Mad Hedge Technology Letter
November 17, 2023
Fiat Lux
Featured Trade:
(CATCHING OPTIMAL ENTRY POINTS IN TECH)
(AMAT), (SMIC)
Buy Applied Materials (AMAT) on the dip.
That was my conclusion after hearing this chip-making stock nose-diving by the most in almost a year.
Rarely do traders get such a good entry point into such a high-quality name.
AMAT has been around forever and it is a tried and tested chip brand that produces high-quality equipment.
It’s noteworthy that a report showed that AMAT faces a US criminal investigation for allegedly violating export restrictions to China, but it’s a storm in a teacup.
It’s not such a big deal, because the bad news will get discounted quickly and the US will probably give AMAT a light slap on the wrist.
It makes no sense to destroy a company that is critical to national security infrastructure.
Maybe a few executives will get laid off and then we move on.
After this issue is swept under the carpet, it’s all systems go for AMAT.
The company is being probed by the Justice Department over dealings with China’s biggest chipmaker, Semiconductor Manufacturing International Corp.
The department is considering whether Applied Materials sold hundreds of millions of dollars of equipment without the proper licenses.
Chip companies are operating under increasingly strict rules imposed by Washington on exports of chip technology to China.
Acquiring licenses to send certain types of machines to Asia is a sign of the times and how national governments are desperate to keep technological know-how in the state.
Applied Materials produced chipmaking gear in Gloucester, Massachusetts, and then shipped it to a subsidiary in South Korea.
It then went to China’s SMIC, the people familiar with the investigation said.
SMIC was placed on a so-called entity list in December 2020 by the Department of Commerce, which cited alleged links between the chipmaker and China’s military.
Semiconductor manufacturers order machinery from Applied Materials and its peers well ahead of opening new factories, which can take more than a year to build and equip.
Though the chip industry has been contending with a slowdown in personal computers and smartphones, Applied Materials Chief Executive Officer Gary Dickerson has argued that artificial intelligence computing will fuel a new surge in demand.
Semiconductor equipment companies have been hurt by weak demand from memory chip makers, which are enduring an industry glut.
Luckily, the savior is AI and its insatiable demand for high-end processors.
China has been one of the fastest-growing markets for chip equipment. But the US restrictions have put a wet towel on the business relationship.
Uncertainty is the keyword here, but if AMAT keeps producing world-class equipment, it will accrue value in almost any financial market.
I am comfortable recommending AMAT now and the discount certainly makes it look more attractive.
Once AMAT acquires a license to sell to the Chinese, this will be forgotten.
The demand for conventional chips and AI chips is leading the charge and even though there is a glut of non-AI chips, AI chips will lead the charge in the short term before consumer demand comes back.
This is the forefront of technology and readers should grab a piece of it.
(SUMMARY OF JOHN’S NOVEMBER 15, 2023, WEBINAR)
November 17, 2023
Hello everyone,
WEBINAR TITLE: Happy Days Are Here Again
PERFORMANCE:
November: +10.97
2023 year to date: +77.14%
Average annualized return: +51.26%
POSITIONS:
70% Long, 10% short, 20% cash.
Expiration Value: +82.87%
Risk On:
(MSFT) 12/$320-$330 call spread 10%
(NLY) 12/$15-$16 call spread 10%
(BRK/B) 12 $320-$330 call spread 10%
(CCJ) 12/$35-$38 call spread 10%
(CRM) 12 $185-$195 call spread 10%
(GOOGL) 12 $110-$120 call spread 10%
(SNOW) 12 $135-$140 call spread 10%
Risk Off:
(TLT) 12/$95-$98 call spread 10%
Net Position: 60%
THE METHOD TO MY MADNESS
The Fed may be finally done raising rates and the movement in the markets represents an expectation that the first-rate cut may be in May 2024.
All sectors closely tied to interest rates react – including bonds, REITS, precious metals, and financials.
The year-end rally is here, but there is still a question mark about what happens in January.
