Global Market Comments
October 23, 2024
Fiat Lux
Featured Trade:
(THE CODER BOOM),
(THERE ARE NO GURUS)
There is a new boom going on in Northern California.
It is not another gold rush, even though this winter’s heavy rains have flushed out a new supply of the yellow metal in High Sierra rivers and streams.
And I am not referring to the marijuana boom triggered by growing anticipation of the legalization of the evil weed in the November election.
No, I am talking about the coder boom, the stampede by young job seekers to cash in on the overwhelming demand for computer programmers.
I’m hearing about this everywhere.
Kids are quitting their jobs driving trucks, running farms, or working as baristas at Starbucks. They blow their entire life savings on a three-month crash course at a coding school. The schools then promise them dream jobs on graduation.
Schools like this are popping up like mushrooms on the green California hills in winter, charging up to $20,000 per course. Don’t think you’ll just walk into these places either. All of these schools have waiting lists, and only the most qualified and ambitious get in.
They’re almost as hard to get into as my….tennis club.
It’s worth it because it sets you up to move into a six-figure job almost immediately. At least, it’s supposed to.
There is no doubt that there is an absolutely mammoth demand for computer programmers right now. There is NO part of the US economy that isn’t attempting to grow its online presence as rapidly as possible.
Salaries are through the roof, as can be seen by the interactive map of current programming jobs around the country published by Cyber Coders (click here).
Headhunter Robert Half ( click here ) wants to charge you 30% of a first year’s salary for their service in finding developers.
Ouch!!
Click here for a map from the Bureau of Labor Statistics on where all the developer jobs are going.
The problem is that as soon as a coder gets good, they go freelance, charging up to $200 an hour. Who can blame them? Raking the money in while working anywhere, anytime, sounds like a great gig to me.
Hiring a developer can be the most challenging task for a small, rapidly growing business. Stories are rife of dummy developers wiping out business overnight because of incompetent coding. And Heaven help you if you thought you could save money and outsource this job to India.
Marquee names like Google and Apple soak up the few out there with actual college degrees in computer science, leaving the rest of us to hire hobbyists who went full-time. Sound familiar.
Coder Camp (www.codercamp.com ) invites you to “Reprogram your Career” with a series of immersive camps on Java, JavaScript, and Ruby on Rails for $14,200 each.
Udemy (www.udemy.com ) offers dozens of courses ranging from $49 and up for online tutorials on every programming topic under the sun. They boast 20,000 online instructors and 10 million hungry students in 190 countries.
Learning Tree International (https://www.learningtree.com ), the veteran in the space, has a four-course training passport for $6,790.
Devbootcamp (http://devbootcamp.com/ ) pioneered the short-term immersive “web development boot camp,” a model that transforms beginners into full-stack web developers. Their 19-week $13,900 program offers three-year low-interest financing.
Hack Reactor (http://www.hackreactor.com ) is a high-end Cadillac operation and promises a 99% job placement rate with a $105,000 initial salary.
I hear that production-grade iPhone apps are a hot skill to learn. And if you are able to learn anything about cyber security, you can write your own ticket.
As is so often the case with these Internet schemes, the hype may exceed actual results (mine excluded). Developer friends tell me that it takes a year of full-time study before you can land an actual regular job. It really takes as much time to learn coding as it does to speak a new foreign language fluently.
Many new coders start with limited part-time assignments and work their way up from there as their skills build.
If you are good at math, you have a definite advantage, as much of good coding involves problem-solving of a mathematical nature.
Still, you can’t argue with people abandoning old economy jobs and training for new economy ones, whatever the cost. I’m told there was a recent influx of new students freshly laid off in the oil patch.
If you still have a Millennial living in the basement awaiting their calling, this is a big chance to turf them out. All you need is a cheap computer, broadband, and motivation.
Oh, and by the way, the Mad Hedge Fund Trader is looking to hire a developer with a specialty in API and Infusionsoft (click here for that link).
Thanks to last year’s blowout double-digit performance numbers, my firm has entered hyper-growth mode, and everyone is working pedal to the metal.
Please send your resume to Nancy at support@madhedgefundtrader.com and specify “DEVELOPER” in the subject line.
