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Mad Day Trader Jim Parker?s Q3 Views

The stock markets are on the verge of a small correction, perhaps less than 5%, which should unfold over the next six weeks.

There is just not enough juice in a mini crisis triggered by one lousy Portuguese bank, the Banco Espiritu Santo, to take us any further. Bonds globally should put in their highs for the year during this period.

After that, it will be off to the races with a major year-end rally that could take us up another 10%. Both old tech and new tech, plus biotech and social media will be the front runners in this next leg of the bull market. Fixed income products will suffer across the board.

These were the results of the exhaustive research Jim undertakes every quarter using his proprietary analytical system. His goal is to define the best long and short opportunities across all asset classes.

Ignore him at your peril. Last year Jim?s system delivered a gob smacking trading return of over 300%.

Jim, a 40-year veteran of the trading pits in Chicago, would tell you all this himself. But as he is a product of the Windy City?s lamentable school district, the task of translating his pivot points, swing counts, and support and resistance levels into simple ?BUYS? and ?SELLS? falls to me.

What else can I say?

By the way, a pivot point is a number Jim?s system serves up once a quarter dictating the tone of the market for individual securities. Trade above the pivot, and we are in ?RISK ON? mode. Trade below it, and we need to take a decidedly ?RISK OFF? posture.

Swing counts then project the distance a security should travel once the directional call has been determined. Think of it as your own private inertial navigation system for your trading approach.

Equities

With that said, Jim?s pivot for the S&P 500 for Q3 is 1,970. As we are well below that now, you can expect some further work to be done on the downside, possibly as low at the 1,875-1,895 range over the next six weeks.?That would then be a sweet spot to initiate new longs.

The NASDAQ 100 has a pivot of 3,811 for Q3, a few percent above here. Jump back into the technology arena with a tight stop in the 3,700-3,725 neighborhood, or down some 5%, which works out to around $90 for ETF (QQQ) players.

Among foreign markets, Jim likes Japan?s Nikkei (DXJ), is wary of the German DAX, and is neutral on Australia (EWA).

Point a gun to his head, and Jim will opt for the Wisdom Tree Europe Hedged Equity Fund (HEDJ), a customized long European equity/short Euro ETF that effectively prices these stocks in US dollars. Think of it as a (DXJ) with a French accent.

?Bonds

Jim sees a rare, generational opportunity, to sell bonds setting up for August. They could grind up until then off the back of today?s news from Europe, but not by much. Use $137.00 as the pivot point for the 30-year bonds futures.

The market?s Focus will remain on the SPX/Bond spread, as it has all year. When the Equity Indices go into profit taking mode, bonds are the only place to park money, taking prices northward.

Long term, he favors the short side of the bond market, when conditions allow.?His game plan remains to sell bonds at these levels, with tight stops, until proven wrong.

My own strategy of buying out of the money (TLT) put spreads on a monthly basis also works perfectly in this scenario. Use every three-point rally as an opportunity to get in.

We are on the threshold of a more normalized interest rate environment, with a long awaited reversion to the mean in rates imminent. Jim says that the entire bond world is about to roll over.

Foreign Currencies

Jim isn?t getting too excited about foreign currencies these days, which appear to have fallen into a bottomless volatility trap. He doesn?t see any big moves unless a serious risk off trend develops in the equity markets, which is unlikely.

Use the Australian dollar (FXA) as your lead currency with which to make directional calls for the entire asset class. The pivot there is $94.60 in the cash market. As we are now at $93.68, stand aside.

The Japanese yen (FXY) has done its best impression of a Kansas horizon this year of any financial asset. It will continue to flat line as long as the jury is out on Prime Minister Shinzo Abe?s ?third arrow? economic and reform strategy. The yen will eventually weaken against the greenback, but it could be a long wait. Until then, use 101.33 as a pivot.

If you have to hate a currency in 2014, make it the Euro (FXE), with a pivot of $139.50. Sell every rally against this figure until the cows come home. The fundamentals for a weaker continental currency are building by the day. But we won?t see real fireworks until we close below $135.50. Then we?ll be targeting $127.50.