The government shutdown is on, but markets are nonplussed.
Oil prices and commodities are now trading as one, selling off on a slowing economy.
The tech bull market is back, and John believes it will continue for years.
The time is now to go aggressively long stocks and bonds.
Commodities and industrials are a second-half play.
THE GLOBAL ECONOMY - COOLING
CPI is unchanged at a cool 3.2%.
Nonfarm Payroll report fades to 150,000 in October, well below expectations.
The unemployment rate rose to 3.9%, the highest level since January 2022. (bad news is often good news for the market)
John believes a soft landing is now more likely. Inflation is falling and could lead to Fed interest rate cuts in H2 2024. Stocks and bonds party on the news/expectation.
Fed Leaves rates unchanged.
Weekly Jobless Claims drop 3,000 to 217,000. Unusually low. Hiring slowed in October as the economy slowed.
Tax cuts are on the table, thanks to inflation driving bracket creep for deductions.
China lent $1.34 trillion for the Belt and Road initiative from 2000 to 2001 to dominate Asian and African infrastructure.
STOCKS – OFF TO THE RACES
Most 2023 stock gains happened in 8 days, up some 14% since January 1.
If you are invested in Day Trading, you probably missed this.
Stocks are up 113 days vs. down 102 days.
Only seven stocks accounted for most of the increase.
Hedge Funds were crushed in last week’s monster rally – the biggest in 31/2 years.
The government shutdown is delayed.
IWM – small caps lead
John is holding back on TESLA because of the price war.
CAT- a great buy – domestic play. Long-term hold.
FCX- waiting for the EV price war to end.
BLK – Bitcoin ETF coming out soon.
BRK/B – LEAPS territory – great buy.
Emerging markets are ready to take off from the impact of a weak dollar.
BONDS
Moody’s rating service downgrades the U.S. citing deteriorating fiscal conditions and worsening chaos in Washington.
However, it maintained its AAA Rating.
Investors poured $5 billion into Bond ETFs in October.
10-year Treasury yields hit a new 16-year high, at 5.0%, then retreated to 4.45%
John states that the whole falling interest rate and rising bond price trade has been delayed for three months – hotter than expected economic growth at 4.9% for Q3 and more Fed rate rises.
Junk Bond ETFs (JNK) and (HYG) are holding up extremely well with an 8.74% yield and an 18-month high.
Buy (TLT) on dips.
Yields down to around 31/2% sometime next year. Look for around 99 in TLT.
FOREIGN CURRENCIES – LEVELLING OFF AT THE HIGHS.
Bank of Japan eases grip on Bond Yields – ending its unlimited buying operation to keep interest rates down.
Japan is the last country to allow rates to rise. Expect the Japanese yen to take off like a rocket.
The collapse of the U.S.$ is a 2024 event, and falling interest rates will control this narrative.
The Aussie dollar improving on a slowly recovering Chinese economy.
Buy (FXE), (FXB), (FXA), (FXY)
ENERGY & COMMODITIES
The sector hits a four-month low at $75 a barrel, down 4% as the shine comes off the energy sector.
Gaza boost is gone, which never delivered a supply cut-off despite many threats.
Fears of a global economic slowdown are mounting.
China’s oil imports have fallen for six consecutive months, the world’s largest importer.
Strategic Petroleum Reserve at $79 provides a floor bid.
Warm weather is capping rallies in natural gas (UNG).
Copper Bull predicts an 80% gain in the coming decade.
PRECIOUS METALS
Gold is the new hedge for 2024 market volatility.
Goldman Sachs bets on a 21% gain in gold for 2024.
Gold is headed for $3000 by 2025.
Drivers: soon-to-fall interest rates.
Silver is the better play with a higher beta.
Russia and China are also stockpiling gold to sidestep international sanctions.
REAL ESTATE - STALLED
Real Estate Commissions are about to drop sharply, the outcome of a court decision against the National Coalition of Realtors.