So What is This "DEL" Key For Anyway?
If there was ever an argument that you should rely on independent newsletters for guidance about financial markets, such as The Diary of a Mad Hedge Fund Trader, and not traditional brokerage houses, take a look at the chart below from JP Morgan.
It shows that despite all of the reforms passed after the dotcom crash, less than 3% of broker reports come with “sell” or “hold/sell” ratings.
If an investment bank’s analyst dislikes a stock, they will simply drop coverage or lose the file behind the radiator, rather than lose potentially lucrative business or risk potential lawsuits.
If individual investors are going to have a prayer of keeping their heads above water in the “new normal,” it will only be through studying truly unbiased sources and drawing their own conclusions.
Despite many pretenders, there are no real “gurus” out there, no matter how hard you look.
If this reality is too hard to face, get used to the 0.01% you are earning in your money market fund, or the 2.51% you get with ten-year Treasury bonds.
These ultra-low short rates are going to be around for a while.
Global Market Comments
October 21, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or COMPLACENSE IS RUNNING RAMPANT)
(JPM), (TSLA), (AMZN), (FXA), (FXE), (FXB), (FXY), (NEM), (DHI), (NFLX), (AAPL), (GLD), (AGQ), (SLV), (AAPL), (NVDA), (MS), (CCJ). (VST), (AVGO), (ASML), (MU), (LRCX), (DHI), (PHM), (LEN), (CCJ), (VST), (CEG), (BWXT), (OKLO)
We are now nearly three months into an almost straight-up move in the stock market, and money managers everywhere are scratching their heads. We are now only 136 points or 2.32% from my yearend (SPX) target of 6,000, which is starting to look pretty conservative. The price-earnings multiple for the S&P 500 is now 21X, the Magnificent Seven 28X, and NVIDIA 65X.
I’ve seen all this before.
We are about as close to a perfect Goldilocks scenario as we can get. Interest rates and inflation are falling. A 3% GDP growth rate means the US has the strongest major economy and is the envy of the world. We have entered the euphoria stage of the current market move in almost all asset glasses. Gold (GLD) has gone up almost every day. Some big tech remains on fire. Energy prices are in free fall. Even bonds (TLT) are trying to put in a bottom.
Complacence is running rampant.
So, how the heck do we trade a market like this? You play the laggard trade.
The biggest risk to the gold trade is that it has gone up 40% in a year. So, what do you do? The response by traders has been to move into lagging silver (SLV) (AGQ), which has been on a tear since September.
Had enough with the Mag Seven? Then, rotate in the sub $1 trillion part of the market with Broadcom (AVGO), ASML Holdings NV (ASML), Micron Technology (MU), and Lam Research (LRCX).
Tired of watching your DH Horton (DHI) go up every day? Then, flip into smaller homebuilders like Pulte Homes (PHM) and Lennar (LEN).
And then there is the biggest laggard of all, the nuclear trade, which is just crawling out of a 40-year penalty box. With news that Amazon (AMZN) was planning to order up to eight Small Modular Reactors to power its AI efforts, all uranium plays continue to go ballistic. The proliferation of power-hungry data centers is driving the greatest growth of power needs since WWII and the Manhattan Project.
Fortunately, I got in early. This is a trend that could become the next NVIDIA, as the public stocks involved are coming off such a low base. I have personally interviewed the founders and examined Nuscale’s plans with a fine tooth come and consider them genius. The company is, far and away, the overwhelming leader in the sector. The puzzle for the pros who understand the technology is why it took so long. Buy (CCJ), (VST), (CEG), (BWXT), and (OKLO) on dips.
It's like everything is racing towards a key, even with an unknown outcome. There happens to be a big one coming up: the US presidential elections on November 6.
Speaking of elections, I took the time to participate in the first day of voting in Nevada on Saturday, October 19, at the Incline Village Public Library. I waited in line for two hours in a brisk and breezy 40 degrees. I wore my Marine Corps cap and Ukraine Army ID just to confuse people. Some got so tired of waiting in the cold that they went home, retrieved their mail-in ballots, and returned to the polls to drop them off.
