With the Dow Average down 2,000 points in four weeks, you are being given a second bite of the apple before the yearend tech-led rally begins.

So, it is with great satisfaction that I am rewriting Arthur Henry’s Mad Hedge Technology Letter’s list of recommendations.

By the way, if you want subscribe to Arthur’s groundbreaking, cutting edge service, please click here at https://hi290.infusionsoft.com/app/orderForms/tl-sub

It’s the best read on technology investing in the entire market.

You don’t want to catch a falling knife, but at the same time, diligently prepare yourself to buy the best discounts of the year.

The China trade war has triggered a tsunami wave of selling, tearing apart the tech sector with a vicious profit-taking few trading days.

No doubt that asset managers are frantically locking in profits for the rest of the year and protecting ebullient performance from a first quarter to remember.

This week shouldn’t deter investors from picking up bargains that were non-existent since December because the bulk of the highest quality tech names churned higher with lurching momentum.

Here are the names of five of the best stocks to slip into your portfolio in no particular order once the madness subsides.

Apple

Steve Job’s creation is weathering the gale-fore storm quite well. Apple has been on a tear reconfirming its smooth pivot to a software services-tilted tech company. The timing is perfect as China has enhanced their smartphone technology by leaps and bounds.

Even though China cannot produce the top-notch quality phones that Apple can, they have caught up to the point where local Chinese are reasonably content with its functionality.

That hasn’t stopped Apple from vigorously growing revenue in greater China 20% YOY during a feverishly testy political climate that has their supply chain in Beijing’s crosshairs.

The pivot is picking up steam and Apple’s revenue will morph into a software company with software and services eventually contributing 25% to total revenue.

They aren’t just an iPhone company anymore. Apple has led the charge with stock buybacks and will gobble up a total of $150 billion in shares by the end of 2019. Get into this stock while you can as entry points are few and far between.

Amazon (AMZN)

This is the best company in America hands down and commands 5% of total American retail sales or 49% of American e-commerce sales.

It became the second company to eclipse a market capitalization of over $1 trillion. Its Amazon Web Services (AWS) cloud business pioneered the cloud industry and had an almost 10-year head start to craft it into its cash cow. Amazon has branched off into many other businesses since then oozing innovation and is a one-stop wrecking ball.

The newest direction is the smart home where they seek to place every single smart product around the Amazon Echo, the smart speaker sitting nicely inside your house. A smart doorbell was the first step along with recently investing in a prefab house start-up aimed at building smart homes.

Microsoft (MSFT)

The optics in today look utterly different from when Bill Gates was roaming around the corridors in the Redmond, Washington headquarter, and that is a good thing in 2019.

Current CEO Satya Nadella has turned this former legacy company into the 2^nd largest cloud competitor to Amazon, and then some.

Microsoft Azure is rapidly catching up to Amazon in the cloud space because of the Amazon-effect working in reverse. Companies don’t want to store proprietary data to Amazon’s server farm when they could possible destroy them down the road. Microsoft is mainly a software company and gained the trust of many big companies especially retailers.

Microsoft is also on the vanguard of the gaming industry taking advantage of the young generation’s fear of outside activity. Xbox-related revenue is up 36% YOY, and its gaming division is a $10.3 billion per year business.

Microsoft Azure grew 87% YOY last quarter. The previous quarter saw Azure rocket by 98%. Shares are cheaper than Amazon and almost as potent.

Square (SQ)

CEO Jack Dorsey is doing everything right at this fin-tech company blazing a trail right to the doorsteps of the traditional banks.

The various businesses they have on offer makes me think of Amazon’s portfolio because of the supreme diversity. The Cash App is a peer-to-peer money transfer program that cohabits with a bitcoin-investing function on the same smartphone app.

Square has targeted the smaller businesses first and is a godsend for these entrepreneurs who lack immense capital to create a financial and payment infrastructure. Not only do they provide the physical payment systems for restaurant chains, they also offer payroll services and other small loans.

The pipeline of innovation is strong with upper management mentioning they are considering stock trading products and other bank-like products. Wall Street bigwigs must be shaking in their boots.

The recently departed CFO Sarah Friar triggered a 10% collapse in share price on top of the market meltdown. The weakness will certainly be temporary, especially if they keep doubling their revenue every two years like they have been doing.

Roku (ROKU)

Benefitting from the broad-based migration from cable TV to online streaming and cord-cutting, Roku is perfectly placed to delectably harvest the spoils.

This uber-growth company offers an over-the-top (OTT) streaming platform along with the necessary hardware and picks up revenue by selling digital ads.

Founder and CEO Anthony Woods owns 21 million shares of his brainchild and insistently notes that he has no interest in selling his company to a Netflix or Apple.

Roku’s active accounts mushroomed 46% to 22 million in the second quarter. Viewers are reaffirming the obsession with on-demand online streaming content with hours streamed on the platform increasing 58% to 5.5 billion.

The Roku platform can be bought for just $30 and is easy to set up. Roku enjoys the lead in the over-the-top (OTT) streaming device industry controlling 37% of the market share leading Amazon’s Fire Stick at 28%.

The runway is long as (OTT) boxes nestle cozily in only 40% of American homes with broadband, up from a paltry 6% in 2010.

They are consistently absent from the backbiting and jawboning the FANGs consistently find themselves in partly because they do not create original content and they are not an offshoot from a larger parent tech firm.