It’s estimated that the $100 billion paid in real-estate commissions annually could be cut by 30%, with as many as 1.6 million agents lowing their source of income.
Buyers are pouring into ARMs, or adjustable-rate mortgages – at 6.77% last week.
Fixed Rate mortgages around 8.00%.
Median home price for existing homes rose to 1.9% according to the National Association of Realtors (NAR).
The robust housing market suggests that while some buyers pulled out due to high borrowing costs, demand continues to outweigh supply.
TRADE SHEET
Stocks: buy any dips
Bonds: buy dips
Commodities: buy dips
Currencies: sell dollar rallies, buy currencies
Precious Metals: buy dips.
Energy: stand aside
Volatility: stand aside
Real Estate: buy dips.
NEXT WEBINAR: November 29, 2023
Cheers,
Jacquie
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
November 17, 2023
Fiat Lux
Featured Trade:
(NOVEMBER 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (AMD), (SPY), (FXA), (WYNN), (MGM), (RCL), (CCL), (TSLA), (SCHW), (BLK), (JPM), (XHB), (TSLA), (FXI), (FCX)
Below please find subscribers’ Q&A for the November 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: I was a little surprised that you closed the (TLT) $79-$82 vertical bull call spread so early. Why not wait longer?
A: I took an 84% profit in only four trading days and skipped the last 16% which I would have had to wait another month to get. I was much better off putting on another position and making another 100%. In this kind of market, you want to take quick profits and then roll them into new positions as fast as you can. That’s where you make the big money, and that's what we’ve been doing. You have to strike when the iron is hot.
Q: November’s results are phenomenal!
A: Yes they are, 55 years of practice makes it easy.
Q: Thoughts on Advanced Micro Devices (AMD)?
A: It’s going higher. I think the whole semiconductor sector is the leading sector in the market; we have seen that with these gigantic 30-40% moves in the semis. That will continue, and then it will spread out to the rest of big tech (which it’s already done), and eventually, we get to the industrials and commodities in the second half of 2024 when the big economic growth returns. So that is the script for the coming year.
Q: Will the upcoming Fed interest rate cuts crash the dollar, and which emerging currency should I buy?
A: Yes and yes. It will crush the dollar–we could be entering a new decade of a falling U.S. dollar. The number one currency to buy is the Australian dollar (FXA). It has the most leverage for a global economic recovery. And you can see when we get to the currency section of today’s webinar that the currencies are already starting to move. Whatever currency has falling interest rates is always the weakest, and the U.S. dollar is about to become just that.
Q: What’s the deal with casino stocks lately like Wynn Resorts (WYNN) and MGM Resorts International (MGM)?
A: These companies took on massive amounts of debt during the pandemic to stay in business, so they are now highly sensitive to interest rates. If you look at the collapse of these stocks in the last four months, it is almost perfectly in sync with rising interest rates, and that’s why the stocks performed so poorly. By the way, the same is true for all the cruise companies like Royal Caribbean (RCL), and Carnival (CCL). The flip side of that is when interest rates start to go down these stocks do great, and they are falling interest rate plays, so you probably should be buying the casinos, the cruise lines, and the hotel stocks here because they are all suffering from massive debt loads, the cost of which is about to decline sharply.
Q: Should we roll up the expiration of LEAPS to 2026?
A: Probably not a bad idea, because we may get weakness in commodities for the next several months before we enter a massive new bull market. If you have the 2025, you’ll probably make money on that, but to be ultra-safe you could roll it forward to 2026. We know there’s a global copper shortage developing because of EVs, but right now EV sales are slow, so you don’t want to be piling onto the leverage plays on that too soon. That’s also why I am not in Tesla (TSLA) for the Moment.
Q: What will happen if the Fed cuts interest rates and there’s no recession? Won’t prices of everything from houses to butter go wild?
