Mad Hedge Technology Letter
July 23, 2025
Fiat Lux
Featured Trade:
(HIGH EXPECTATIONS FOR TECH STOCKS)
(META), (AAPL), (AMZN), (GOOGL)
The upcoming earnings season is a high-stakes considering the expensive nature of tech stocks.
Tech stocks have ferociously spiraled higher after the April correction.
In April, tech stocks weren’t ready for the barrage of tariffs levied on foreign countries.
The selloff was short-lived, but sharp, and after that, we were off to the races.
As we sit here at Himalayan highs, readers must ask if there is still gas left in the tank to take us higher.
The risk-reward strongly favors readers to wait for the next dip to put new money to use.
Sure, earnings will be ok, especially for the brand-name companies, but I believe the rhetoric won’t go past the point of explaining how deep AI investment will turn into cash cow revenue streams.
It’s a tall order, and high expectations usually mean companies cannot meet or surpass them unless your company is called Nvidia.
In the short-term, the risk is to the downside, so readers should wait for tech shares to come then instead of chasing them at this stage in the game.
Remember, we are very late cycle, and it is almost like playing a game of chicken at this point.
Many tech firms are getting in on the AI game and introducing new AI functions into the workflow, but I haven’t seen anything earth-shattering yet.
It is easily plausible to see cannibalization of companies, let’s say, for instance, OpenAI comes out with their own browser which has been reported is in the works.
They then syphon off online and ad traffic from Google.
It definitely feels like the pie is getting smaller for the tech companies, and many are trying to muscle each other out of the way to claim dominance.
During Amazon’s (AMZN) last earnings call, CEO Andy Jassy said the company’s AI business “has a multibillion-dollar annual revenue run rate, but they’ve mostly fired American staff and hired an army of lower-skilled Indians to jump over earnings.
Jassy also presided over a disastrous Amazon Prime Day that resulted in a 41% sales drop on Day 1.
Google said AI Overviews searches monetize at the same rate as standard search queries, which leaves room for improvement. The company said its AI expansion and Google Cloud Platform Core products also helped power a 28% increase in its Cloud segment revenue.
Microsoft has benefited handsomely from its early investments in ChatGPT creator OpenAI. The company attributed 16 percentage points of growth in its Azure and other cloud services revenue to its AI offerings.
Then there’s Meta (META), which said it’s already seeing positive signs from its AI investments, including longer user engagement and its advertising business.
Meta is testing a new ads recommendation model for Reels, which has already increased conversion rates by 5%.
Meta is seeing 30% more advertisers are using AI creative tools in the last quarter as well.
Apple (AAPL) is considering using third-party AI models to bring Siri up to speed with the latest AI functionalities, but there’s no word from Apple on the potential move.
Apple has the lowest bar to jump over, and that shows with their stock down over 14% YTD.
CEO Tim Cook is still a one-trick pony with Steve Jobs’ iPhone, and the market is screaming and kicking at him to do something more.
Until Cook can announce the next big thing, it appears a slow grind down with the rest of no name tech that aren’t in the AI game.
Wait for tech shares to come to you and jump back in. We are late cycle, but the cycle isn’t over yet.
(THERE IS POTENTIAL FOR A PULLBACK IN THE NEAR TERM)
July 23, 2025
Hello everyone
As I pointed out in Monday’s Post, the market has run on twelve cylinders (in a cross-country race) since April – now might be the time to brake, and slow for a curve.
So, if you want to take profits, now is the time to do it, unless you have already done so, as I mentioned on Monday.
After a healthy pullback, we can re-enter trades again.
Options expiring late in the year – November/December should be fine – unless you want to take profits & re-enter trade after pullback. (It’s a personal decision dependent on your risk tolerance).
If you haven’t got a hedge on – bear put spread in (SPX) or (QQQ), now might be the time to think about it. We can squeeze money out of the markets in both directions.
As you know, one investor’s bull market is another investor’s bear market. Trading and investing are all about your own personal perspectives and objectives. There is not one proper way to invest and speculate in the markets (as I have said many times).