This growth stock experiences the same type of volatility as Square.

Be patient and wait for 5-7% drops to pick up some shares.

 

 

 

 

 

 

You Have to Know Which Flowers to Pick

I always wondered who the enemy was. Now, I know.

Not only is Fed governor Jerome Powell responsible for the upcoming recession, I also heard he fixed the 1918 World Series where the Chicago White Sox deliberately lost.

And come to think of it, Jack the Ripper and D.B Cooper were never caught either. If Tweets are to be believed, the Fed now needs to seek guidance from the president before any subsequent policy decision.

It all reminds me of the last days of the Third Reich when Adolph Hitler was ordering into action divisions that no longer existed.

And I love all of it.

An 850 point top to bottom swan dive in the Dow Average vaporized all my short positions, which I had put on days ago for just this eventuality. It also allowed me to get back into Microsoft (MSFT) down $5, which I have been struggling to get back into for months.

My only miss of the month has been in Gold (GLD), whose move continues to be so parabolic that I haven’t been able to get you, or me, into it.

No doubt the administration will respond with another charm offensive, as this did this week, and ignite another ferocious short-covering rally.

The harsh truth is that confidence is eroding by the day. And the escalating talk of a recession can, in itself, cause a recession. So much depends on belief when share price earnings multiples are trading at a lofty 17X. But it is all looking increasingly like a little boy trying to head off a flood by holding his finger in a hole in a dike.

There’s no more waiting to see if the trade war escalates again on September 1. We already have the answer. It now appears we have instant escalation all the time with every Tweet. It’s not exactly what I want to bet my retirement fund on.

I have been getting questions as to why I have been adding long positions with the outlook so grim. For a start, these positions are all triply hedged.

I’m long a call against a short call with an identical maturity. I have low beta long positions hedged against high beta short positions. And finally, I don’t think we can break down below the 200-day moving average in the major indexes until the September 20 Fed meeting when they FAIL to cut interest rates again because the data isn’t there yet.

The net, net, net of all of this is that my portfolio can take a 1,000-point hit in the Dow Average and its no big deal.

And don’t forget. Ultra-low interest rates will put a higher floor under the market than we have seen in past selloffs.

I pray the insanity keeps up (did I hear a reference to the Messiah the other day?) because it is allowing me to ship out Trade Alerts as fast as I can write them.

Stocks rose briefly on German stimulus prospects. It's an idea imported from America, heavy borrowing and massive deficit spending to float the economy. It’s just what the world needs, more freshly printed money, like the last $17 trillion worked so well.  It’s all confirmation that Europe is already in recession.

The US now has the world’s highest interest rates, at 3.60% for 30-year fixed-rate loans. Only the US offers loans of this duration, thanks to heavy government subsidies through Fannie Mae and Freddie Mac.

Floating rate loans in France are 1.39%, in Germany are 1.0%, Japan at 0.65%. In Denmark, banks will lend at a negative -0.50%. Yes, they will pay you to live in your house. But when you’re borrowing at -0.90% you can do that. Only China has higher interest rates, with an overnight at 4.60%. The irony runs deep.

Unsurprisingly, the Congressional Budget Office cut 0.3% off of its 2020 growth forecast and the US budget deficit will rise to a ruinous $1 trillion two years sooner than expected. Fading business investment and weakening consumer spending will be the problems. The trade war is also a drag. It’s funny how no one wants to spend in front of a recession.

“Mid Cycle Adjustment” is how the Fed described the last interest rates cut in minutes released on Wednesday. It makes further cuts less likely. So does a stock market trading 5% below all-time highs. They also mention the cut as an “insurance policy” not actually justified by the current economic data. Three weeks ago, the fed cut rates for the first time in a decade.

The Mad Hedge Trader Alert Service is posting its best month in two years. Some 22 of the last 23 round trips have been profitable, generating one of the biggest performance jumps in our 12-year history.

My Global Trading Dispatch has hit a new all-time high of 334.61% and my year-to-date shot up to +34.47%. My ten-year average annualized profit bobbed up to +34.62%. 

I have coined a blockbuster 16.14% so far in August. All of you people who just subscribed in June and July are looking like geniuses. My staff and I have been working to the point of exhaustion, but it’s worth it if I can print these kinds of numbers.

As long as the Volatility Index (VIX) stays above $20, deep-in-the-money options spreads are offering free money. I am now 80% invested, 60% long big tech and 20% short, with 20% in cash. It rarely gets this easy.

The coming week will be a snore on the data front. Believe it or not, it could be quiet, as we grind through the last week of the summer.

On Monday, August 26 at 8:30 AM, US Durable Goods for July are out.

On Tuesday, August 27 at 9:00 AM, we get a new S&P Case Shiller National Home Price Index for June

On Wednesday, August 28, at 10:30, we learn the EIA Crude Oil Stocks for the previous week.

On Thursday, August 29 at 8:30 AM, the Weekly Jobless Claims are printed. July Pending Home Sales are published at 10:00 AM.

On Friday, August 30 at 10:00 AM, the University of Michigan Consumer Sentiment is printed.

The Baker Hughes Rig Count follows at 2:00 PM.

As for me, it will be a busy weekend with volunteer work at the Alameda Food Bank due and CPR training at the local fire department. I feel like I am getting my Eagle Scout rank all over again.

Good luck and good trading.

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

 

 

 

 

 

 

 

 

Time to Bring in the Heavy Guns