Commodities

Jim likes the precious metals (GLD), (SLV) and thinks the recent bottom will last for some time. This is further confirmed by the miners (GDX), which appear to have staged a major turnaround.

Bond market rallies have been highly correlated to metals rallies this year, at least for over the short term. So follow the sparkly stuff along with a bond rally into August. Lower rates will be price positive the metals. Use $1,265-$1,275 as your pivot for gold going forward. For silver use $19.70.

Copper (CU) is a bit of a conundrum, as it is stuck, in the middle of one-year range, so don?t chase recent rally. Use $2.95 as the pivot there. It?s not going anywhere until China decides what to do with its economy.

Don?t buy into the upside breakout school of thought for oil (USO) until we close over 104.70-105.30 (last qtr's high). That?s where you can count on the buy stops to kick in. At the current $102, we are firmly in bear territory. Talk to Jim when oil breaks this quarter?s resistance and upside momentum level at 107.50.

Infrastructures plays are still the best way to participate in any move in the natural gas (UNG) market. At the top of the list is Mad Hedge Fund Trader long time favorite, Cheniere Energy (LNG), up from $6 to $74.??(LNG) should be on your shopping list on any big equity index sell-off.?This week may see a low, and then a substantial rally when July futures expire.

The Ags

Agricultural commodities (CORN), (SOYB), (WEAT), (DBA) have been the major disaster area of 2014, thanks to the best growing conditions in history. Not only has the weather been perfect, the US Department of Agriculture keeps ?finding? new stockpiles. Conditions have been improving in major export markets abroad, as well.

Farmers may get a break this week when multiple futures contracts expire. At the very least, we should get a dead cat bounce. After that, it?s up to Mother Nature.

By the way, Jim Parker?s Mad Day Trader service has attracted a substantial following over the past year. If you are not already getting Jim?s dynamite short term ?BUY? and ?SELL? calls, please get yourself the unfair advantage you deserve.

Just email Nancy in customer support at support@madhedgefundtrader.com and ask for the $1,500 a year upgrade from your existing Global Trading Dispatch service to Mad Hedge Fund Trader PRO. The service includes Jim?s timely Trade Alerts, a running daily market commentary, and the daily morning webinar, The Opening Bell with Jim Parker.

The Quarterly Calls Are In

July 11, 2014

Diary, Newsletter, Summary

Global Market Comments
July 11, 2014
Fiat Lux

Featured Trade:
(THURSDAY, JULY 17 GLOBAL STRATEGY WEBINAR FROM BARCELONA, SPAIN),
(JULY 24 ZERMATT, SWITZERLAND GLOBAL STRATEGY SEMINAR),
(WILL SYNBIO SAVE OR DESTROY THE WORLD?)

Health Care Select Sector SPDR ETF (XLV)
Monsanto Company (MON)
SPDR S&P Biotech ETF (XBI)
SPDR S&P Pharmaceuticals ETF (XPH)

July 24 Zermatt, Switzerland Global Strategy Seminar

Diary, Newsletter

Come join me for afternoon tea for the Mad Hedge Fund Trader?s Global Strategy Seminar, which I will be conducting high in the Alps in Zermatt, Switzerland at 2:00 PM on Thursday, July 24, 2014.

A PowerPoint presentation will be followed by an open discussion on the crucial issues facing investors today. Coffee, tea, and schnapps will be made available, along with light snacks.

You are welcome to attend in your mountain climbing gear, but you will have to leave your boots at the door. Socks only are welcome, and if it?s cold, we will throw some extra wood on the fire. Last year, someone came down from the Matterhorn summit straight to the seminar, sunburned and tired, but elated. He even gave me a valued pebble from the summit.

I?ll be giving you my up to date view on stocks, bonds, foreign currencies, commodities, precious metals, and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $195.

I?ll be arriving early and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.

The event will be held at a central Zermatt hotel with a great Matterhorn view, operated by one of the village?s oldest families and long time friends of mine. The hotel is just down the street from the town?s beautiful 17^th century church.

The details will be emailed directly to you with your confirmation.

I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.