Looking at the Invesco QQQ Trust, which tracks the Nasdaq 100, you’ll see a sharp rise from the April lows. You can see that the MACD tracked closely with the QQQ price through May.
In June, QQQ broke through the former $540 double top resistance level, which is now acting as support and a target level should a pullback manifest.
To protect your gains in the (QQQ), you could bring in a short hedge via the ProShares Ultrashort QQQ ETF (QID) to protect gains. (QID) is trading around $24.61.
Keep in mind, as (QQQ) goes up, the (QID) goes down.
Wednesday brings significant tech earnings to the table. Alphabet, ServiceNow, and Tesla will be reporting.
Next week, the Fed Reserve meeting is upon us, as well as more earnings reports.
Other macro markets that could potentially impact the stock market need to be considered.
Look at this gold chart of the (GLD). We can see gold is now pushing up against a strong resistance area, threatening to break to the upside. If gold does break to the upside, silver will probably follow along. But always keep in mind that an upside break can turn into a false break, so please be aware of this.
The bond market is also worth attention here. The (TLT) chart is showing what could be interpreted as an inverse head and shoulder pattern. Note also the MACD divergence.
So, again, some profit taking and hedging before getting into the thick of earnings season after a historic 40% run in less than four months seems reasonable, and very sensible.
In the bigger picture, this possible pullback could be interpreted as just noise and part of a market rhythm. The AI-driven technology bull market (bar a few hiccups) should continue into year-end, and into 2026.
NEED TO KNOW CORNER
Bank of America has just raised its price on Amazon (AMZN). The bank has lifted its price target by $17.00 to $265. That suggests shares could gain 16.5% from their previous close.
Amazon is set to report financial results on July 31.
Reasons for the price hike target on Amazon:
Strong e-commerce data
Strong AI demand and Amazon Web Services growth
Currency tailwinds
Longer Prime Day sales
Risks:
Tariff uncertainty
Recessionary fears
SOMETHING TO THINK ABOUT
Cheers
Jacquie
Global Market Comments
July 23, 2025
Fiat Lux
Featured Trade:
(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS),
(TLT)
At some point in 2024, we are going to need to SELL. Maybe there will be an economic slowdown, a surprise election outcome, or a flock of black swans. However, there is selling and then there is selling.
I have a new training video on how to execute a vertical bear put debit spread. You can watch the full 34-minute video by clicking here.
The last one was made seven years ago.
Since then, we have learned a lot from customer questions. The nature of the options markets has also changed. I recommend watching it on full screen so you can read all the numbers on my options trading platform.
I am normally a pretty positive person.
For me, the glass is always half full, not half empty, and it’s always darkest just before the dawn. After all, over the past 100 years, markets have risen 80% of the time, and that includes the Great Depression.
However, every now and then, conditions arise where it is prudent to sell short or make a bet that a certain security will fall in price.
This could happen for myriad reasons. The economy could be slowing down. Companies might disappoint on earnings. “Sell in May, and go away?” It works….sometimes. Oh, and new pandemic variants can strike at any time.
Other securities have long-term structural challenges, like the US Treasury bond market (TLT). Exploding deficits as far as the eye can see assure that government debt of every kind will be a perennial short for years to come.
Once you identify a short candidate, you can be an idiot and just buy put options on the security involved. Chances are that you will overpay and that accelerated time decay will eat up all your profits, even if you are right and the security in question falls. All you are doing is making some options trader rich at your expense.
For outright put options to work, your stock has to fall IMMEDIATELY, like in a couple of days. If it doesn’t, then the sands of time run against you very quickly. Something like 80% of all options issued expire unexercised.
And then there’s the right way to play the short side, i.e., MY way. You go out and buy a deep-in-the-money vertical bear put debit spread.
This is a matched pair of positions in the options market that will be profitable when the underlying security goes down, sideways, or up small in price over a defined, limited period of time. It is called a “debit spread” because you have to pay money to buy the position instead of receiving a cash credit.
