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Why Technical Analysis Never Works

Let me point out a few harsh lessons learned from this most recent meltdown, and the rip-your-face-off rally that followed.

Remember all those market gurus claiming stocks would rise every day for the rest of 2025?

They were wrong.

This is why almost every Trade Alert I shot out this year has been from the “RISK OFF” side.

The one lesson learned this year was the utter uselessness of technical analyses. Usually, these guys are right only 50% of the time. This year, they missed the boat entirely. After perfectly buying the last top, they begged you to dump shares at the bottom.

In 2025, when the S&P 500 (SPY) did go up practically went up ever day, clocking a 20% gain. It was a rare year without a 10% correction.

It didn’t last.

When the market finally broke down in February, cutting through imaginary support levels like a hot knife through butter ($42,000? $40,000? $35,000?), they said the market would plunge to $30,000, and possibly as low as $20,000.

It didn’t do that either.

If you believed their hogwash, you lost your shirt.

This is why technical analysis is utterly useless as an investment strategy. How many hedge funds use a pure technical strategy? Absolutely none, as it doesn’t make any money on a stand-alone basis.

At best, it is just one of 200 tools you need to trade the market effectively. The shorter the time frame, the more accurate it becomes.

On an intraday basis, technical analysis is actually quite useful. But I doubt few of you engage in this hopeless persuasion.

This is why I advise portfolio managers and financial advisors to use technical analysis as a means of timing order executions, and nothing more.

Most professionals agree with me.

Technical analysis derives from humans’ preference for looking at pictures instead of engaging in abstract mental processes. A picture is worth 1,000 words, and probably a lot more.

This is why technical analysis appeals to so many young people entering the market for the first time. Buy a book for $5 on Amazon, and you can become a Master of the Universe.

Who can resist that?

The problem is that high-frequency traders also bought that same book from Amazon a long time ago and have designed algorithms to frustrate every move of the technical analyst.

Sorry to be the buzzkill, but that is my take on technical analysis.

Hope you enjoyed your cruise.

How to Join the Early Retirement Stampede

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There is a new social movement taking place that you probably haven’t heard about.

Increasing numbers of people, especially Millennials, are engineering their personal finances to make early retirement possible. I’m not talking about hanging it up at 60, 55, or even 50. I’m talking extreme early retirement, like 45, 40, or even 30!

I stumbled across a free app the other day at NerdWallet, and started playing around with a compound interest calculator to see just how much you had to save on a monthly basis to make such incredible early retirements possible. What I discovered was amazing. To check it out, please click here.

And here is the big revelation. Assuming that you started saving at the age of 20, you only need to bank $2,150 a month to reach $1 million in retirement savings by the age of 40. If you earn the country’s average wage of $60,000 a year, and you’re paying $1,000 a month in taxes, that means you only have $1,850 a month left to handle housing, health care, education, transportation, and food.

The key to becoming a savings hog is to get off the consumer spending treadmill we have all been trained to plod since birth. You don’t have to endlessly upgrade to ever larger McMansions, especially now that the SALT deductions are gone.

You don’t have to buy a new $50,000 car every three years either. Just buy a junk heap for $5,000 and run it forever. It’s amazing how much gas, insurance, maintenance, and interest payments can add up. I recommend a Toyota Corolla. They last forever.

And what is the most expensive luxury of all? Kids. Raising a child today costs a minimum of $250,000, and that assumes they don’t go to an Ivy League college. I know because I have five. A lot of Millennials are downsizing to one child, or none at all, and putting that quarter million towards their early retirement fund.

If you live here in the San Francisco Bay Area, this would mean living in a cardboard box under a freeway overpass. However, an increasing number of Millennials are engaging in what I call “income/expense” arbitrage.

Earn your income in an expensive city, like San Francisco, San Jose, or New York, but live in a cheap place like Reno, NV, Charlotte, NC, or Cedar Rapids, IA. In that case, banking your $2,150 a month is a piece of cake.

Those who work online, about 25% of the Bay Area population now, have a particular advantage here. With a decent broadband connection, you can work anywhere.

Companies are going out of their way to facilitate this trend, requiring office attendance only on Tuesday to Thursday and permitting telecommuting on Monday and Friday. That enables distant, even interstate commutes. I have a Bay Area dentist who commutes from Santa Barbara, 300 miles away, every week on this schedule.

You can even do this at an international level. A couple can live like a king in Budapest, Hungary, for $1,000 a month, and in a beachfront home in Albania for $500. With that kind of overhead, early retirement becomes a realistic short-term objective.

Once you retire, you will have to live on $60,000 a year, or $5,000 a month, eminently doable in most of the country, not including your social security payments or taxes. And with national health care in the US likely over the next 20 years, health care costs are about to fall dramatically.

Provided you don’t pursue expensive hobbies like my retired friends, such as collecting vintage cars, racing horses, joining expensive golf clubs, or flying around in private jets, you should be able to live within these modest means. How about camping? That’s almost free!

Of course, you can’t live on the coasts for $60,000 a year. But you can do so easily in the heartland. That explains why California and New York home prices have been dead in the water for the last two years, while the Midwest is seeing a renaissance in regional home prices at one-third the cost.

You don’t have to completely retire either. Instead, you could abandon the pressure cooker that is high tech today and downgrade to a small business, open a restaurant, or turn a hobby into a full-time job. (A laid-off FedEx worker I met became a fly-fishing guide and helped me catch that 24-inch trout in Nevada).

It goes without saying that if this trend continues, there are major consequences for the economy, markets, and society that boggle the mind. Greatly higher savings rates will drive prices up and yields down on all investments.