July 10, 2014

Diary, Newsletter, Summary

Global Market Comments
July 10, 2014
Fiat Lux

Featured Trade:
(WHY IS THE S&P 500 BEATING THE DOW),
(SPY), (BAC), (HPQ), (AA), (GS), (V), (NKE), (AAPL),
(GE), ($NIKK), (CAT), (DIS), (INTC),
(AN EVENING WITH BILL GATES, SR.)
(TESTIMONIAL)

SPDR S&P 500 (SPY)
Bank of America Corporation (BAC)
Hewlett-Packard Company (HPQ)
Alcoa Inc. (AA)
The Goldman Sachs Group, Inc. (GS)
Visa Inc. (V)
Nike, Inc. (NKE)
Apple Inc. (AAPL)
General Electric Company (GE)
Tokyo Nikkei Average (EOD) INDX ($NIKK)
Caterpillar Inc. (CAT)
The Walt Disney Company (DIS)
Intel Corporation (INTC)

Why is the S&P 500 Beating the Dow?

Newsletter

I often see one stock index outperform another, as different segments of the economy speed up, slow down, or go nowhere. Sometimes the reasons for this are fundamental, technical, or completely arbitrary.

Many analysts have been scratching their heads this year over why the S&P 500 has been moving from strength to strength for the past year, while the Dow Average has gone virtually nowhere. Since January, the (SPX) has tacked on a reasonable 7.9%, while the Dow has managed only a paltry 3.4% increase.

What gives?

The problem is particularly vexing for hedge fund managers, who have to choose carefully which index they use to hedge other positions. Do you use the broad based measure of 500 large caps or a much more narrow and stodgy 30?

What?s a poor risk analyst to do?

The Dow Jones Industrial Average was first calculated by founder Charles Dow in 1896, later of Dow Jones & Company, which also publishes the Wall Street Journal. When Dow died in 1902, the firm was taken over by Clarence Barron and stayed within family control for 105 years.

In 2007, on the eve of the financial crisis, it was sold to News Corporation for $5 billion. News Corp. is owned by my former boss, Rupert Murdoch, once an Australian, and now a naturalized US citizen. News then spun off its index business to the CME Corp., formerly the Chicago Mercantile Exchange, in 2010.

Much of the recent divergence can be traced to a reconstitution of the Dow Average on September 20, 2013, when it underwent some major plastic surgery.

It took three near-do-wells out, Bank of America (BAC), Hewlett Packard, (HPQ), and Alcoa (AA). In their place were added three more robust and virile companies, Goldman Sachs (GS), Visa (V), and Nike (NKE).

Call it a nose job, a neck lift, and a tummy tuck all combined into one (Not that I?ve been looking for myself!).

And therein lies the problem. Like many attempts at cosmetic surgery, the procedure rendered the subject uglier than it was before.

Since these changes, the new names have been boring and listless, while the old ones have gone off to the races. Hence, the differing performance.

This is not a new problem. Dow Jones has been terrible at making market calls over its century and a half existence. As a result, these rebalancings have probably subtracted several thousand points over the life of the Dow.

They are, in effect, selling lows and buying highs, much like individual retail investors do. It is almost by definition the perfect anti-performance index. When in doubt, always measure your own performance against the Dow.

Dow Jones takes companies out of its index for many reasons. Some companies go bankrupt, whereas others suffer precipitous declines in prices and trading volumes. (BAC) was removed because, at one point, its shares took a 95% hit from its highs and no longer accurately reflected a relevant weighting of its industry. Citigroup (C) suffered the same fate a few years ago.

Look at the Dow Average of 1900 and you wouldn?t recognize it today. In fact, there is only one firm that has stayed in the index since then, Thomas Edison?s General Electric (GE). Buying a Dow stock is almost a guarantee that it will eventually do poorly.

This is why most hedge funds rely on the (SPX) as a hedging vehicle and how its futures contracts, options and ETF?s, like the (SPY), get the lion?s share of the volume.

Mind you, the (SPX) has its own problems. Apple (AAPL) has far and away the largest weighting there and is also subject to regular rebalancings, wreaking its own havoc.

Because of this, an entire sub industry of hedge fund managers has sprung up over the decades to play this game. Their goal is to buy likely new additions to the index and sell short the outgoing ones.