It is the perfect position to have on board during a bear market, which we will almost certainly see by late 2019 or 2020. As my friend Louis Pasteur used to say, “Chance favors the prepared.”
I’ll provide an example of how this works with the United States Treasury Bond Fund (TLT,) which we have been selling short nearly twice a month since the bond market peaked in July 2016.
On October 23, 2018, I sent out a Trade Alert that read like this:
Trade Alert – (TLT) – BUY
BUY the iShares Barclays 20+ Year Treasury Bond Fund (TLT) November 2018 $117-$120 in-the-money vertical BEAR PUT spread at $2.60 or best.
At the time, the (TLT) was trading at $114.64. To add the position, you had to execute the following positions:
Buy 37 November 2018 (TLT) $120 puts at…….………$5.70
Sell short 37 November 2018 (TLT) $117 puts at…….$3.10
Net Cost:………………………….………..………….………….$2.60
Potential Profit: $3.00 – $2.30 = $0.40
(37 X 100 X $0.40) = $1,480 or 11.11% in 18 trading days.
Here’s the screenshot from my personal trading account:
This was a bet that the (TLT) would close at or below $117 by the November 16 options expiration day.
The maximum potential value of this position at expiration can be calculated as follows:
+$120 puts
-$117 puts
+$3.00 profit
This means that if the (TLT) stays below $117, the position you bought for $2.60 will become worth $3.00 by November 16.
As it turned out, that was a prescient call. By November 2, or only eight trading days later, the (TLT) had plunged to $112.28. The value of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) November 2018 $117-$120 in-the-money vertical BEAR PUT spread had risen from $2.60 to $2.97.
With 92.5% of the maximum potential profit in hand (37 cents divided by 40 cents), the risk/reward was no longer favorable to carry the position for the remaining ten trading days just to make the last three cents.
I, therefore, sent out another Trade Alert that said the following:
Trade Alert – (TLT) – TAKE PROFITS
SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT) November 2018 $117-$120 in-the-money vertical BEAR PUT spread at $2.97 or best
In order to get out of this position, you had to execute the following trades:
Sell 37 November 2018 (TLT) $120 puts at…………………..…$7.80
Buy to cover short 37 November 2018 (TLT) $117 puts at….$4.83
Net Proceeds:………………………….………..…………………..…….$2.97
Profit: $2.99 – $2.60 = $0.37
(37 X 100 X $0.37) = $1,369 or 14.23% in 8 trading days.
Of course, the key to making money in vertical bear put spreads is market timing. To get the best and most rapid results, you need to buy these at market tops.
If you’re useless at identifying market tops, don’t worry. That’s my job. I’m right about 90% of the time and send out a STOP LOSS Trade Alert very quickly when I’m wrong.
With a recession and bear market just ahead of us, understanding the utility of the vertical bear put debit spread is essential. You’ll be the only guy making money in a falling market. The downside is that your friends will expect you to pick up every dinner check.
But only if they know.
Understanding Bear Put Spreads is Crucial in Falling Markets
“I was shocked to see how predictable people were,” said Andreas Weigend, Amazon’s Chief Data Analyst.
Mad Hedge Biotech and Healthcare Letter
July 22, 2025
Fiat Lux
Featured Trade:
(WHEN HEALTHCARE’S HEAVYWEIGHT TAKES A HAYMAKER)
(UNH)
You’ve spent decades building a sensible portfolio, weathered the dot-com crash, survived 2008, and now you’re eyeing healthcare stocks like UnitedHealth (UNH) because, well, people always need healthcare, right?
Then suddenly this $300 billion giant hits a pothole so hard it rattles every healthcare investment from here to Boca Raton. Welcome to the new reality, where even the companies we thought were recession-proof are showing cracks.
Let me tell you what’s really happening here, because the financial press is dancing around the elephant in the Medicare examination room.
UnitedHealth just had what we investment veterans might recognize as a “come to Jesus” moment in Q1, missing every meaningful metric while pulling their full-year guidance faster than you’d cancel a timeshare presentation.