The US birthrate is already well below the replacement rate of 2.1 per couple. Drive it lower, and we could get trapped in the Japanese quicksand of an ever-shrinking population. That means fewer consumers and economic stagnation. Reducing working lives from 47 to only 20 years will inevitably create worker shortages, driving up wages and inflation.

There are a few problems with the ultra-early retirement strategy. The 6% return available today with relatively low-risk investments may not be available in a year or two. That would be the result of global quantitative easing that is taking interest rates down to zero everywhere.

This is crushing the investment returns for new retirees. As a result, instead of needing $1 million to generate a $60,000 annual income, you might need $2 million or more. I have been watching this happen to retirees in Japan for nearly 30 years, where interest rates have been near zero since the 1990s.

How much do you need to save each month if you want to retire at 30? Better start banking $6,050 a month. It may be time to upgrade your sleeping bag.

My Quotron Page on the Day of the 1987 Stock Market Crash. Half the companies no longer exist.

The Market Outlook for the Week Ahead, or Don’t Fight the Bubble

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We are in a liquidity-driven market; there is no doubt about it.

You can forget about tedious fundamentals, research, price earnings multiples, and GDP reports. They are a waste of time. As long as there is more money going into the market than coming out, prices will rise.

The new just passed budget bill has the government borrowing $1.2 trillion to enable companies to buy back their own shares. That is on top of the $1.2 trillion of buybacks they were already executing, taking the total up to an eye-popping $2.4 trillion. That is a lot of stock buying.

And it isn’t just any old companies that are buying their own shares. The Magnificent Seven will account for the lion’s share of this, which explains why they have nearly doubled in the last three months. The top buyback companies so far this year are Apple (AAPL), Alphabet (GOOGL), Meta (META), Nvidia (NVDA), Microsoft (MSFT), ExxonMobile (XOM), and Wells Fargo (WFC).

This also explains why the stock market has failed to have any meaningful correction in three months, which a normal market should have. We are just getting flat lines followed by new legs up, even though the legs are getting shorter and shorter.

Liquidity-driven markets can go on for a long time and always last longer than you expect. I have traded through quite a few of them. During the early 1970’s we thought the Nifty 50 would go up forever. We had such great companies like IBM, Eastman Kodak, and Texas Instruments, how could we not?

In 1987, the Palace accords cut the legs out from under the Japanese economy, paving the way for an export killing 400% appreciation of the Japanese yen. But the Nikkei rose for three more years until a 32-year bear market kicked in.

And the Dotcom bubble? That was one heck of a liquidity-driven market. If a tech stock, or anything with the term “.com” in its name, it was proof that you had to buy more….until you got wiped out.

A lot will depend on tariffs.

The president’s strategy seems to be “agree to higher tariffs or I will jump off this cliff. The rest of the world is responding, “OK, jump off the cliff and we’ll watch.” Then the deadline comes and goes, and we get an extension. This has happened twice since the trade war started five months ago. How many trade deals have been signed during this time?

Zero.

In the meantime, companies are rushing to ship in as many goods as they can before punitive tariffs kick in. Apple has admitted to bringing in Boeing 747s full of iPhones from China and India. This is why government tariff revenues have hit all-time highs three months running. June alone was $27 billion. The record for a full year is $100 billion.

Eventually, higher tariffs kick in. Then imports will decline precipitously, and the drag on the economy accelerates. Will stocks care? I have no idea. Market bottoms are easy to spot as conventual valuation measures are clearly definable. In 2009, the S&P 500 bottomed at a price earnings multiple of 9.5X. We are now at 23X. Market tops are impossible to quantify, as greed knows no bounds. The price-earnings multiple for NASDAQ (QQQ) in 2000? 100X.

Another drag on the economy is the resumption of student loan repayments. This will remove 43 million consumers from the economy because it will eat up their disposable income. Their payments have been suspended since the Pandemic. The new 2025 budget resumes collections as part of the administration’s wide-ranging war against higher education.

Student loans at $1.8 trillion are now the single largest source of consumer borrowing, exceeding credit cards ($1.2 trillion) and auto loans ($1.64 trillion). Some 21% of student loans are now in default. They grew from 10% of consumer debt in 2010 to 33% by 2020.

The market is pricing in a rose garden. We may get a weed patch.

After watching same-day options take over the market with my mouth hanging open like everyone else, I thought I would give it a try. This is in full knowledge that 80% of these expire worthless. Hedge funds like Citadel can’t write them fast enough and, in fact, bought Morgan Stanley’s options trading department to increase this business. The New York Times ran a story last week about addictions to same-day options that completely wipe out life savings. Wives are divorcing husbands to protect their own retirement fund.

Midday Friday, the (SPY) rallied up to $625.60. I expected bad news to come out over the weekend (it always does). So I bought the $625 put options for 40 cents, which expired four hours later. Incredibly, I was able to control $62,500 worth of S&P 500 for four hours for just $40, an implied leverage of 1,562.5 times! That puts futures contracts to shame! The (SPY) closed at 4:00 PM EST at $225.40, so I figured I lost my $40.

And hour after the market closed, tariffs of 50% were announced for Brazil, and 35% for Mexico and Canada. On Saturday morning, I opened my brokerage statement and learned to my surprise that I was short 100 shares of the S&P 500. Someone had exercised their $625 puts during the after-market between 4:00 PM and 4:15 PM when (SPY) tanked. On Sunday evening at 6:30 PM EST, the futures traded down to $622. First thing Monday morning, I sold my one contract for $622.20 for a new profit of $240, a gain of 600%!

It is easy to see how the handful of people who understand this market make fortunes, and the ones who don’t get completely wiped out.

Call it beginner’s luck, but I think I’m getting addicted.

