severe plaque psoriasis medication Otezla, which Amgen acquired from Celgene for $13.4 billion in November 2019.
In the first 3 months of 2020 alone, Otezla has already raked in $479 million in sales for Amgen.
Sales of high cholesterol drug Repatha jumped by 62%, hitting $229 million.
Meanwhile, osteoporosis treatment Evenity contributed $100 million thanks to its expansion in the US and Japanese markets.
With the improvement in its performance, Amgen reiterated its revenue forecast for 2020 of $25 billion to $25.6 billion, showing off a 9.4% gain compared to 2019.
Aside from its current roster, Amgen is also waiting for regulatory approvals on some of its products this year.
The company is hoping for good news from the FDA on its multiple myeloma drug Kyprolis in November and its Rituxan biosimilar candidate in December.
Its pipeline also features 20 late-stage studies, 15 of which are for expanded indications of the company’s already-approved products.
Next to Otezla, Amgen is eyeing another blockbuster following the Fast Track designation granted to heart failure drug Omecamtiv mecarbil.
The drug, which the company is working in collaboration with Cytokinetics (CYTK), is projected to reach a jaw-dropping valuation of roughly $16 billion by 2026.
If successful, Omecamtiv mecarbil could become a close competitor of Entresto, which raked in $569 million for Novartis in the first quarter of 2020 alone.
Meanwhile, Amgen is not only focused on harnessing its growth drivers. The biotechnology giant has been active in searching for COVID-19 treatment as well.
Following the lead of Gilead Sciences (GILD), which used an already approved drug Remdesivir to come up with a treatment, Amgen is also testing its newly acquired blockbuster Otezla.
In using an anti-inflammatory drug to treat COVID-19 patients, Amgen is taking a similar approach as other biotechnology giants like Roche (RHHBY) with Actemra, Eli Lilly (LLY) with Baricitinib, and Sanofi (SNY) and Regeneron (REGN) with Kevzara.
Amgen investors currently get $1.60 in quarterly dividend payments, receiving $6.40 annually. In comparison, shareholders received $1.45 in 2019, showing off a healthy 10% hike.
With a stock price of roughly $235, this puts the company’s dividend yield to somewhere above 2.7%.
This is better than the 2% of investors earn on average from the S&P 500, indicating that Amgen pays investors with an above-average yield. Over the past 5 years, Amgen has boosted its annual dividend by nearly 103%.
Overall, Amgen is a solid long-term investment with promising growth drivers out in the market and in its pipeline.
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
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