I looked back on the line, and women outnumbered the men by three to one. Where did all these women come from? There used to be such a shortage of women at Lake Tahoe that it was impossible to get a date. Hunting, fishing, long-distance backpacking, and skiing weren’t used to attract such large numbers of the female gender. Maybe now they do? But now they’re driving up in Mercedes AMG’s and Range Rovers.
When I finally arrived at the front of the line, I was asked to sign an agreement with my finger, acknowledging that I knew it was illegal to vote twice. The poll worker noticed my ID. When I explained what it was in the Cyrillic alphabet, she burst into tears, apologized, and said she had goosebumps all over.
It was another blockbuster week, up over 6%. So far in October, we have gained +4.89%. My 2024 year-to-date performance is at +50.13%. The S&P 500 (SPY) is up +22.43% so far in 2024. My trailing one-year return reached a nosebleed +65.90. That brings my 16-year total return to +726.76%. My average annualized return has recovered to +52.56%.
With my Mad Hedge Market Timing Index at the 70 handles for the first time in five months, I am remaining cautious with a 70% cash and 30% long. I look for a small profit in (TSLA) to reduce risk. Two of my positions expired at their maximum profit point for (NEM) and (DHI) on Friday, October 18 options expiration.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 60 of 80 trades have been profitable so far in 2024, and several of those losses were really break-even. Some 16 out of the last 19 trade alerts were profitable. That is a success rate of +75.00%.
Try beating that anywhere.
Risk Adjusted Basis
Current Capital at Risk
Risk On
(TSLA) 11/$165-$175 call spread 10.00%
(JPM) 11/$195-$205 call spread 10.00%
(GLD) 11/230-$235 call spread 10.00%
Risk Off
NO POSITIONS 0.00%
Total Net Position 30.00%
Total Aggregate Position 30.00%
Netflix Soars on Blockbuster Earnings, up 11% at the opening on a 5 million gain in subscribers. The company posted earnings per share of $5.40 for the period ended Sept. 30, higher than the $5.12 LSEG consensus estimate.
Crucially, Netflix saw momentum in its ad-supported membership tier, which surged 35% quarter over quarter. The streaming wars are over, and (NFLX) won. Buy (NFLX) on dips.
Silver is Ready to Break Out to the Upside after a year-long-range trade. The white metal is a predictor of a healthy recovery and a solar rebound. It’s a long overdue catch-up with (GLD). Buy (AGQ) on dips.
Apple China Sales Jump 20% on the new iPhone 16 launch. Both Apple and Huawei's (HWT.UL) latest smartphones went on sale in China on Sept. 20, underscoring intensifying competition in the world's biggest smartphone market, where the U.S. firm has been losing market share in recent quarters to domestic rivals. Buy (AAPL) on dips.
Taiwan Semiconductor Soars on Spectacular Earnings, dragging up the rest of the chip sector with it. The world's largest contract chipmaker raised its expectation for annual revenue growth and said sales from AI chips would account for mid-teen percentage of its full-year revenue. U.S.-listed TSMC shares rose nearly 9%, and if gains hold, the company's market capitalization would cross $1 trillion. Buy (NVDA) on dips.
Weekly Jobless Claims Fall. Initial claims for state unemployment benefits dropped 19,000 last week to a seasonally adjusted 241,000 for the week ended Oct. 12, the Labor Department said on Thursday. Economists polled by Reuters had forecast 260,000 claims for the latest week. Claims jumped to more than a one-year high in the prior week, attributed to Helene, which devastated Florida and large swathes of the U.S. Southeast in late September.
Morgan Stanley Announces Blowout Earnings, fueling a 32% profit jump for the third quarter. Revenue from the trading business rose 13%. That followed gains recorded by its biggest rivals as the market business lifted fortunes across the industry, and a steady rebound in investment banking fees increased dealmaking. The wealth unit generated revenue of $7.27 billion, higher than analysts’ expectations, with $64 billion in net new assets. The unit boosted its pretax margin to 28%, driven by growth in fee-based assets. Buy (MS) on dips.
Global EV Sales Up 30% in September, with the largest gains in China. Gains in the U.S. market have been lagging in anticipation of the Nov. 5 election. Chinese carmakers are seeking to grow their sales in the EU despite import duties of up to 45% and amid cooling global demand for electric cars. Chinese and European automakers were going head-to-head at the Paris Car Show on Monday. Buy (TSLA) on dips.