A: They won’t go wild, but they will go up at a 2% inflation rate, which is what the Fed wants. And house prices, which have been flat for the last year, will rise. And they may rise greater than the inflation rate of 2%; they may rise more like 5%. Falling interest rates mean falling mortgages; we’ve already seen mortgage rates drop from 8 to 7.4%. It's one of the sharpest drops in history, and more drops bring more first-time home buyers into the market. And don’t forget that the Fed could also raise interest rates down the road. If the economy gets too hot again, they may raise again, but I think we’ll see a lot of cuts first.
Q: Do you think financial stocks will go up or fall with potential rate decreases?
A: Banks always go up during falling interest rates because their cost of funds goes down and the default rate on their loans also goes down, so they get a hockey stick effect on earnings; that’s why you’re seeing such monster moves in stocks like JP Morgan (JPM) and the brokers (SCHW) as well as the money managers like BlackRock (BLK).
Q: Does the bull market keep going since unemployment still hasn’t made a dent, meaning consumers are fueling the rise in stocks?
A: Yes, consumer spending is still doing well. People seem to be getting the money from somewhere and it seems to be rising wages. But I expect wage gains to drop by half; people will still get wage increases, but not the peak levels that the UAW got in their deal with Detroit. Is a Goldilocks economy that is setting up, and the economy keeps growing We never do get a recession, and all risk assets rise as a result. That is the outlook!
Q: Bullish on Berkshire Hathaway (BRK/B)?
A: I completely agree, it’s one of the best-run companies in the world. 93-year-old Warren Buffet and 99-year-old Charlie Munger have delivered double the performance of the S&P 500 over the last three years.
Q: When does the IPO market come back to life, and which industries will benefit the most?
A: AI and Technology will benefit the most. There are several AI companies in the wings waiting to go public, and they will be the first out the door with the highest multiples, and then the IPO business will broaden out from there.
Q: Will a worsening Chinese property market blow up the U.S. Stock rally or is it just a fake risk I shouldn’t worry about?
A: The Chinese (FXI) real estate market is detached from the global economy. There is no international implication, and it’s also typical of emerging markets to overbuild and then have a financial collapse. Nobody I know has suffered anything in China in a long time, and if anything, they’re liquidating what little they have left. It doesn’t affect us at all. It’s interesting reading about it in the newspapers, and that’s about it.
Q: What are some stocks we should consider day trading these days?
A: None. Most people who try day trading lose money doing it; some people pull it off but they have many years of experience. Algorithms from big brokers have essentially taken over the day trading business with high-frequency trading. You do better on a one-month view, which I do on my front-month options. Most 2023 Stock Gains Happened in only eight days, up some 14% since January 1, and only seven stocks accounted for most of the increase. If you are a day trader, you most likely missed all of this because most of the moves were on gap openings.
Q: Home builders (XHB) have just had a great run, is this an area too short?
A: “Short” is a term you need to remove from your language! You don’t want to short a big bull move like this. If anything, wait until May when the summer seasonals start to favor short positions, and it depends on how high the market runs up until then. Don’t ever think about shorting the very beginning of a new bull market in stocks–not for housing, not for anything! And the outlook for housing over the long term looks fantastic; there’s still an overwhelming supply and demand in favor of the home builders. Some 85 million new Millennials need to buy first-time homes.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
2023 Kherson Ukraine – Ha Ha Missed Me! It was a dud.
"The factory of the future will have only two employees: a man and a dog. The man will be there to feed the dog. The dog will be there to keep the many from touching the equipment," said organizational consultant, Warren Bennis.
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
Mad Hedge Biotech and Healthcare Letter
November 16, 2023
Fiat Lux
Featured Trade:
(A GENE GENIE AGAINST CHOLESTEROL)
(VERV), (CRSP), (BEAM), (NVO), (AMGN), (REGN)
CRISPR technology, long heralded as a game-changer in genomics, stands on the brink of a major leap forward. For years, its potential has simmered, but now, it's poised to ignite, promising scientific breakthroughs and significant investment opportunities.