Their Medicare Advantage business, which covers 26 million Americans, is hemorrhaging money, and now the Justice Department is investigating their billing practices.
Now, if you’re thinking “this is just one company’s problem,” let me share something I learned watching Enron, WorldCom, and a dozen other “isolated incidents” over the years: when the biggest player in an industry starts sweating, everybody else catches a cold. And in healthcare, that cold can turn into pneumonia real quick.
Here’s what should worry anyone with healthcare exposure in their portfolio. Medicare Advantage isn’t some side business for UNH – it’s their crown jewel, covering the exact demographic that drives healthcare spending.
When they admit they can’t predict costs anymore, they’re essentially saying the whole reimbursement model is broken. Remember, these are the folks who decide whether your doctor’s recommended treatment gets covered or whether you’re fighting appeals for six months.
The numbers paint a picture any seasoned investor would recognize. Adjusted earnings missed by nine cents, revenue came in $2 billion light, and management basically threw up their hands and said “we don’t know what’s next.”
I’ve been investing long enough to know that when a company with a century of actuarial data can’t forecast their business, it’s time to pay attention.
What really caught my eye was the insider buying – over $30 million worth, including $25 million from the new CEO. Now, that’s either supreme confidence or the most expensive vote of confidence since Lee Iacocca bought Chrysler stock.
In my experience, when executives are putting their own money where their corporate mouth is, they usually know something the market doesn’t. The question is whether they’re right this time.
But here’s the part that should concern anyone approaching or in retirement: Dr. Mehmet Oz is now running Medicare, and the agency just announced more aggressive auditing of the entire Medicare Advantage program.
Translation? The days of easy approvals and generous reimbursements are ending. If you’re counting on Medicare Advantage for your healthcare coverage, or if you own stocks that depend on Medicare payments, this affects you directly.
The valuation story is equally telling. UNH is trading at 13.7 times forward earnings, down from its historical premium of over 20 times. That’s like seeing IBM (IBM) trade at startup multiples – something fundamental has shifted.
The market is essentially saying “we don’t trust this business model anymore,” and when the market loses faith in healthcare’s biggest player, it usually spreads to the smaller ones.
Let me connect this to something all of us interested in this sector should understand: drug pricing.
UNH’s Optum division is one of the largest pharmacy benefit managers in the country. When PBMs come under political pressure (and they are), drug pricing negotiations get nasty. That affects everything from your monthly prescriptions to the pharmaceutical stocks in your portfolio.
The political winds are shifting, too. Trump initially targeted PBMs before the Senate stepped in, but the fact that these reforms made it into legislation tells us this isn’t going away.
For those of us who remember when healthcare was a defensive investment, this is a wake-up call that even defensive sectors can become political footballs.
My advice after four decades of watching markets? Start thinking about healthcare investments like you would utilities in a deregulation cycle: the old rules don’t apply anymore.
Look for companies with diverse revenue streams, not just Medicare exposure. Pay attention to balance sheets, because if reimbursement gets squeezed, only the financially strong will survive.
Watch UNH’s July 29 earnings like you’d watch the Fed chairman’s testimony. If they can’t provide clarity on cost control, expect volatility across the entire healthcare sector.
And if they touch that dividend, something I doubt but can’t rule out, it’ll signal that even healthcare’s strongest players are circling the wagons.
The bottom line? This isn’t just about one company’s rough quarter. It’s about recognizing when the fundamentals of an entire investment thesis are shifting. Healthcare will always be essential – that hasn’t changed – but the way we deal with it might need some fine-tuning.
After all, in biotech and healthcare investing, it’s not about avoiding the doctor – it’s about making sure you’re seeing the right specialist.
Global Market Comments
July 22, 2025
Fiat Lux
Featured Trade:
(HOW TO FIND A GREAT OPTIONS TRADE)
You’ve spent vast amounts of time, money, and effort to become an options trading expert.
You know the difference between bids and offers, puts and calls, exercise prices, and expiration days.
And you still can’t make any money.
Now What?