Dollar Hits Two Month High on rising US interest rates. Ten-year US Treasuries have risen from 3.55% to 4.12% since the September Nonfarm Payroll Report. A string of U.S. data has shown the economy to be resilient and slowing only modestly, while inflation in September rose slightly more than expected, leading traders to trim bets on large rate cuts from the Fed. Buy all foreign currencies on dips (FXA), (FXE), (FXB), (FXY).
S&P 500 Value Gain Hits $50 Trillion, since the 1982 bottom, which I remember well and is up 50X. The index hit a record high Wednesday and is trading Thursday at around 5770, up 21% so far in 2024. The index’s value is up sixfold since it stood at $8 trillion at year-end 2008, near the depth of the bear market during the financial crisis.
JP Morgan Delivers Blowout Earnings. Its stock, trading around $223, was on course for its biggest daily percentage gain in 1-1/2 years.
(JPM)'s investment-banking fees surged 31%, doubling guidance of 15% last month. Equities propelled trading revenue up 8%, exceeding an earlier 2% forecast. These earnings are consistent with the soft-landing narrative of modest U.S. economic growth. Buy (JPM) on dips.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy is decarbonizing, and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000, here we come!
On Monday, October 21 at 8:30 AM EST, nothing of note takes place is out.
On Tuesday, October 22 at 6:00 AM, the Richmond Fed Manufacturing Index is out.
On Wednesday, October 23 at 11:00 AM, the Existing Home Sales is printed.
On Thursday, October 24 at 8:30 AM, the Weekly Jobless Claims are announced. We also get New Homes Sales.
On Friday, October 25 at 8:30 AM, the US Durable Goods Orders are announced. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I am headed out for early voting in Nevada this morning. It’s been a year since I came back from Ukraine badly wounded, so I thought I would recall my recollections from that time.
You know you’re headed into a war zone the moment you board the train in Krakow, Poland. There are only women and children headed for Kiev, plus a few old men like me. Men of military age have been barred from leaving the country since the Russians Invaded. That leaves about 8 million to travel to Ukraine from Western Europe to visit spouses and loved ones.
After a 15-hour train ride, I arrived at Kiev’s magnificent Art Deco station. I was met by my translator and guide, Alicia, who escorted me to the city’s finest hotel, the Premier Palace on T. Shevchenka Blvd. The hotel, built in 1909, is an important historic site as it was where the Czarist general surrendered Kiev to the Bolsheviks in 1919. No one in the hotel could tell me what happened to the general afterward.
Staying in the best hotel in a city run by Oligarchs does have its distractions. Thanks to the war, occupancy was about 10%. That didn’t keep away four heavily armed bodyguards from the lobby 24/7. Breakfast was well populated by foreign arms merchants. And for some reason, there are always a lot of beautiful women hanging around with nothing to do.
The population is definitely getting war-weary. Nightly air raids across the country and constant bombings take their emotional toll. Kiev’s Metro system is the world’s deepest and, at two cents a ride, the cheapest. It’s where the government hid out during the early days of the war. They perform a dual function as bomb shelters when the missile attacks become particularly heavy.
My Look Out Ukraine has duly announced every incoming Russian missile and its targeted neighborhood. The buzzing app kept me awake at night, so I turned it off. Let the missiles land where they may. For this reason, I reserved a south-facing suite and kept the curtains drawn to protect against flying glass.
The sound of the attacks was unmistakable. The anti-aircraft drones started with a pop, pop, pop until they hit a big 1,000-pound incoming Russian cruise missile, then you heard a big kaboom! Disarmed missiles that were duds are placed all over the city and are amply decorated with colorful comments about Putin.
The extent of the Russian scourge has been breathtaking, with an epic resource grab. The most important resource is people to make up for a Russian population growth that has been plunging for the last century. The Russians depopulated their occupied territory, sending adults to Siberia and children to orphanages to turn them into Russians. If this all sounds medieval, it is. Some 19,000 Ukrainian children have gone missing since the war started.