Get your picks right and you are certain to make money. Every rebalancing generates massive buying and selling in single names by the country?s largest institutional investors, which in reality are just closet indexers, despite the hefty fees they charge you.

Given their gargantuan size these days, there is little else they can do. Rebalancings also give brokerage salesmen talking points on otherwise slow days and generate new and much needed market turnover.

What has made 2014 challenging for so many managers is that so much of the action in the Dow has been concentrated in just a handful of stocks.

Caterpillar (CAT), the happy subject of one of my recent Trade Alerts, accounts for 35.3% of the Index gain this year. Walt Disney (DIS) speaks for 24.2% and Intel (INTC) 23.4%.

Miss these three and you are probably trolling for a new job on Craig?s? List by now, if you?re not already driving a taxi for Uber.

It truly is a stock picker?s market; a market of stocks and not a stock market.

Believe it or not, there are people that are far worse at this game than Dow Jones. The best example I can think of are the folks over at Nihon Keizai Shimbun in Tokyo (or Japan Economic Daily for most of you), who manage the calculation of the 225 stocks in the Nikkei Average (once known as the Nikkei Dow).

In May, 2000, out of the blue, they announced a rebalancing of 50% of the constituent names in their index. Their goal was to make the index more like the American NASDAQ, the flavor of the day. So they dumped a lot of old, traditional industrial names and replaced them with technology highfliers.

Unfortunately, they did this literally weeks after the US Dotcom bubble busted. The move turbocharged the collapse of the Nikkei, probably causing it to fall an extra 8,000 points or more than it should have.

Without such a brilliant move as this, the Nikkei bear market would have bottomed at 15,000 instead of the 7,000 we eventually got. The additional loss of stock collateral and capital probably cost Japan an extra lost decade of economic growth.

So for those of you who bemoan the Dow rebalancings, you should really be giving thanks for small graces.

Rebalancing? Yikes!

Miss This One, And You?re Toast

It Truly is a Stock Picker?s Market

The Key to Your 2014 Performance

July 9, 2014

Diary, Newsletter, Summary

Global Market Comments
July 9, 2014
Fiat Lux

Featured Trade:
(LAST CHANCE TO ATTEND THE JULY 11 SARDINIA, ITALY STRATEGY LUNCHEON),
(DON?T BE SHORT CHINA HERE),
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(CATCHING UP WITH ECONOMIST DAVID HALE),
(EEM), (GREK), (IWW), (EWJ), (NGE), (FXY), (YCS)

Shanghai Stock Exchange Index ($SSEC)
iShares China Large-Cap (FXI)
WisdomTree Chinese Yuan Strategy ETF (CYB)
China Mobile Limited (CHL)
Baidu, Inc. (BIDU)
iShares MSCI Emerging Markets (EEM)
Global X FTSE Greece 20 ETF (GREK)
iShares Russell 3000 Value (IWW)
iShares MSCI Japan (EWJ)
Global X Nigeria Index ETF (NGE)
CurrencyShares Japanese Yen Trust (FXY)
ProShares UltraShort Yen (YCS)

Catching up with Economist David Hale

Diary, Evening VIP, Newsletter

I have been relying on David Hale as my de facto global macro economist for decades and I never miss an opportunity to get his updated views. The challenge is in writing down David?s eye popping, out of consensus ideas fast enough, because he spits them out in such a rapid-fire succession.

Since David is an independent economic advisor to many of the world?s governments, largest banks and investment firms, I thought his views would be of riveting interest to you.

I met him this time at the posh Ozumo restaurant on San Francisco?s waterfront, near the Ferry Building. A favorite of Silicon Valley?s tech titans, I bumped into Marc Andreessen on the way in, nearly impaling myself on his pointed head.

I settled for a delicate vegetable tempura and eel sushi, while David, being from the Midwest, dug into an excellent Wagyu beefsteak. We washed it all down with liberal doses of Kirin beer and Takagi Shuzo designer sake.

David is an unmitigated bull on the economy, predicting that growth will leap from 2.0% in 2013 to 3% in 2014. Fading away of the fiscal drag created by a gridlocked congress will be the main reason.