Where do you apply your newfound expertise? How do you maximize your reward while minimizing your risk?
It is all very simple.
Stick to five basic disciplines, and you will suddenly find that the number of your new trades that are winners takes a quantum leap, and money will start pouring into your trading account.
It’s really not all that hard to do. So here we go!
1) Know the Macro Picture
If you have a handle on whether the economy is growing or shrinking, you have a major advantage in the options market.
In a growing economy, you only want to employ bullish strategies, like calls, call spreads, and short volatility plays.
In a shrinking economy, you want to execute bearish plays, like puts, put spreads, and long volatility plays.
Remember, the only thing that is useful for your options trading is a view on what the economy is going to do NEXT.
The government only publishes historical economic data, which is, for the most part, useless in predicting what is going to happen in the future.
The options market is all about discounting what is going to happen next.
And how do you find that out?
Well, you could hire your own in-house staff economist. Or you could rely on economic research from the largest brokerage houses.
Even the Federal Reserve puts out its own forecasts for economic growth prospects.
However, all of these sources have notoriously poor track records. Listening to them and placing bets on their advice CAN get you into a world of trouble.
For the best possible read on the future of the US and the global economy, there is no better place to go than Global Trading Dispatch, published by me, John Thomas, the Mad Hedge Fund Trader.
This is where the largest hedge funds and brokers go to find out what is really going to happen to the economy.
Do you want to give yourself another valuable edge?
There are over 100 different industries listed on the US stock markets. However, only about 5 or 10 are really growing decisively at any particular time. The rest are either going nowhere or are shrinking.
In fact, you can find a handful of sectors that are booming, while others are in outright recession.
If you are a major hedge fund, institution, or government, you may want to cover all 100 of those industries. Good luck with that.
If you are a small hedge fund or an individual working from home, you will want to conserve your time and resources, skip most of the US industry, and only focus on a handful.
Some traders take this a step further and only concentrate on a single high-growing, volatile industry, like technology or biotech, or even a single name, like Netflix (NFLX), Tesla (TSLA), or Amazon (AMZN).
How do you decide which industry to trade?
Brokerage houses pump out more free research than you could ever read in a lifetime. Government reports tend to be stodgy, boring, and out of date. Big hedge funds keep their in-house research confidential (although some of it leaks out to me).
The Mad Hedge Fund Trader solves this problem for you by limiting its scope to a small number of benchmark, pathfinder industries, like technology, banks, energy, consumer cyclicals, biotech, and cybersecurity.
In this way, we gain a handle on what is happening in the economy as a whole, while lining up rifle shots on the best options trades out there.
We want to direct you where the action is and where we have a good handle on future earnings prospects.
It doesn’t hurt that we live on the edge of Silicon Valley and get invited to test out many new technologies before they are made public. My Tesla Model S1 is a perfect example.
That encouraged me to recommend Tesla stock at $16 before it began its historic run to $295. It was the best short squeeze ever.
2) The Micro Picture is Ideal
Once you have a handle on the economy and the best industries, it’s time to zero in on the best company to trade in, or the “MICRO” selection.
It’s always great to find a good target to trade in because positions in single companies can deliver double or even triple the returns compared to stock indexes.
That is because the market will pay a far higher implied volatility for a single company than for a large basket of companies.
Remember also that you are taking a greater risk in trading individual companies. The options market will pay you for that extra risk.
If the earnings come through as expected, everything is hunky dory. If they don’t, the shares can drop by half in a heartbeat. Large indexes buffer this effect, which is why they have far lower volatility.
Of course, there are gobs of market research about individual companies out there from brokers. Some of it is right, some of it is wrong, but all of it is conflicted. Recommendations are either “BUY” or “HOLD”.
Brokers are loath to issue a “SELL” recommendation for a stock because it will eliminate any chance of that firm obtaining new issue business. Who wants to hire a broker to sell new stock when their analyst has already dissed the company?
And brokerage firms don’t make their bread and butter on those piddling little discount commissions you have been paying them. They make it on new, highly lucrative new issues business. In fact, a new issue can earn as much as $100 million for one firm. I know because I’ve done it.