Everyone has their own atrocity story, almost too gruesome to repeat here. Suffice it to say that every Ukrainian knows these stories and will fight to the death to avoid the unthinkable happening to them. There will be no surrender.
It will be a long war.
Touring the children’s hospital in Kiev is one of the toughest jobs I ever undertook. Kids are there shredded by shrapnel, crushed by falling walls, and newly orphaned. I did what I could to deliver advanced technology and $10,000 in cash, but their medical system is so backward, maybe 30 years behind our own, that it couldn’t be employed. Still, the few smiles I was able to inspire made the trip worth it. This is the children’s hospital that was bombed a few months ago.
The hospital is also taking the overflow of patients from the military hospitals. One foreign volunteer from Sweden was severely banged up, a mortar shell landing yards behind him. He had enough shrapnel in him, some 250 pieces, to light up an ultrasound and had already been undergoing operations for months. It was amazing he was still alive.
To get to the heavy fighting, I had to take another train ride a further 15 hours east. You really get a sense of how far Hitler overreached in Russia in WWII. After traveling by train for 30 hours to get to Kherson, Stalingrad, where the German tide was turned, is another 700 miles east!
I shared a cabin with Oleg, a man of about 50 who ran a car rental business in Kiev with 200 vehicles. When the invasion started, he abandoned the business and fled the country with his family because they had three military-aged sons. He now works at a minimum-wage job in Norway and never expects to do better.
What the West doesn’t understand is that Ukraine is not only fighting the Russians but a Great Depression as well. Some tens of thousands of businesses have gone under because people save during war and also because 20% of their customer base has fled.
I visited several villages where the inhabitants had been completely wiped out. Only their pet dogs remained alive, which roved in feral starving packs. For this reason, my major issued me my own AK47. Seeing me heavily armed also gave the peasants a greater sense of security.
It’s been a long time since I’ve held an AK, which is a marvelous weapon. It’s it’s like riding a bicycle. Once you learned, you never forget.
I’ve covered a lot of wars in my lifetime, but this is the first fought by Millennials. They post their kills on their Facebook pages. Every army unit has a GoFundMe account where doners can buy them drones, mine sweepers, and other equipment.
Everyone is on their smartphones all day long, killing time, and units receive orders this way. But go too close to the front, and the Russians will track your signal and call in an artillery strike. The army had to ban new Facebook postings from the front for exactly this reason.
Ukraine has been rightly criticized for rampant corruption, which dates back to the Soviet era. Several ministers were rightly fired for skimming off government arms contracts to deal with this. When I tried to give $10,000 to the Children’s Hospital, they refused to take it. They insisted I send a wire transfer to a dedicated account to create a paper trail and avoid sticky fingers.
I will recall more memories from my war in Ukraine in future letters, but only if I have the heart to do so. They will also be permanently posted on the home page at www.madhedfefundtrader.com under the tab “War Diary”.
Donating $10,000 to the Children’s Hospital
On the Front at Crimea with a Dud Russian Missile
A Gift or Piroshkis from Local Peasants
One of 2,000 Destroyed Russian Tanks
The Battle of Kherson with my Unit
This Blown Bridge Blocked the Russians from Entering Kiev
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
“Market players are starting to become desensitized to the Armageddon, end-of-the-world stories,” said Jim Paulsen, chief investment strategist at Wells Capital Management.
Global Market Comments
October 18, 2024
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 of 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 really is 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 cyber security.
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 to 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 greater risks in trading with 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 from 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 managers 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 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 or are 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 losing 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 once-practicing Druids at Stonehenge.
Up until the 1920’s, we had an overwhelmingly agricultural economy. Farmers were always in 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 picks, 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.
Your Guide to Winning Trades
“In a social democracy with a fiat currency, all roads lead to inflation,” said legendary hedge fund manager Bill Fleckenstein.
Global Market Comments
October 17, 2024
Fiat Lux
Featured Trade:
(FRIDAY OCTOBER 25 SALT LAKE CITY UTAH STRATEGY LUNCHEON)
(THIS IS NOT YOUR FATHER’S NUCLEAR POWER PLANT)
(SMR), (MSFT), (GOOGL), (AMZN)
