Global Market Comments
May 31, 2021
Fiat Lux
Featured Trade:
(A TRIBUTE TO A TRUE VETERAN)
Mad Hedge Technology Letter
May 28, 2021
Fiat Lux
Featured Trade:
(THIS CUTTING-EDGE CHIPS STOCK IN HYPERGROWTH MODE)
(NVDA)
Nvidia (NVDA) is another multilayered business with revenues coming from east and west and basically everywhere and really at a time when the gaming market is the largest ever.
Let’s make this clear: Nvidia isn’t a gaming stock, but its best business is centered around the secular gaming trend.
They have this massive installed base of GeForce users (Nvidia branded graphics processing units).
They have reinvented computer graphics as well as resetting the install base — created a pipeline of profits that take advantage of the boom in gaming which many as you know went gangbusters because of the shelter-at-home conditions.
There has been substantial development on the gaming front — at a time when gaming market is expanding fast, and peeling back the layers it sports — eSports — it's infused into art.
It is infused into social.
And so, gaming has such a large cultural footprint now, even to the point that it’s the largest form of entertainment in the world.
The emphasis of this experience is going to resonate for the long term and not only that, the phenomenon called crypto — Nvidia’s Crypto graphic cards named CMP will funnel GeForce supply to gamers.
The Nvidia CMP 30HX is a dedicated crypto mining card. The CMP 30HX is essentially a mid-range graphics card powered by Nvidia’s TU116 processor.
There is strong demand for this product, and I expect to see elevated sales for quite some time because of the dynamics of crypto and the avalanche of capital gravitating towards it not only institutional but from retail too.
And hopefully, in the combination of gaming, crypto, and data, Nvidia is primed to experience strong growth in core businesses through the year.
The data backs up Nvidia’s ambition with Q1 exceptionally strong with revenue of $5.66 billion and year-on-year growth accelerating to 84%.
They set a record in total revenue in Gaming, Data Center, and Professional Visualization, driven by their best product lineups and structural tailwinds across our businesses.
Starting with Gaming, revenue of $2.8 billion was up 11% sequentially and up 106% from a year earlier.
Channel inventories are still leading and Nvidia expects to remain supply-constrained into the second half of the year.
Now Laptops continue to drive strong growth this quarter with all major PC original equipment manufacturers (OEM) launching GeForce RTX 30 Series laptops based on the 3080, 3070, and 3060, as part of their spring refresh.
This is the largest ever wave of GeForce gaming laptops, over 140 in total as OEMs address the rising demand for gamers, creators, and students for NVIDIA's powered laptops.
They believe gaming also benefited from crypto mining demand, and Nvidia is separately addressing mining demand with cryptocurrency mining processors or CMPs.
The crypto CMP revenue was $155 million in Q1, reported as part of the OEM and other category. And our Q2 outlook assumes CMP sales of $400 million.
Data Center continues to be a growth driver with revenue topping $2 billion for the first time, growing 8% sequentially and up 79% from the year-ago quarter, which did not include acquisition Mellanox.
And then lastly, supercomputing; supercomputing centers all over the world are building out and Nvidia is in a great position to fuse together time simulation-based as well as data-driven-based approaches, which are called artificial intelligence.
Across the board, data center is gaining momentum and is the largest segment of computing and will continue to train deep neural networks with rising computational intensity led by two of the fastest growing areas of AI; natural language understanding.
Demand is booming across Nvidia’s markets and readers can expect increase in CMP, but they still expect the lion share of growth to come from Data Center and Gaming.
In Data Center business, their product lineup couldn't be better and they have a strong overall portfolio both for training and inferencing and they are experiencing strong demand across hyperscales and vertical industries.
The foundation has been laid to be a three-chip data center scale computing company with GPUs, DPUs and CPUs.
Fortunately for Nvidia, AI is the most powerful technology force of our time.
Nvidia partners with cloud and consumer Internet companies to scale out and commercialize AI-powered services.
They are democratizing AI for every enterprise and every industry.
With pre-trained models for conversational AI, language understanding, recommender systems, and broad partnerships across the IT industry, Nvidia is removing the barriers for every enterprise to access state-of-the-art AI.
From gaming, metaverses, cloud computing, AI, robotics, self-driving cars, genomics, computational biology, Nvidia is engaging in important work and innovating in the fastest-growing markets today.
Now to look at our outlook for Q2, revenue is expected to be $6.3 billion, and remember that the prior year when Q2 revenue was $3.87 billion.
This company is mesmerizing, growing from $11 billion in annual revenue to $16.68 billion in just one year says it all.
Growing revenue in the mid-80% means it will easily surpass the $9 billion in the first two quarters of the year paving the way for an almost $20 billion per year business.