My July performance started off with a bang, with a +2.40% gain, taking us to new all-time highs on all metrics. That takes us to a year-to-date profit of +47.57%. My trailing one-year return exploded to a record +100.45%. That takes my average annualized return to +51.30%, and my performance since inception to +799.46%. These are all non-compounded numbers.

It was a totally dead week of desultory summer trading. That leaves me 70% cash, 20% short Tesla (TSLA), and 10% long (AMG). With the Volatility Index hugging the $16 handle, we may be entering a trade drought.

Some 63 of my 70 round trips in 2023, or 90%, were profitable. Some 74 of 94 trades were profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.

Try beating that anywhere.

My Ten-Year View – A Reassessment

We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties, is now looking at multiple gale-force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. 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. My Dow 240,000 target has been pushed back to 2035.

The June Nonfarm Payroll Wasn’t So Hot. Half of the 147,000 gains were government jobs, and only 74,000 were from the private sector, a quarter of what they were a year ago. The Headline Unemployment Rate dropped 0.1% to 4.1%. Some 590,000 fill-time jobs have been lost since the beginning of 2025. ADP is probably more accurate, down 33,000 for the month, what you would expect in the middle of a recession.

Nvidia Tops $4 Trillion Market Cap. Yes, the tiny company we recommended 15 years ago at a split-adjusted $2 a share is now the world’s most valuable company. Mad Hedge has just raised its target from $180 to $200. What is the next Nvidia? Watch this space.

Weekly Jobless Claims Fell during the Shortened July 4^th week. Initial claims decreased by 5,000 to 227,000 in the week ended July 5. Continuing claims, a proxy for the number of people receiving benefits, rose to 1.97 million in the previous week, still the highest since late 2021.

Clothing Imports from China Hit 22-Year Low, with tariffs killing off the business at a record rate. The US imported $556 million worth of clothing from China in May, down from $796 million in April – data. US apparel imports from Mexico rose 12% in May from the year earlier – data. Maybe one million small US retailers will get killed off by tariffs.

Copper Hits New All-Time High on 50% Tariff. Copper is the latest industry to be targeted under sector-oriented tariffs applied under Section 232 of a 1960s trade law. Already, Trump has applied such sector tariffs on imports of autos, steel, and aluminum. There are other sector tariffs still pending, including for lumber, pharmaceuticals, and semiconductors. The Section 232 tariffs have been a sticking point in some of the trade negotiations with other countries. Here comes the inflation!

Used Car Prices Surge, as tariffs still drive imported car prices through the roof. A gauge of U.S. used vehicle prices sold at wholesale auctions that proved predictive ahead of the inflation surge following the COVID pandemic is climbing again, last month notching its largest annual increase in nearly three years. The Manheim Used Vehicle Value Index rose 1.6% in June from May on a seasonally adjusted basis and surged 6.3% from a year earlier, the largest year-over-year increase since August 2022, according to data released on Tuesday. At 208.5, the index has been trending upward for a year and is now at its highest since October 2023.

Historic Market Concentration Bodes Ill for Future Gains. Since 1972, the S&P 500 has posted below-average returns over the next one, three, six, and 12 months when new records were made with fewer than 100 stocks on the New York Stock Exchange also posting highs

Immigration Crackdown to Cut US GDP by 1.0%, according to a Federal Reserve study, and the trade war will cost another 1.0%. The US population is shrinking for the first time since the Pandemic, which means fewer customers for businesses and fewer income earners. Fewer border crossings — not deportations — are the biggest driver of the hit to growth, the researchers found, accounting for 93% of the projected GDP reduction. 2025 is a write-off, but are we looking at four years of recession?

US Drillers Cut Rigs for 10^th Week, or the first time since July 2020, thanks to a global oil glut. The oil and gas rig count declined by about 5% in 2024 and 20% in 2023 as lower U.S. oil and gas prices over the past couple of years prompted energy firms to focus more on boosting shareholder returns and paying down debt rather than increasing output.

OPEC Increases Production by 550,000 Barrels a Day. The group, which pumps about half of the world’s oil, has been curtailing production since 2022 to support the market. The production boost will come from eight members of the group – Saudi Arabia, Russia, the UAE, Kuwait, Oman, Iraq, Kazakhstan, and Algeria. The eight started to unwind their most recent layer of cuts of 2.2 million bpd in April. The August increase represents a jump from monthly increases of 411,000 bpd OPEC+ had approved for May, June, and July, and 138,000 bpd in April.

Tesla Dives 10%, as Elon Musk reenters politics. Musk said Saturday that the party would be called the “America Part” and could focus “on just 2 or 3 Senate seats and 8 to 10 House districts.” He suggested this would be “enough to serve as the deciding vote on contentious laws, ensuring that they serve the true will of the people.” The billionaire’s involvement in politics has been a point of contention for investors. Keep your double short in (TSLA).

On Monday, July 14, is Bastille Day. All markets in France are closed.

On Tuesday, July 15, at 7:30 AM EST, the Consumer Price Index for June is announced.

On Wednesday, July 16, at 8:30 AM EST, we get the Producer Price Index.

On Thursday, July 17, we get Weekly Jobless Claims. We also get US Retail Sales.

On Friday, July 18, at 8:30 AM EST, we get Housing States and Building Permits.

As for me, when I was shopping for a Norwegian fjord cruise a few years ago, each stop was familiar to me because a close friend had blown up bridges in every one of them.

During the 1970s at the height of the Cold War, my late wife Kyoko flew a monthly round trip from Moscow to Tokyo as a British Airways stewardess. As she was checking out of her Moscow hotel, someone rushed up to her and threw a bundled typed manuscript that hit her in the chest.