Last year, we were hobbled by the maximum Federal income tax rising from 35% to 39.5% for income over $400,000. Capital gains rose from 15% to 20% as well. These combined to subtract 1% off US GDP growth in 2013. There are no such tax hikes planned for 2014.

The economy continues to power along, supported by three legs: housing, the energy boom and a reviving auto industry. Detroit is expected to pump out over 17 million vehicles this year, a figure only dreamed about six years ago, when it hit a rock bottom 9 million unit annual rate.

Management has a death grip on controlling costs, which is why they aren?t hiring, and explains the feeble employment statistics. This has enabled profit margins to surge to all time highs. Expect more of the same.

Europe should grow by 1% in 2014 after delivering a near zero rate this year. It will take years for them to return to any kind of normalized growth rate. That said, continental stock markets could well outperform those in the US in the near term.

David spends much of his time traveling, doing a major intercontinental trip almost every month. The coming calendar includes Japan, Australia, and Europe by yearend. To have his frequent flier points!

Two years ago, David was banging his drum about an imminent recovery in Japan (EWJ) and a collapse in the yen (FXY), (YCS). He was ignored by virtually all, except by me. As you may recall, I started laying on major short positions in the yen about then at David?s behest, which proved wildly successful.

The proof is in the constant testimonials that I regularly publish in my letter. I don?t make these up and they come in almost every day.

David believes that Prime Minister Shinzo Abe is doing all the right things, so the recovery is real, sustainable and will play out over several more years. However, he would have been wise to spread out the VAT tax rise that took place in April, from 5% to 8%, over five years instead of bunching it all up in one.

He also should spend less time focusing on domestic nationalistic issues, which have the undesirable effect in that it focuses China on Japan?s regrettable past, not its bright future.

He is also quite an authority on emerging markets (EEM), which account for 40% of global GDP, and sees the recent collapse as presenting a once in a generation buying opportunity.

His favorite is Mexico (EWW), which will benefit hugely from the first new round of political and economic reforms in 20 years. The new oil and gas fracking technology has also arrived just in the nick of time, as its existing conventional fields are approaching exhaustion.

David thinks Greece (GREK) has more to run, although not at the heady pace of the past year. Nigeria (NGE) is another outstanding opportunity, where he recently visited. A privatization wave there could boost GDP growth from 7% to 10%.

To show you how wide David casts his net, he had lunch with none other than Syria?s Bashar al-Assad a decade ago. The country was then enacting a series of ground-breaking liberalizations by privatizing banks, and was viewed as the hot frontier market of the day. How things change!

This is why investors expect outsized returns from these countries. Less, and the risk is not worth it. They?re called ?frontier? for a reason.

David has in the past made some far out predictions that were real zingers. Population growth is grinding to a halt throughout Asia. It is already well below the replacement rate in Japan and South Korea, which will soon be joined by China.

This will eventually lead to labor shortages in Asia, and bring to an end the cheap labor regime, which has driven their economies for the past 100 years. The Chinese work force will shrink from five times ours to only three times.

Their cost advantage then goes out the window. The upshot for us is that perhaps half of the 6 million jobs that America lost to China over the last 20 years will come back. Many items can now be bought cheaper in Chicago than they can in Shanghai.

This explains why ?onshoring? is accelerating with a turbocharger (click here for ?The American Onshoring Trend is Accelerating?).

China will still become far and away the world?s largest economy in our lifetimes. In 1700, Asia accounted for 58% of world GDP. Some 250 years of wars pulled that figure down to 15% by 1950. It is on track to recover to 50% by 2050.

To learn more about David Hale and the extensive list of services he offers; please visit the website of David Hale Global Economics at http://www.davidhaleweb.com.