Several pioneering companies employing CRISPR for editing human genomes are at the forefront of this revolution. Their goal? To treat, and potentially cure, a range of genetic diseases. The approaches are twofold: ex vivo, where genes are edited outside the body, and in vivo, with modifications made directly within the body.
Investing in CRISPR gene-editing stocks, however, is not for the faint-hearted. These stocks are characterized by high risk and volatility, demanding a specific investor profile: one that is aggressive and comfortable with risk. For such investors, a company worth considering is Verve Therapeutics (VERV).
Verve stands out, partly due to its relatively modest size with a market capitalization of $732 million. This contrasts sharply with industry peers like CRISPR Therapeutics (CRSP) and Beam Therapeutics (BEAM), valued at $4.47 billion and over $2 billion, respectively. The reason behind Verve's smaller scale is its developmental stage, which lags behind its counterparts.
Established in 2018, Verve has been hailed as a potential leader in next-generation gene therapy, particularly base editing.
You can think of base editing as using a fine-tipped pen to precisely change just one letter in the DNA sequence, without cutting the DNA strand.
In our DNA, there are four "letters" (bases) – A, T, C, and G. Base editing lets scientists directly convert one letter to another (like changing an 'A' to a 'G') without cutting the DNA. This is like fixing a typo in a sentence by carefully erasing one letter and writing in the correct one.
This method is often more precise than CRISPR and less likely to introduce errors because it doesn't involve cutting the DNA strand.
Verve has capitalized on this technology, in-licensed from base-editing pioneer Beam Therapeutics. The company's flagship candidate, VERVE-101, targets heterozygous familial hypercholesterolemia (HeFH), a rare cholesterol disorder.
Needless to say, the stakes are high. The HeFH market is projected to balloon to nearly $60 billion by 2033, positioning VERVE-101 as a potential one-time functional cure and a standard of care in this lucrative market.
Recently, Verve announced that there was a substantial reduction in patients' high cholesterol levels in the first human test of base editing. Despite this, the stock experienced a sharp 41% drop, possibly a misinterpretation of the positive news in an unfriendly biotech market.
The data presented showed Verve's treatment leading to a 40%-55% decrease in harmful LDL cholesterol levels in patients with genetically high cholesterol levels. Verve's approach targets and inactivates the defective gene responsible for high cholesterol levels.
The treatment, however, faced challenges. Two of the Verve-101 trial participants suffered heart attacks, one of which was fatal.
It's crucial to note that the trial specifically included older patients with advanced heart disease, who were already at a heightened risk for cardiac events. The overall safety measures in the study were satisfactory, though, so the FDA has since authorized an expansion of the Phase 1 trial.
Notably, Eli Lilly (LLY) reviewed the trial's results before deciding to buy an option to partner on the Verve treatment. Lilly's decision on teaming up on the cholesterol treatment is expected next year, following the completion of Phase 1 trials.
Additionally, Verve plans to initiate trials for another base-edited therapy, VERVE-102, in the first half of 2024, potentially offering enhanced patient outcomes.
Verve’s trial results match that seen with established medications such as Novartis' Leqvio (NVS), Amgen's Repatha (AMGN), and Regeneron Pharmaceuticals' Praluent (REGN), which are all approved long-term drug therapies.
However, despite the availability of statins and new treatments, a significant portion of these patients fail to maintain healthy cholesterol levels due to cost, treatment adherence issues, or inconsistent healthcare access.
This is where the biotech company’s solution shines. Verve's ultimate goal is to develop a one-and-done treatment to lower cholesterol in the 50 million adults at risk for cardiovascular disease.
While Verve remains a preclinical-stage biotech, its prospects are promising. Its market cap, though modest compared to the commercial opportunity of a functional cure for HeFH, hints at significant growth potential.
With Lilly's track record in developing drugs for underserved conditions, Verve emerges as a compelling investment for those with a high tolerance for risk and an eye on future biotech breakthroughs. I suggest you put this stock on your watchlist.