Seconds later, a half dozen KGB agents dog piled on top of Kyoko. It turned out that a dissident was trying to get her to smuggle a banned book to the West. She was arrested as a co-conspirator and bundled away to the notorious Lubyanka Prison.

I learned of this when the senior KGB agent for Japan contacted me, who had attended my wedding the year before and filmed it. He said he could get her released, but only if I turned over a top-secret CIA analysis of the Russian oil industry.

At a loss for what to do, I went to the US Embassy to meet with Ambassador Mike Mansfield, whom, as The Economist correspondent in Tokyo, I knew well. He said he couldn’t help me as Kyoko was a Japanese national, but he knew someone who could.

Then in walked William Colby, head of the CIA.

Colby was a legend in intelligence circles. After leading the French resistance with the OSS, he was parachuted into Norway with orders to disable the railway system. Hiding in the mountains during the day, he led a team of Norwegian freedom fighters who laid waste to the entire rail system from Tromso all the way down to Oslo. He thus bottled up 300,000 German troops, preventing them from retreating home to defend from an allied invasion.

During Vietnam, Colby became known for running the Phoenix assassination program. It was wildly successful.

I asked Colby what to do about the Soviet request. He replied, “Give it to them.” Taken aback, I asked how. He replied, “I’ll give you a copy.” Mansfield was my witness, so I could never be arrested for being a turncoat.

Copy in hand, I turned it over to my KGB friend, and Kyoko was released the next day and put on a flight out of the country. She never took a Moscow flight again.

I learned that the report predicted that the Russian oil industry, its largest source of foreign exchange, was on the verge of collapse. Only a massive investment in modern Western drilling technology could save it. This prompted Russia to sign deals with American oil service companies worth hundreds of millions of dollars.

Ten years later, I ran into Colby at a Washington event, and I reminded him of the incident. He confided in me, “You know that report was completely fake, don’t you?” I was stunned. The goal was to drive the Soviet Union to the bargaining table to dial down the Cold War. I was the unwitting middleman. It worked.

That was Bill, always playing the long game.

After Colby retired, he campaigned for nuclear disarmament and gun control. He died in a canoe accident on the lake in front of his Maryland home in 1996.

Nobody believed it for a second.

William Colby

Kyoko

July 11, 2025 – Quote of the Day

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There is only us, there is no them, said director Ken Burns when speaking about the American people.

Testimonial

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Hello John!

Enclosed please find a bonus check for $10,000 on top of my regular Concierge fee. I have done so well this year, I feel I owe it to you.

I look forward to our next meeting. I’m hoping to finish up my paperwork so I can focus on full-time trading. My intention is to focus on the John Thomas Way and complete my MHFT education through your mentorship and travel experiences.

Good times, great trades, and much fun ahead.

Bill
Mill Valley, CA

Why Doctors, Pilots, and Engineers Make Terrible Traders

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At my last Global Strategy Luncheon, I had the pleasure of sitting next to an anesthesiologist who was a long-time reader of my research.

As much as he loved my service, he confided in me that his trading results were awful.

I told him I knew why.

Doctors, scientists, aircraft pilots, and even anesthesiologists all share the same problem.

As smart as they are to plow through 12 years of college studying subjects of mind-numbing difficulty, obtaining MDs, PhDs, and ATPL licenses, they are terrible when it comes to trading their own stock portfolios.

A doctor friend once confessed to me that as fast as he was taking money in at his seven-digit-a-year private practice, he was shoveling it out the door in trading and investment losses.

And if he got mad at it, or grew stubborn, the losses then compounded. He considered it a disease, like a gambling addiction.

I have to admit that I once suffered from the same malady, as I was originally trained as a scientist and mathematician. That is, until I identified my problem and dealt with it.

And here is the dilemma.

Science, medicine, and flying high-performance aircraft all require tremendous degrees of precision. The practitioners have to be exactly right about everything all the time.

If they aren’t, people die.

Let me give you some examples.

I happen to know that the daily dosage for the heart drug, Digitalis, is 0.25 mg per day. If you accidentally raise that to 0.50 mg, you die, especially if you have a small body weight.

I also happen to know that the stall speed of a Boeing 787 Dreamliner is 125 miles per hour. At 126 miles per hour, everything is fine.

But at 124 miles per hour, you risk stalling on approach, crashing, and killing everyone aboard, especially if it is hot and humid, wind shear is present, you are overweight, or at high altitude.

So, as far as doctors are concerned, the premium is on precision.

This absolutely does NOT work in the stock market, which is anything BUT precise.

Precision means buying stocks at their perfect absolute lows and selling them at the perfect top ticky highs. The problem is that this is impossible.

I have been trading stocks for almost 60 years and can think of only a handful of times when I nailed the perfect highs and lows. When I did, it was purely because of random chance, by accident.

By insisting on perfection in his stock execution, doctors miss every trade. They then get frustrated and chase the market, throwing all discipline out the window. This is where the losses ensue.

I can almost see the knowing nods of agreement out there.

It gets worse.

Doctors are used to working with a perfect set of facts, a lab report, a pulse rate, a temperature, or an MRI scan.

In the stock market, you have to deal with the fog of war. The facts you have at hand may or may not be true. New, contradictory information is getting dumped on you all day long. And the guy on TV is usually telling you the exact opposite of what you should be doing.

Most talking heads on the boob tube are in fact failed traders. If they really knew how to make money, they would be locked up in a dark, windowless room somewhere, grinding out the dollars by the millions.

There is another important factor. If only numbers determined stock market success, CPAs would be making the most money. They don’t. The stock market is a combination of numbers and emotions, and you have to succeed at both to prosper. And while they offer master’s degrees and PhDs on every kind of numerical pursuit, they don’t in emotions. Only 60 years of experience can do that, as I have.