July 8, 2014

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Global Market Comments
July 8, 2014
Fiat Lux

Featured Trade:
(JULY 18 BARCELONA, SPAIN STRATEGY LUNCHEON)
(TIME TO TAKE ANOTHER RIDE WITH GENERAL MOTORS), (GM), (F), (TM),
(TESTIMONIAL),
(QUANTITATIVE EASING EXPLAINED TO A 12 YEAR OLD)

General Motors Company (GM)
Ford Motor Co. (F)
Toyota Motor Corporation (TM)

July 7, 2014

Diary, Newsletter, Summary

Global Market Comments
July 7, 2014
Fiat Lux

Featured Trade:
(THE TIME TO DUMP THE EURO IS HERE),
(FXE), (EUO), (UUP),
(TAKING PROFITS ON CATERPILLAR), (CAT)

?CurrencyShares Euro Trust (FXE)
ProShares UltraShort Euro (EUO)
PowerShares DB US Dollar Index Bullish (UUP)
Caterpillar Inc. (CAT)

The Time to Dump the Euro is Here

Newsletter

The blockbuster nonfarm payroll on Friday, coming in at a heady 288,000 has certainly removed any doubt that the US economy will reaccelerate in the fall. Earlier months were substantially revised up.

Monthly job growth of 200,000 plus now seems to be the new norm, after five consecutive months of such prints.

The headline unemployment rate plunged to 6.1%, a new six year low. American H2 GDP growth of 4% or more now seems to be firmly back on the table.

The gob smacking data has left many hedge fund managers confused, befuddled, and questioning the meaning of life. Loads have been playing the short bond, short equity trade all year, to the unmitigated grief of their investors.

Is smart now the new dumb?

As for me, I have been on the long equity side for almost the entire year, except for a few fleeting moments of mental degradation here and there. After spending most of June unwinding a sizeable US equity position into the rally, I now have little choice but to slap some new positions back on.

Still, there is a way to stay invested in the market and sleep at night. That is to focus on sectors and companies that, so far, have been left at the station during the 2014 bull market.

This is why I charged into a long in General Motors (GM) on Friday, the stock, until now, weighed down by past management?s unfortunate proclivity for killing off their customers.

The housing stocks (ITB), inhabitants of the doghouse for the past year, also look pretty interesting here. May pending home sales came in at a robust 6.1%, the best in four years, while pending home sales (contracts signed) leapt a positively eye popping 18.1%, a six year apex.

Revival of a moribund housing market is another piece of the puzzle that gets us to 4% GDP growth this year.

Bonds seemed to sniff out the great things coming by rolling over two days ahead of the June payroll news, diving some two points. Did they have advance notice, or are bond guys just smarter than we dullards in the equity world (true!)?

Rising US interest rates, a byproduct of a strengthening economy, will certainly lead to one thing: a more virile Uncle Buck and a sagging Euro. Interest rate differentials are the primary driver of foreign exchange movements.

So, you always want to be long the currency with rising rates (ours), and short the one with falling rates (theirs). So I am happy to sell short the beleaguered European currency here.

We saw the multi month selloff in the Euro going into the European Central Bank?s announcement of interest rate cuts and quantitative easing last month. Since then we have seen a classic ?buy the rumor, sell the news? short covering rally that has taken the euro up a counterintuitive two points.

The second move is just about to run out of steam.

Weakening data from the European economy, which is trailing that of the US, Japan, Australia, and even China, suggests that the Euro zone will see more easing before it experiences a tightening.

In proposing the Currency Shares Euro Trust (FXE) August, 2014 $136-$138 in-the-money bear put spread, I have been devious in the selection of my strikes. The near $136 put strike that I am shorting here against the long $138 put is exactly 50% of the move down from the double top at the March and May highs.

It also helps that the (FXE) was firmly rejected from the 50 day moving average on the charts.

We are getting a further assist from the calendar, which is giving us an unusually short monthly expiration on August 15. Most of Europe will be closed until then, not a bad time to be short Euro volatility.

I was also in a rush to get these out before the long July 4 weekend sucks out what little premium is left in the options market.

For those who don?t have options coursing through their veins, the ProShares Ultra Short Euro ETF (EUO) makes an ideal second choice. This 2X leveraged fund rises when the Euro falls, not by two times, but enough to make it worth the trouble. Or you can just sell short the 1X Currency Shares Euro Trust ETF (FXE).

Finally, if you are looking for another way to slumber like a baby with your long equity position, you can use a short position in the Euro to partially hedge your stock portfolio as well. US stock market weakness generally triggers a strong dollar and a weak Euro, as financial assets rush into a flight to safety mode.