Global Market Comments
July 2, 2024
Fiat Lux
Featured Trade:
(HOW MY MAD HEDGE AI MARKET TIMING ALGORITHM WORKS)
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 AI 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 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 several 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 soared to an eye-popping 44.54%.
As a result, new subscribers have been beating down the doors trying to get in.
Let me list the high points 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 in real-time and optimizes returns with the addition of every new data point far faster than any human can. Image 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 2024, we are up 20%.
Here are just a handful of some of the elements that the Mad Hedge Market Timing Index analyzes in 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-driven. 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
(CMPS), (MNMD), (ATAI), (GOOGL), (MSFT), (AI), (NVDA), (ADBE)
As we celebrate our nation's independence this week, I've stumbled upon a fusion that's more explosive than my Aunt Mildred's famous five-alarm chili.
I’m talking about microdosing and artificial intelligence – two fields that, at first glance, have about as much in common as a Wall Street trader and a Woodstock attendee. Now, I've seen more market trends than I've had hot dogs at July 4th barbecues, but this one's got me intrigued.
Microdosing, for the uninitiated, is like giving your brain a soft reboot – not the full "turn it off and on again" that most of us need on Monday mornings. It's taking tiny doses of psychedelics, presumably to boost creativity. However, if you ask me, nothing boosts creativity quite like staring at a sea of red in your portfolio.
But here's where it gets as wild as my hair after a flight in my old Cessna: The big brains in Silicon Valley are thinking that AI could benefit from a little "microdosing," too.
They're suggesting that AI "hallucinations" - those quirky outputs that usually make about as much sense as congressional budgets - might actually be the secret recipe behind machine creativity. Even OpenAI's Sam Altman is hopping on this bandwagon.
The numbers are enough to make you feel like you've accidentally doubled your microdose. The psychedelic market is projected to hit $10.75 billion by 2027, while the AI market could reach a brain-melting $1.59 trillion by 2030. That's more zeros than I see in my brokerage account, even on a good day. And get this: the AI market is expected to grow faster than a teenager's shoe size, with a CAGR of 37.3% from 2023 to 2030.
So, who's leading this parade? We've got Compass Pathways (CMPS), MindMed (MNMD), and ATAI Life Sciences (ATAI) in the psychedelic corner, their stock charts looking like they've been drawn by someone on an actual trip.
On the AI side, there's Nvidia (NVDA), whose chips are hotter than the grill at your cookout this week. Their Q2 2024 revenue jumped 101% year-over-year – needles to say, that's growth that'll make your sparklers look dim.
Meanwhile, Alphabet (GOOGL) and Microsoft (MSFT) have been throwing more money at AI than a drunken sailor at his first rodeo.
Google's parent company invested a whopping $31.5 billion in AI R&D in 2023 alone. As for Microsoft, it’s not just twiddling its thumbs. Their Intelligent Cloud segment, which includes Azure AI, raked in $67.6 billion in 2023.
Let's also not forget the little firecrackers like C3.ai (AI) and Adobe (ADBE). C3.ai lit up the scene with a 38% revenue increase in fiscal year 2023, hitting $308 million. Adobe's cooking up a storm too, with $17.61 billion in revenue for fiscal year 2023.
Now, before you start throwing money at these stocks, remember: this is riskier than trying to steal a hot dog from a hungry bear. For one, the regulatory landscape is murky. You know how the fun police always show up just when the party's getting good? Well, guess what? As AI gets smarter than a whip and starts cranking out creative content like a patriotic anthem factory, the regulators are gonna come knocking faster than neighbors complaining about loud fireworks.
Then, there’s the possibility that these AI "hallucinations" could be more unpredictable than my Cousin Vinny after his third martini. There's a chance these digital daydreams could cook up content more misleading than a politician's campaign promise.
The bottom line is this: investing in AI is like planting a tree – you won't be enjoying the shade tomorrow. But this cocktail of AI and microdosing? It could be the Boston Tea Party of investments – risky, revolutionary, and with the potential for immense rewards. Or, it could fizzle out like a misfired bottle rocket.
Either way, it's shaping up to be one hell of a spectacle. I say we add these companies to our watchlist and wait for more updates. We wouldn't want to miss out on the main event, would we?