I have been following about 100 companies in the leading market sectors for nearly half a century. Some of the management of these firms have become close friends over the decades. So, I get some really first-class information.
When markets rotate to sectors and companies that I already know, I have a huge advantage. Needless to say, this gives me a massive head start when selecting individual names for the options Trade Alerts.
3) The Technicals Line Up
I have never been a huge fan of technical analysis.
Most technical advice boils down to “if it’s gone up, it will go up more” or “If it’s gone down, it will go down more.”
Over time, the recommendations are accurate 50% of the time, which is about equal to a coin toss.
However, the shorter the time frame, the more useful technical analysis becomes.
If you analyze intraday trading, almost all very short-term movements can be explained in technical terms. This is entirely how day traders make their living.
It’s a classic case of if enough people believe something, it becomes true, no matter how dubious the underlying facts may be.
So it does behoove us to pay some attention to the charts when executing our trades.
Talk to old-time investors, and you will find that they use fundamentals for long-term stock selection and technicals for short-term order execution.
Talk to them some more, and you find the best fundamentalists sound like technicians, while savvy technicians refer to underlying fundamentals.
Get the technicals right, and you can provide one additional reason for your trade to work.
4) The Calendar is Favorable
There is one more means of assuring your trades turn into winners.
I am a big fan of buying straw hats in the dead of winter and umbrellas in the sizzling heat of the summer.
There IS a method to my madness.
Have you heard of “Sell in May and go away?”
According to the Stock Trader’s Almanac, $10,000 invested at the beginning of May and sold at the end of October every year since 1950 would be showing a loss today.
This is despite the fact that the Dow Average rocketed from $409 to $18,300 during the same time period, a gain of 44.74 times!
Amazingly, $10,000 invested every November and sold at the end of April would today be worth $702,000, giving you a compound annual return of 7.10%.
It gets better.
Of the 62 years under study, the market was down in 25 of the May to October periods, but negative in only 13 of the November to April periods.
What’s more, the market has been down only three times from November to April in the last 20 years!
There have been just three times when the “good 6 months” have lost more than 10% (1969, 1973, and 2008), but with the “bad six months” time period, there have been 11 losses of 10% or more.
So it’s clear that trading according to the calendar can have a significant impact on your profitability.
Being a long-time student of the American and, indeed, the global economy, I have long had a theory behind the regularity of this cycle. It’s enough to base a pagan religion around, like the ones practicing Druids at Stonehenge.
Up until the 1920s, we had an overwhelmingly agricultural economy. Farmers were always at maximum financial distress in the fall, when their outlays for seed, fertilizer, and labor were the greatest, but they had yet to earn any income from the sale of their crops.
So they had to borrow all at once, placing a large cash call on the financial system as a whole. This is why we have seen so many stock market crashes in October.
Once the system swallows this lump, it’s nothing but green lights for six months.
After the cycle was set and was easily identifiable by computer algorithms, the trend became a self-fulfilling prophecy.
Yes, it may be disturbing to learn that we ardent stock market practitioners might in fact be the high priests of a strange set of beliefs. But hey, some people will do anything to outperform the market.
It is important to remember that this cyclicality is not 100% accurate, and you know the one time you bet the ranch, it won’t work.
Benefits of the Tailwinds
So there we have it.
Adopt these five simple disciplines, and you will find your success rate on trades jumps from a mere coin toss to 70%, 80%, or even 90%.
In other words, you convert your trading from an endless series of frustrations to a reliable source of income.
If a potential trade meets only four of these five criteria, please do it with your money and not mine. Your chances of making money have just declined.
And I bet a lot of you poor souls execute trades all the time that meet NONE of these criteria. No wonder you’re losing money hand over fist!
Get the tailwinds of the economy, your industrial call, your company pick, the market technicals, and the calendar working for you, and all of a sudden, you’re a trading genius.
It only took me half a century to pull all this together. Hopefully, you can learn a little bit faster than me.
I hope it all works for you.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