After a couple of decades, you get used to operating in a world of uncertainty. In fact, you thrive on it. You learn which information sources to trust and which ones to ignore when the fur starts to fly. After much practice, you learn how to make the right decision when push comes to shove.

Unless doctors work in an emergency room or in combat with the military, they don’t get to learn how to make decisions in the fog of war. To them, markets all seem like a mass of confusing and conflicting information. For the perfectionist, it’s their worst nightmare.

No wonder they lose money.

So doctors have three choices when it comes to their investment portfolio.

They can index, balance stocks against bonds, and get used to subpar returns.

They can hand it over to a professional financial advisor, out of harm’s way.

Or they can learn the tricks of the trade that I have, which is the purpose of this newsletter. If you learned from my own half-century-plus accumulation of mistakes, you don’t have to repeat them yourself.

Your portfolio will love it!

Now that I have your attention, I have this pain in my back that keeps bothering me….

Order a Personal Anime Digital Portrait

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You can download it, send it to friends, sign personal emails, give one as a gift, or just have a laugh. All you have to do is take a selfie and attach it to the order form, and it will be emailed to you shortly. The portraits are created by a starving college student who happens to be my daughter. Starving because I firmly believe that kids need to earn their own way. The cost is only $30 each. To order, please click here and click on “Cartoon Headshots.”

How My Mad Hedge AI Market Timing Algorithm Works

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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 that 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 two 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 view 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 2022, we are up 28%.

Here are just a handful of some of the elements that the Mad Hedge Market Timing Index analysis 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

The Market Outlook for the Week Ahead, or the United States of Debt

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There is only one number traders and fund managers need to know that came out of the US budget for fiscal 2026, which starts on October 1, 2025: $5.0 trillion.

This is the new debt ceiling increase that was signed into law on Friday and is guaranteed to take the National Debt from $37 trillion to $42 trillion by the end of 2026, or 150% of GDP. We have become the United States of Debt.

What about the mere $3.5 trillion deficit last week’s budget promised? On top of that, you have to add $1.5 trillion in maturing debt that has to be rolled over by the end of next year. The government is rolling over bonds with 0.64% coupons and reissuing ones with 4.4% interest rates. This will increase America’s debt service at a tremendous rate, which already stands at over $1 trillion a year. It is a perfect money-destruction machine. Only a government could do this.

And here is the big problem.

No large country has ever tried to borrow this amount of money before, not in all of human history. Smaller ones have, like Argentina, which saw their borrowing binge trigger inflation topping 200% and render the currency worthless, and Zimbabwe, which saw inflation reach millions of percent.

What will happen when borrowing reaches 150% of GDP in the United States? No one really knows. We are in uncharted territory, terra incognita.

It gets worse.

The government is going to try and sell this $5 trillion in debt when the US dollar is collapsing, down 20% so far this year. And that is when dollar interest rates are among the highest in the world, with a 90-day T-bill rate of 4.40%. What happens when US interest rates fall, which they almost certainly will do no later than May next year? The government is going to try to unload this massive amount of debt just when our long-term debt has become the pariah of international markets.

Another problem that Congress failed to notice in its pell-mell rush to pass the budget at all costs is that the growth assumptions are necessary to service this gargantuan level of debt. Their calculations were based on a 3.0% annual growth rate. In reality, the economy is currently shrinking at a -1.0% annual growth rate.

Growth may improve next year when the aforementioned interest rates fall and tariffs become less opaque. But I doubt we’ll see a 3.0% growth rate anytime during this administration. I can only assume that the people in Washington are terrible at math, as they are mostly lawyers and entertainers.

Experts in the debt markets who are far more knowledgeable and experienced than I are predicting that a 13.5% increase in the National Debt from these levels in 18 months will lead to a super spike in borrowing costs that will take interest rates easily up to double digits, crashing the economy. If that occurs, you can count on stocks to give back half of their current values, as they did in 2008-2009. A stock market crash is a sure thing.

I am not so sure.

My half-century in the markets tells me that usually, the world doesn’t end. I am but a dilettante in the bond world. I am only there when there is easy money to be made. There are usually far more fruitful and frequent pickings in the stock markets. I do know that hedge funds and institutions aren’t chasing this rally. “Discretion is the better part of valor”, said William Shakespeare in Henry IV.

If by some miracle the US Treasury is able to borrow more than the GDP of Germany over the next 18 months with no market consequences, stocks will continue to grind up to new all-time highs, lured by the vision of AI. The price-earnings multiple will rise to 24X, 25X, and 26X, but who cares? What will happen then?

The government will borrow another $5 trillion, taking the National Debt from $42 trillion to $47 trillion. That’s what the current administration did the last time it was in office when, shockingly, tax cuts failed to pay for themselves. Then, you really need to look out below.

On a happier note, one question I get from clients several times a day is how AI will affect the stock market and society as a whole. It has been revolutionary for my own business, which has seen our own Mad Hedge AI Market Timing Index double our trading performance since 2013, and it keeps improving. It gets smarter every year.

I couldn’t function without it. I believe over time, AI will create more jobs than it destroys, should add 1% a year in GDP growth per year, and continuously take the stock market to new highs.

But lately, the growth of AI has vastly accelerated, and it has also become more aggressive. Wives are complaining that their husbands have been kidnapped by Grok or ChatGPT, as they spend all day on it. The person who transcribed my biweekly Global Strategy Webinar was out last week, so we asked Zoom to do the job for us instead. See the results below.

Q: What is your range for the S&P 500 (SPY) this year?

A: I see us stuck in the 5,500 to 6,500 range. Best-case scenario, we get a low single-digit return for the year. But with tariffs, inflation, and political dysfunction, the risks are tilted to the downside.