Sure it’s not Apple or Microsoft but for what it does, they are best in show in an industry that is going through a massive supply headwinds.
The quarterly performance only reinforces the thesis that chip companies are a great place to allocate funds to and the support is there for a buy the dip investor attitude because of growing EPS which promotes share buy backs and capital returns to shareholders.
It’s hard to believe that investors could put their money elsewhere because tech still secures the vast majority of earnings in the business world and that train isn’t slowing down and the bullet train is clearly the chip sector in 2021.
“One machine can do the work of fifty ordinary men. No machine can do the work of one extraordinary man.” - Said American Writer Elbert Green Hubbard
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
Global Market Comments
May 28, 2021
Fiat Lux
Featured Trade:
(MAY 26 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (DIS), (AMZN), (FCX), (X), (PLTR), (FXE), (FXA), (TLT), (TBT), (AMC), (GME), (ZM), (DAL), (AXP), (LEN), (TOL), (KBH), (DOCO), (ZM), (TSLA), (NVDA), (ROM)
Below please find subscribers’ Q&A for the May 26 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.
Q: Do you expect a longer pullback for the (SPY) through the summer and into the last quarter?
A: No, this market is chomping at the bit and go up and won’t do any more than a 5% correction. We’ve already tested this pullback twice. We could stay in this 5% range for a few more weeks or months, but no longer. If we make it to August before we take off to the upside, that would be a miracle. It seems to want to break out right now and if you look at the tech stocks charts you can see what I'm talking about.
Q: Why do day orders with spreads not good ‘til canceled (GTC)?
A: Actually, you can do good ‘til canceled on these spreads, it just depends on how your platform is set up. Good ‘til canceled won't hurt you—only if we get a sudden reversal on a stop out which has only happened four times this year.
Q: Disney (DIS) seems to be struggling to get back over $180; am I still safe with my January 2023 $250 LEAPS?
A: Yes, out to 2023 we’ll have two summers until those expire, so those look pretty good—that's a pretty aggressive trade, and I’m betting you’re looking at a 500% profit on those LEAPS. And by the way, I always urge people to go out long on these LEAPS, because the second year is almost free when you check the pricing. So, take the gift and that will also greatly reduce your risk. We could have a whole recession and recovery, and still have those LEAPS make it to $250 in Disney.
Q: Should I add to Freeport McMoRan (FCX)?
A: (FCX) I would not add—in fact, I would have a stop loss if we closed below $40 on (FCX) if you’re a short-term trader. There is a slowdown in the Chinese economy going on as well as a clampdown on commodity speculation. This has affected the whole base metal space, including steel and palladium. If you have the long-term LEAPS, keep them, because I think (FCX) doubles from here. The whole “green revolution story” is still good.
Q: Do you think the United States Treasury Bond Fund (TLT) is going up?
A: No, I think the (TLT) has been going down. I've been buying puts spreads like crazy, and I have a huge chunk of my own retirement fund in long-dated (TLT) LEAPS, so I am praying it will go down. We’ll talk about that when we get to the bond section.
Q: Prospects for U.S. Steel (X)?
A: It’s tied in with the whole rest of the base commodity complex—I think it is due for a rest after a terrific run, which is why I have such tight stop losses on Freeport McMoRan (FCX).
Q: Do you buy the “transitory” explanation for the hot inflation read two weeks ago that the Fed is handing out, or do you think inflation is bad and here to stay?
A: I go with the transitory argument because you’re getting a lot of one-time-only price rises off of the bottom a year ago when the economy completely shut down. Once those price rises work through the system, the inflation rate should go from 4.2% back down to 2% or so. So, I don't see inflation as a risk, which is why I think the stock markets can reach my 30% up target this year. You may get another hot month as the year-on-year comparisons are enormous. But betting on inflation is betting on the reversal of a 40-year trend, which usually doesn’t work out so well.
Q: On your spread trade alerts can we buy less than 25 contracts?
A: You can buy one contract. In fact, I recommend people start with one contract and test out where the real market is. Put a bid for one contract in the middle of the market, and if it doesn’t get done, raise your bid 5 cents, and eventually, your order gets done. Then you can add more if you want to. I always recommend this even for people who buy thousands of contracts, that they test the market with one contract order just to make sure the market is actually there.
Q: Can you recommend a LEAPS for Amazon (AMZN)?
A: The Amazon LEAPS spread is the January 2022 $3150-3300 vertical call debit spread going out 8 months.
Q: When you short the (TLT), how do you do it?