Mad Hedge Technology Letter
July 1, 2024
Fiat Lux
Featured Trade:
(SOFTBANK BETS THE RANCH ON AI)
(SFTBY), (NVDA)
SoftBank Group raised about $1.86 billion via dollar and euro bond sales in one of the biggest foreign-currency deals by a Japanese company this year.
This is big news.
Softbank is one of the most prominent venture capitalist funds in the world and they plan on deploying the capital solely into generative artificial intelligence.
Many of these heavyweights from Asia, and the Middle East, and other billionaires around the finance world are chomping at the bit to get a piece of American AI firms.
This trend is in the early innings and won’t slow down.
It’s interesting that Softbank raised the currency in dollars and euros which is another bet on the Japanese yen strengthening and the Fed cutting rates.
The Yen has been one of the worst-performing currencies in the past few years and there is a chance this move could blow up in Softbank’s face.
The dollar is strong and has been increasingly strong lately as the Fed stays higher for longer.
However, if the dollar does get stronger, it will mean that Softbank will need to pay higher costs. Even that said, they will still dive head-first into AI.
My belief is that their CEO Masayoshi Son, who I know very well, will bet the ranch on AI considering he sold out of his Nvidia shares in 2022 and calls it the “fish that got away.”
He rues leaving hundreds of billions of dollars in profits on the table and I don’t believe he is willing to allow that to happen again.
So he will approach these new investments as an “all or nothing” all guns blazing type of strategy.
In its first non-yen debt offering since 2021, billionaire Masayoshi Son’s company priced two dollar tranches totaling $900 million and two euro tranches raising €900 million ($964 million).
It’s not only Softbank, it’s also other Japanese companies looking for ample liquidity.
SoftBank joins a bond bonanza by issuers from Asia and elsewhere including even bigger deals from fellow Japanese borrowers such as Takeda Pharmaceutical and Rakuten.
The Japanese firm this year directly invested $200 million into Tempus AI, a startup that analyzes medical data for doctors and patients to come up with better treatments. More recently, it backed Perplexity AI at a $3 billion valuation, betting on a firm that aims to use AI to compete with Alphabet’s Google search.
Longer term, SoftBank is working on a plan to deploy some $100 billion into AI-related chips in a project dubbed Izanagi, Bloomberg News reported in February.
My belief here is that Softbank and other Japanese companies are on the verge of deploying over $1 trillion of new money into generative artificial companies in America.
There is a reason why leading AI companies like Nvidia (NVDA) have surged to the skies and a lot of it is foreign money coming chasing the new hot trend.
I don’t believe this trend will stop will money from all corners of the globe from flooding the US markets chasing the few quality AI companies.
The ultimate takeaway is that the best companies connected the generative artificial intelligence are at the beginning of a huge run in share price that will extend years into the future.
Don’t fight the trend – especially the biggest ones in the world.
“The most important thing to do if you find yourself in a hole is to stop digging.” – Said American Investor Warren Buffett
(WHAT THE MARKET ACTION MIGHT LOOK LIKE IN THE SECOND HALF OF 2024)
July 1, 2024
Hello everyone,
Week ahead calendar
Monday, July 1
9:45 a.m. S&P PMI Manufacturing final (June)
10 a.m. Construction Spending (May)
10 a.m. ISM Manufacturing (June)
Tuesday, July 2
10 a.m. JOLTS Job Openings (May)
5:00 a.m. Euro Area Inflation Rate
Previous: 2.6%
Forecast: 2.5%
Wednesday, July 3
8:15 a.m. ADP Employment Survey (June)
8:30 a.m. Continuing Jobless Claims (6/22)
8:30 a.m. Initial Claims (6/29)
8:30 a.m. Trade Balance (May)
9:45 a.m. PMI Composite final (June)
9:45 a.m. S&P PMI Services final (June)
10 a.m. Durable Orders (May)
10 a.m. Factory Orders (May)
10 a.m. ISM Services PMI (June)
2 p.m. FOMC Minutes
Earnings: Constellation Brands
Thursday, July 4
Independence Day Holiday
UK General Election
Friday, July 5
8:30 a.m. June Jobs Report
Previous: 272k
Forecast: 180k
Friday is the Labor Report, and this will give us some insight into the consumer. The U.S. economy is anticipated to have added 190,000 jobs in June, down from 272,000 in the prior month, according to FactSet consensus estimates. The unemployment rate is expected to hold at 4%.