Q: Which tech names are you watching?

A: NVIDIA (NVDA), Microsoft (MSFT), Meta (META), Snowflake (SNOW), Alphabet (GOOGL), and Advanced Micro Devices (AMD). I’ve traded them all. But many are overbought — I’ll be looking to sell calls or wait for dips before going long again.

Unknown to me, Zoom recently added an AI function to their transcription app and as a result, it tried to enhance my answers. I never actually said the answers highlighted red above, certainly never used the word dysfunction, and didn’t even recommend (AMD). AI added that name because it saw (AMD) as the natural logical progression from the previous six names.

Maybe I should buy (AMD)?

MIT did some interesting research on AI lately. It had two groups of students write an SAT-style essay. One did it on their own. The second used AI apps to assist them. It was found that the brain activity in the AI-using group was far lower than the original writing group.

AI is creating a lot of boring, anodyne, uninspiring, and average answers. There is no originality or creativity. I can spot AI writing a mile away. Are we headed for a boring, anodyne, uninspiring, and average world?

The good news is that humans will still be in demand for the rest of my life. As for yours, I’m not so sure. I am also getting about five new AI-generated job offers a day. It’s nice to be in demand in my old age. Apparently, I am overqualified to do everything.

And because you can never get enough steam engines in your life, here are links to videos I took last week at Golden Spike National Historic Park. They were ordered in 1969 for the 100-year anniversary of the Golden Spike ceremony completing the Transcontinental Railroad.

They were completed in 1979 at a cost of $4 million each in today’s money and just completed a 45-year rebuild. Some 156 years ago, the original 119 steamed all the way out from New York, while the more ornately decorated Jupiter rolled in from Sacramento, California, crossing the High Sierras. They run every day at 1:00 PM Mountain Time. And no, they won’t let you drive the engine no matter how much money you offer them. I tried. (I went to steam engine school in Birmingham, England 40 years ago).

Click here and then hit the PLAY arrow and here.

Another drag on the economy is the resumption of student loan repayments. This will remove 10 million consumers because it will eat up their disposable income. They came from the economy as they had been suspended since the pandemic. The new 2025 budget resumes collections as part of the administration’s wide-ranging war against higher education. Student loans at $1.8 trillion are now the single largest source of consumer borrowing, exceeding credit cards and auto loans. Some 21% of student loans are now in default. They grew from 10% of consumer debt in 2010 to 33% by 2010.

My July performance started off with a bang, with a +2.22% gain, taking us to new all-time highs on all metrics. That takes us to a year-to-date profit of +47.39%. My trailing one-year return exploded to a record +102.63%. That takes my average annualized return to +51.29%, and my performance since inception to +799.28%. These are all non-compounded numbers.

It was a week when the market ground up every day except for Friday. I doubled up my short position in Tesla since the sales decline was worse than I expected. I added a new long in Amgen (AMGN), which looks like it is bottoming out. That leaves me 70% cash, 20% short, and 10% long.

Nonfarm Payroll Report Delivers Upside Surprise, at 114,000. The headline Unemployment Rate dropped to 4.1%. No case for interest rate cuts here.

Powell Says Inflation to Surge this Summer. He also admitted he would have to cut rates by now before tariffs injected massive uncertainty into the Economy. I think he’s telling us no interest rate cuts this year.

June ADP Collapses. Private payrolls lost 33,000 jobs in June, the first decrease since March 2023. Economists polled by Dow Jones forecast an increase of 100,000 for the month. The May job growth figure was revised even lower to just 29,000 jobs added from 37,000. I hate to state the obvious, but this is another recession indicator.

US Dollar Plunging to Four-Year Low. The $5 trillion debt ceiling increase in the Budget bill is the main reason, which would take the National Debt from $37 trillion to $42 trillion. Pay for that European vacation now before it gets too expensive to go.

US Manufacturing Says We’re Still in Recession. The Institute for Supply Management (ISM) said on Tuesday that its manufacturing PMI nudged up to 49.0 last month from a six-month low of 48.5 in May. It was the fourth straight month that the PMI was below the 50 mark, which indicates contraction in the sector that accounts for 10.2% of the economy.

Tesla US Sales Dive 13% in Q2, on a YOY basis. Global sales declined 13% to 384,122 vehicles in the last three months. The company’s sales were expected to be boosted by the redesigned Model Y, but its otherwise stale lineup is losing ground to competitors in China and the US electric-car market. Most analysts now expect Tesla to report its second consecutive annual decline in vehicle sales, with an average projection of 1.65 million vehicles in 2025, an 8% drop from last year. I hate to state the obvious, but this is another recession indicator. Tesla (TSLA) rallies.

Budget Bill Kills Effort to Restore Strategic Petroleum Reserve, cutting the funding by 90%. Former President Joe Biden conducted several sales from the SPR, including 180 million barrels at $100 a barrel, the most ever, after Russia invaded Ukraine. The sales left the SPR at its lowest level in 40 years when the U.S. was far more dependent on oil imports. This explains why the Iran War rally faded so quickly.

Constellation Wiped out by Tariffs on Aluminum. The stock has shed more than 20% of its value this year, fueled by concerns about how the higher duties would affect demand for its beer. Did you know that their Modelo is the number one-selling beer in the US? At least Mexican beer is getting in.

Q1 GDP is Revised Down, shrinking from 0.2% to -0.5%. It’s further proof that we are in a recession that is accelerating. That’s why bonds (TLT) have enjoyed a five-week, $6.0 rally.

My Ten-Year View – A Reassessment

On Monday, July 7, nothing of note takes place.