A: I do vertical bear put debit spreads. I buy a near-money put and sell short and an out-of-the-money put so I can reduce the cost, and therefore triple my size. This strategy triples the leverage on the most likely part of the stock move to take place, which is the at the money. For example, a great one to buy here would be a January 2021 (TLT) $135/140 vertical bear put debit spread where you’re buying the $140 and selling short the $135. The potential 8-month profit on this is around 100%. You’ll make far more money on that kind of trade than you ever would just buying puts outright. Some 80% of the time the single option trades expire worthless. You don’t want to become one of those worthless people.
Q: What’s your best idea for avoiding a U.S. Dollar drop?
A: Buy the Invesco Currency Shares Euro Trust (FXE) or buy the Invesco Currency Shares Australian Dollar Trust Trust (FXA), the Australian Dollar to hedge some of your US Dollar risk. The Australian dollar is basically a call option on a global economic recovery.
Q: I’m a new subscriber, but I don’t get all the recommendations that you mention.
A: Please email customer support at support@madhedgefundtrader.com , tell them you’re not getting trade alerts, and she'll set you up. We have to get you into a different app in order for you to get all those alerts.
Q: How about the ProShares UltraShort 20 Year Treasury ETF (TBT)—is that a bet on declining (TLT)?
A: Absolutely yes, that is a great bet and we’re at a great entry point right now on the (TBT) so that is something I would start scaling into today.
Q: Do you still like Palantir (PLTR)?
A: Yes, but the reason I haven't been pushing it is because the CEO says he could care less about the stock market, and when the CEO says that it tends to be a drag on the stock. Palantir has an easy double or triple on it on a three-year view though. However, small tech has been out of favor since February as it is overpriced.
Q: How far down can the (TLT) go in the next 30 days?
A: It could go down to $135 and maybe $132 on an extreme move, especially if we get another hot CPI read on June 10. However, if you hear the word “taper” from a Fed official, then you’re looking at high $120’s in days.
Q: With the TLT going up, why have you not sent out an alert to double up on put spreads?
A: I tend to be a bit of a perfectionist since I’m a scientist and an engineer, so I’m hanging on for an absolute top to prove itself and start on the way down. On the shorts, I like selling them on the way down, and buying my longs on the way up, because there are always surprises, there’s always the unknown, and heaven forbid, I might actually be wrong sometimes! So, I’m still waiting on this one. And we do already have one position that is fairly close to the money now, the June 2021 $141-144 vertical bear put debit spread, so I don't want to double up on that until we have a reversal in the intermediate term trend.
Q: I see GameStop (GME) is spiking again now up to $230—should I get in for a short-term profit?
A: No. With these meme stocks, the trading is totally random. If anything, I would be selling short, but I would do it in a limited risk way by buying a put spread. However, the implied volatility in the options on these meme stocks are so high that it's almost impossible to make any money on options; you’re paying enormous amounts of money up front, so that's my opinion on GameStop and on AMC Entertainment Holdings (AMC), the other big meme stock.
Q: Will business travel come back after the world is vaccinated?
A: Absolutely. Companies don't want to send people on the road, but customers will demand it. All you need is one competitor to land an order because they visited the customer instead of doing a Zoom (ZM) meeting, and all of a sudden business travel will come roaring back. So that's why I was dabbling in Delta Airlines (DAL) and that's why I like American Express (AXP), where 8% of transactions are for first class airline tickets.
Q: As the work-from-home economy stops and workers go back to the office, do you see a 10% correction in the housing market?
A: Actually, in the housing market with real houses, I don't see prices dropping for years, because 30% of the people who went home to work are staying there for good—that the trend out of the cities into the hinterlands is a long-term trend that will continue for decades, now that Zoom has freed us of the obligations to commute and be near big cities. And of course, I’m a classic example of that; I've been working either in my basement in San Francisco or at Lake Tahoe for the last 14 years. Housing stocks on the other hand like Lennar (LEN), Toll Brothers (TOL) and KB Home (KBH) have had a tremendous run and are basically out of homes. Could they have a 10% correction at any time? Absolutely, yes.
Q: Should I avoid buying dips in last year's work-from-home stocks?
A: Yes I would. DocuSign (DOCO) and Zoom (ZM) are the two best ones because they were both up 12X from their lows, and I tend not to chase things that are up 12X unless they are a Tesla (TSLA) or an Nvidia (NVDA) or something like that. In the end, Tesla went up 295 times.
Q: Are you looking at the carbon credits market?
A: No, but I probably should. That market shut down last year. It’s alive again, and it looks like it's growing like crazy.
Q: What’s the ideal volatility for individual options? What do you use to compare?
A: Always look at the implied volatility of the option compared to the realized volatility of the underlying stock; and when the difference gets too big, you get ideal conditions for putting on call and put spreads, which take advantage of this. These are almost volatility neutral because you’re long on one batch of volatility and short on the other.