The pandemic stimulus has contributed to keeping the economy motoring along. However, I would argue that cracks are starting to appear, now that many consumers have exhausted that stimulus cash injection. The jobs report will take on more significance going forward as it will show a pattern of consumer behaviour.
Let’s delve into history for a moment. According to historical data, a strong first half points to more gains in the second half. And remember, it is an election year as well, which also bodes well for the market. Data analyzed by Sam Stovall at CFRA (Centre for Financial Research and Analysis) shows that whenever a positive first half for the S&P500 eventuated between 1945 and 2023, the second half brought an average rise of 5.3%. The broad index was higher in the second half in more than three out of every four years that it ended the first six months in the green.
The picture gets even better when we dig into detail. The research shows that in the years with the S&P500 rallying more than 10% in the first six months, it climbed 7.9% in the typical second half. The index was positive in the latter half in more than four out of every five of these years. And how much did the S&P500 climb in the first half of 2024? Answer = 14.5%.
Presidential election years also typically result in favourable market returns. Research shows that in all election years since World War II the S&P500 added 0.9% and 2.4% in the average third and fourth quarters, respectively. For the entire second half, the S&P500 has climbed 3.5% on average.
If we take all strategist's forecasts and take the median forecast for the end of 2024, we may see a 1% rise from the close last week.
NEWS IN BRIEF
France votes in an election that could see a significant swing to the far-right. If victorious, Le Pen’s party, National Rally Rassemblement National (RN) may disrupt policy towards EU, and Ukraine.
UK Election on Thursday may result in volatility in GBP pairs.
BRIEF MARKET UPDATE
S&P500 - Risk of a retracement is growing. Downside should see support around 5,000. Then after the correction, the market should continue its upside move.
Gold – has been undergoing a complex correction. If it can hold above $2,290, then we should see a sustained rally above $2,360, to see a retest of the $2,400’s. However, a move to a $2,270/$2,250 area is still a possibility, so don’t rule it out.
Bitcoin – a complex retracement is continuing. Possible downside targets include: $55,000 and $50,000. Scale in all the way down to these levels. Bitcoin may not begin a sustained rally for a month or two.
WHAT IS… Painting the Tape?
Painting the tape is a form of securities fraud where traders create a false appearance of trading activity for a security by buying and selling the security among themselves. Painting the Tape (PTT) can attempt to artificially increase or decrease the price of a security through coordinated trading, or merely give the impression of a high volume of trades without any effort to influence the direction of the price.
PTT is illegal, and the Securities and Exchange Commission (SEC) enforces regulations against PTT and similar attempts at market manipulation.
Probably the simplest and most common form of market manipulation that involves PTT is when traders artificially inflate the trading volume of a security. Many day traders are attracted to securities revealing a sudden spike in volume far above the average. This leads to an increase in the price of the security, which then allows market manipulators to dump their holdings at an inflated price.
PSYCHOLOGY CORNER
Cut Out the Noise
I’m sure I don’t need to tell you that there are tons of supplemental resources and education about trading and investment on the Internet. That’s a good thing – right?
Well, that’s debatable. One of the worst things about all this information is that it is full of “noise” and is likely a distraction that will pull you away from your own confidence in your ability in the market.
Everybody comes to the market with a different approach. There is no one right way to trade the market. What works for one expert might not work for you. It’s always best to develop your own philosophy – your own approach to trading the market that suits your personality, and then shut out the loud voices who claim they have found the very best strategies for trading the market
QI CORNER
The monthly return table for major asset classes/assets. (Mohammed El-Erian, President of Queens’ College, Cambridge & chief economic advisor at Allianz.
MY CORNER
My new best friend at my present Airbnb.
Cheers,
Jacquie
Global Market Comments
July 1, 2024
Fiat Lux
SPECIAL ISSUE ABOUT THE FAR FUTURE
Featured Trade:
(PEAKING INTO THE FUTURE WITH RAY KURZWEIL),
(GOOG), (INTC), (AAPL), (TXN)