On Tuesday, July 8, at 7:30 AM EST, the Consumer Price Index is announced.

On Wednesday, July 9, at 8:30 AM, we get the Producer Price Index.

On Thursday, July 10, we get Weekly Jobless Claims. We also get US Retail Sales.

On Friday, July 11, at 8:30 AM, we get Housing Starts and Building Permits.

As for me, as you may imagine, the most interesting man in the world is impossible to shop for when it comes to Christmas and birthdays.

So, it was no surprise when I opened a box last December 25 and found a DNA testing kit from 23 and Me. I spat into a small test tube to humor the kids, mailed it off and forgot about it.

I have long been a keeper of the Thomas family history and legends, so it would be interesting to learn which were true and which were myths.

A month later, what I discovered was amazing.

For a start, I am related to Louis the 16^th, the last Bourbon king of France, who was beheaded after the 1789 revolution.

I am a direct descendant of Otzi the Iceman, who is 5,000 years old and was recently discovered frozen high in an Alpine glacier. He currently resides in mummified form in a museum in Bolzano, Italy. So my love of the mountains and hiking is in my genes.

Oh, one more thing. The reason I don’t have any hair on my back is that I carry 346 gene fragments that I inherited directly from a Neanderthal. Yes, I am part caveman, although past wives and girlfriends suspected as much.

There were other conclusions.

I have a higher-than-average probability of getting prostate cancer, advanced macular degeneration (my mother had it), celiac disease, and melanoma. I immediately booked a physical with my doctor.

The service also offered to introduce me to 1,107 close relatives around the world whom I didn’t know about, mostly in New York, California, and Florida.

The French connection, I already knew about. During the 16^th century, my ancestors rebelled against the French kings over the non-payment of taxes and were exiled to Louisiana.

Fleeing a malaria epidemic, they moved up the Mississippi River to St. Louis and stayed there for 200 years. When gold was discovered in California in 1849, they joined a wagon train headed west. It only got as far as Kansas, where it was massacred by Cherokee Indians.

I am half-Italian and have birth certificates going back to 1800 to prove it. But 23 and Me says that I am only 40.7% Italian (see table below). It turns out that your genes show not only where you came from, but also who invaded your home country since the beginning of time.

In Italy’s case, that would include the ancient Greeks, Vikings, Arabs, the Normans, French, Germans, and the Spanish, thus making up my other 9.3%. Your genes also reflect the slaves your ancestors owned, for obvious reasons, as well as many of the servants who may have worked for them.

It gets better.

All modern humans are descended from a single primordial “Eve” who lived in Eastern Africa 180,000 years ago. Of the thousands of homo sapiens who probably lived at that time, the genes of no other human-made it into the modern age. We are also all descended from a single “Adam” who lived 275,000 years ago. Obviously, the two never met, debunking some modern conventions. Living 95,000 apart must have made dating difficult.

Around 53,000 years ago, my intrepid ancestors crossed the Red Sea to a lush jungle in the Sinai Peninsula, probably pursuing abundant game. 11,000 years ago, they moved onto the vast grasslands of the Central Asian Steppes. As the last Ice Age retreated, they moved into the warmer climes of South Europe. We have been there ever since.

23 and Me was founded in 2006 by Anne Wojcicki, wife of Google founder Sergei Brin. It is owned today by her and a few other partners. Its name is based on the fact that humans’ entire DNA code is found on 23 pairs of chromosomes.

23 and Me and other competitors like Ancestry.com, MyHeritage, and Living DNA have sparked a DNA boom that has led to once-unimagined economic and social consequences. DNA promises to be for the 21^st century what electricity was to the 20^th century. The investment consequences are amazing.

Talk about unintended consequences with a turbocharger.

A common ancestor going back to the early 1800s enabled Sacramento police to capture the Golden State Killer. Unsolved for 40 years, it took a week for them to find him after a DNA sample was sent to a database.

Thirty and 40-year-old cold cases are now being solved on a weekly basis. Long ago, kidnapped children were being reunited with their parents after decades of separation.

California froze all executions. That’s because DNA evidence showed that approximately 30% of all capital case convictions were of innocent men. That was enough for me to change my own view on the death penalty. The error rate was just too high. Dozens of men around the country have been freed after new DNA evidence surfaced, some after serving 30 years or more in prison.

23 and Me had some medical advice for me as well. They strongly recommended that I get tested for diabetes and high blood pressure, as these maladies are rife among my ancestors. They even name the specific guilty gene and haploid group.

This explains why major technology companies, like Amazon (AMZN) and Apple (AAPL) are pouring billions of dollars into genetic research.

I have long had a personal connection with DNA research. I worked on the team that sequenced the first-ever string of DNA at UCLA in 1974. It was groundbreaking work. We obtained our raw DNA from Dr. James Watson of Harvard, who, along with Francis Crick, was the first to discover its three-dimensional structure. As for my UCLA professor, Dr. Winston Salser, he went on to found Amgen (AMGN) in 1980 and became a billionaire.

The developments that are taking place today seem to us like science fiction that was set hundreds of years into the future. To see the paper created by this work, please click here.

As research into DNA advances, it is about to pervade every aspect of our lives. Do you have a high probability of getting a disease that costs a million dollars to cure, and are you counting on getting health insurance? Think again. That may well bring forward single-payer national health care for the US, as only the government could absorb that kind of liability.

And if you can only hang on a few years, you might live forever. That’s when DNA-based monoclonal antibodies and gene editing are about to cure all major human diseases. DNA is about to become central to your physical health and your financial health as well.

To learn more about 23 and Me, please click here to visit their website.

Maybe the next time I visit the Versailles Palace outside of Paris, I should ask for a set of keys, now that I’m a relative? Unfortunately, it’s much more likely that I’ll get the keys to my Neanderthal ancestor’s cave.