Q: Is it too late to get involved in the ProShares Ultra Technology ETF (ROM), the 2X long ETF in a spread?
A: The November 2021 $121-125 vertical bull call spread, the farthest expiration you can get for the (ROM), was kind of aggressive—I would go closer to the money. We’re right around mid $80s right now, so maybe do a January 2022 $95-100, and even that will get you something like a 400% gain by November.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH (or Tech Letter as the case may be), then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Summit of Mount Rose at 10,778 feet with Lake Tahoe on the Right
Mad Hedge Biotech & Healthcare Letter
May 27, 2021
Fiat Lux
FEATURED TRADE:
(A SAFE STOCK FOR YOUR PEACE OF MIND)
(JNJ), (ABBV), (TDOC), (MSFT)
No matter how you look at it, the stock market is definitely facing serious volatility these days. How long this uncertainty will last and whether it’s a sign of a looming market crash or correction is anybody’s guess.
On a positive note, the current situation will not cause panic to long-term investors. After all, it’s not right to base stock-buying decisions on the market’s behavior over the course of a few days, weeks, or even months.
Meanwhile, if a major bear market is on the horizon, then this could present a good opportunity to add resilient and recession-proof stocks to your portfolio.
In the biotechnology and healthcare sector, one stock comfortably fits the mold, and that's Johnson & Johnson, JNJ.
In terms of market capitalization, JNJ is one of the biggest—if not the biggest—pharma companies in the world, weighing in at roughly $450 billion.
It also holds an undisputed status as a Dividend King, which is a title granted to those companies that increase their payouts annually and consistently over the course of 50 years.
Actually, JNJ’s dividend-hiking streak has stretched to 59 straight years—and it doesn’t seem to be ending anytime soon.
To date, its quarterly dividend per share jumped by 5% from $1.01 to reach $1.06.
That’s why it comes as no surprise that it’s one of the stocks that investors come running to for safety and stability during periods of volatility.
In its first quarter earnings report in 2021, JNJ showed off by outperforming revenue expectations of $21.98 billion to record $22.32 billion instead.
Its EPS also beat estimates of $2.34 and instead reported $2.59. Despite the less-than-stellar condition of the US economy in the past months, JNJ still managed to boost its sales in the first quarter and increased its sales by 7.9% year-over-year.
All of JNJ’s core business segments also expanded their revenues this quarter.
For instance, its Janssen pharmaceutical arm, which was in charge of its COVID-19 vaccine, saw a 9.6% year over year increase in sales to reach $12.19 billion.
Even its medical devices segment experienced an improved performance with a 7.9% bump to record $6.57 billion for this quarter alone.
Looking at the programs in its pharmaceutical division, it’s clear that JNJ has a strong focus on six areas: cardiovascular, pulmonary hypertension, immunology, neuroscience, metabolism, and, of course, oncology.
In fact, three of JNJ’s pharmaceutical treatments raked in more than $4 billion in sales in 2020.
The list was topped by Stelara, which is a drug for Crohn’s disease, psoriasis, ulcerative colitis, and psoriatic arthritis, at $7.7 billion.
It was followed by multiple myeloma treatment Darzalex at $4.2 billion.
The product of its collaborative work with AbbVie (ABBV), blood cancer drug Imbruvica, rounds up the list at $4.1 billion.
The sheer size and financial power of JNJ offer the company extensive M&A opportunities—and it’s definitely taking advantage of that to continue boosting its revenue streams.
In August 2020, amid the COVID-19 pandemic, JNJ acquired Momenta Pharmaceuticals for $6.5 billion. This all-cash transaction added a slew of drug candidates that enhanced JNJ’s immune-mediated and rare disease pipeline programs.
Jumping into the telehealth bandwagon, JNJ has invested in Madison Thirty around the same time last year as well.
Much like Teladoc (TDOC), this small telehealth company has also attracted attention since it started and thus far raised $70 million in funding.
Boosting its presence in the merging world of technology and medicine, JNJ recently revealed its six-armed robotic surgical assistant, Ottava.
Basically, Ottava will be a high-tech guidance system and assistant to surgeons in operating rooms.
Throughout its history, JnJ has proven itself to be a top biopharmaceutical stock —full stop.
A global leader in the healthcare industry, JNJ is one of only two corporations that hold an AAA credit rating from Standard & Poor. The other company is Microsoft (MSFT).
It has been generating record profits and boosting its dividends. More importantly, investors can expect JNJ stock to serve as a healthy long-term wealth generator.
It prides itself on a strong triad of business segments that continuously drive growth: consumer health, pharmaceuticals, and medical devices.
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