Good Luck and Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

My Ancestor

July 2 Biweekly Strategy Webinar Q&A

Diary, Homepage Posts, Newsletter

Below, please find subscribers’ Q&A for the July 2 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: What kind of market are we in right now?

A: We’re in what I call a “Looking Glass Market” — everything you see is the reverse of reality. Despite extreme volatility, the broader market is flat year-to-date. Meanwhile, Mad Hedge Fund Trader is up 45.17% thanks to disciplined risk management and aggressive short positioning when volatility spikes.

Q: Is a recession already underway?

A: Absolutely — depending on your sector. Agriculture, construction, restaurants, and anything tied to real estate are already in recession. If you’re in Bitcoin or banking, you’re in boom times. It’s a bifurcated economy, and I’ve been calling this recession since January. This explains why only 50 stocks in the S&P 500 are up this year. We currently have the most concentrated new all-time high in market history.

Q: Are mass layoffs, like Microsoft’s, good or bad for the stock?

A: They’re good. Replacing 9,000 jobs with higher-skilled AI hires improves efficiency and cost structure. These companies will likely create even more jobs downstream. My own daughter is graduating with an AI degree in a year and already has a job offer at a fantastic salary. That tells you where the trend is headed.

Q: How bad is inflation, really?

A: It’s worse than reported. Tariffs of 20–100% are just part of the story. Add a collapsing dollar, and you’re effectively looking at 40–120% increases in the cost of imported goods. Fed governor Jay Powell says inflation will surge this summer — and he’s right.

Q: Will the Fed hold or cut rates this year?

A: I don’t expect any changes this year unless inflation data forces their hand. If inflation comes in hot, we’ll see a 10% selloff. If it stays muted, we might get a small year-end rally. Either way, I’m preparing for both outcomes.

Q: What’s your projected S&P 500 range for the rest of 2025?

A: I see us stuck in the 5,500 to 6,500 (SPY) range. Best-case scenario, we get a low single-digit return. But with tariffs, inflation, and political dysfunction, the risks are tilted to the downside.

Q: Is this a good time to buy stocks?

A: No — in fact, it’s the worst day in five years to buy. We’ve had a 26% rally in under three months. The price earnings multiple has just risen from 18X to 23X, the fastest ever. This is the time to sell rallies, not chase them.

Q: What sectors do you like for long-term growth?

A: Big Tech, cybersecurity, and financials. These three sectors will account for 90% of U.S. corporate profits over the next five years. Buy them on dips.

Q: Are REITs a good buy right now?

A: Yes. They’ve been crushed on interest rate fears, but when rates finally drop, REITs will come roaring back. Many have yields of 6–10% down here. I’m accumulating selectively. The latest that rate cuts can happen in May 2026, but institutions are starting to buy now.

Q: What’s your current cash position and why?

A: I’m 80% cash, 20% short — including a double short in Tesla. I’m parking capital in 90-day T-bills yielding 4.2%. In this market, cash is king. A dollar at a market top is worth $10 at a market bottom.

Q: Why are you short Tesla?

A: Sales are collapsing in Europe and China, down 13% YOY as of this morning. Competition from BYD is eating their lunch. I’m using vertical bear put spreads, and they’ve already gone deep in the money. It’s been one of my best trades this year.

Q: Which tech names are you watching?

A: NVIDIA (NVDA), Microsoft (MSFT), Meta (META), Snowflake (SNOW), and Alphabet (GOOGL). I’ve traded them all. But many are overbought — I’ll be looking to sell calls or wait for dips before going long again.

Q: What’s your outlook on energy stocks and oil?

A: Bearish. Oil failed to hold gains even after the Iran spike. The SPR won’t be refilled any time soon — the new Budget bill cuts funding by 90%. Costs are high, and demand is weak. I’m selling energy rallies and steering clear of producers. President Biden sold off half of the oil at $100 a barrel during the Ukraine war to cap prices, making him the best oil trader in history.

Q: Is Apple still a good investment?

A: Apple’s a public utility now. Revenue growth from iPhones is weak, and they still haven’t made a meaningful AI move. I’m selling calls against my position — the rallies are shallow and the upside is capped.

Q: What’s happening with housing and homebuilders?

A: Housing is on life support. High rates, oversupply in rentals, and weak starts. But I do think homebuilders will bottom soon. Stocks like (DHI) and (LEN) will become buys as we get closer to rate cuts in 2026.

Q: Where are foreign investors moving their money if they’re not buying U.S. bonds?

A: They’re going home — buying Eurobonds and investing in appreciating currencies. With the dollar down 20%, U.S. assets aren’t as attractive for them right now.

Q: Are there any currency trades worth making?

A: Yes. The euro (FXE), Australian dollar (FXA), Japanese yen (FXY), and British pound (FXY) are all buys. I’ve been saying it all year — the weak dollar trend will continue as long as the current administration is in office.

Q: What’s your view on precious metals?

A: I’m long-term bullish. Gold will hit $5,000 by 2028. As stocks peak, gold is finding a floor. Miners like Barrick Gold (ABX) and Newmont (NEM) are back on my shopping list.

Q: Any favorite lithium stocks right now?

A: Albemarle (ALB) is my top pick. (SQM) in Chile is another. Lithium has bottomed out, and demand will only grow — even if EVs stall. It’s a long-term bet I’m making again.

Q: What’s the game plan for summer?

A: Sell strength in stocks and bonds. Stay long cash, buy dips in quality sectors, and get ready for better entry points. We’re halfway through a volatile year, and patience will be rewarded.

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, click on GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or JACQUIE’S POST, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader