While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
October 15, 2018
Fiat Lux
Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or OUR HARD LANDING BACK ON EARTH),
(SPY), (QQQ), (TLT), (VIX), (VXX), (MSFT), (JPM), (AAPL),
(DECODING THE GREENBACK),
(DUMPING THE OLD ASSET ALLOCATION RULES)
Truth be told, it’s the really boring, sedentary, go-nowhere markets that drive me nuts, cause me to tear my hair out, and urge me on to an early retirement.
The week started with such promise.
Sunday night I witnessed the first Space X landing of a rocket in California which I could clearly see from the top of Berkeley’s Grizzly Peak some 250 miles away. It was fascinating to see four separate jets steer the spacecraft earthward.
Financial markets had a different landing in mind, the hard kind, if not a crash.
I absolutely love the market we had last week which saw the third biggest down day in history, volatility explode, and $2.6 trillion in stock market capitalization vaporize.
I had to blink when I saw NASDAQ (QQQ) down an incredible 350 points in one day. My Mad Hedge Market Timing Index hit an all-time low at 4.
No wonder insider selling hit $10.3 billion in August, another record. Maybe they know something we don’t.
Chinese Gamer Tencent Postponed their US IPO. It seems they noticed that market conditions had become unfavorable. I know investment bankers hate passing on an opportunity to ring the cash register. I used to be one.
There is no better feeling than being 100% cash going into one of these crashes and then having panicked investors puke their best quality positions to me at a market bottom.
On Thursday, I backed up the truck and issued four perfectly timed Trade Alerts, picking up Microsoft (MSFT), Apple (AAPL), and the S&P 500 (SPY), and covering my short position in the bond market (TLT).
In fact, I believe I had my best week of the year even though I only added modestly to my annual return. Look at the charts below and you’ll see that I suffered a 9% drawdown during the February meltdown. Maybe I’m getting wiser as I get older? One can only hope.
This time, I managed to limit my loss to a modest 2.5% and am nearly unchanged on the month despite the Dow Average at one point nearly giving up all its gains for 2018. This is also against a horrific backdrop of hedge fund performance that is now showing losses for 2018.
The Volatility Index (VIX) made a move for the ages, at one point kissing the $29 handle, up from $11 two weeks ago. During the 600-point swoosh down on Thursday, I couldn’t get any of my staff on the phone. The entire company was logged into their personal trading accounts, buying puts on the iPath S&P 500 VIX Short-Term Futures ETN (VXX) as fast as they could.
Which leads me to believe that the bottom is near. Earnings and valuation support start kicking in big time at these levels, and the blackout period for company share buybacks started ending with the bank earnings last Friday.
When you take a $1 trillion buyer out of the market, it has a huge effect no matter how strong the fundamentals are. Start buying those dips. Their return is similarly eventful. I’ve already started to invest my 95% cash position.
Further eroding confidence was the president’s statement that the Federal Reserve is crazy. So, now we know the president appoints crazy people to the most important financial positions in the country. White House control of interest rates ahead of elections. Why didn’t I think of that?
Sparking the Friday melt-up was a statement by JP Morgan (JPM) CEO Jamie Diamond saying that a 40-basis point rise in rates is no big deal. The bull market is on. His earnings beat all expectations.
My 2018 year-to-date performance has bounced back to 27.56%, and my trailing one-year return stands at 35.87%. October is almost flat at -0.84%. Most people will take that in these horrific conditions.
My nine-year return appreciated to 304.03%. The average annualized return stands at 34.41%.
This coming week will be pretty sedentary on the data front.
Monday, October 15 at 8:30 AM brings us September Retail Sales.
On Tuesday, October 16 at 9:15 AM, September Industrial Production is announced.
On Wednesday, October 17 at 8:30 AM, September Housing Starts are published.
Thursday, October 18 at 8:30, we get Weekly Jobless Claims. At 10:00 we learne the September Index of Leading Economic Indicators.
On Friday, October 19, at 10:00 AM, the September Housing Starts are out. The Baker-Hughes Rig Count follows at 1:00 PM.
As for me, I will spend this week on my Southeastern US roadshow, giving strategy luncheons in Savannah, GA, Atlanta, GA, Miami, FL, and Houston, TX. I love meeting my readers mano a mano who are often a source of my best trading ideas. It looks like I’ll miss Hurricane Michael by three days.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
October 15, 2018
Fiat Lux
Featured Trade:
(FIVE STOCKS TO BUY AT THE BOTTOM),
(AAPL), (AMZN), (SQ), (ROKU), (MSFT)
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.
Interest rates 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 year to remember.
This week shouldn’t deter investors from picking up bargains that were non-existent for most of the year 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-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 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 $100 billion in shares by the end of the year. Get into this stock while you can as entry points are few and far between.
Amazon
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 pre-fab house start-up aimed at building smart homes.
Microsoft
The optics in 2018 look utterly different from when Bill Gates was roaming around the corridors in the Redmond, Washington headquarter and that is a good thing in 2018.
Current CEO Satya Nadella has turned this former legacy company into the 2nd 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 possibly 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
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 the 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
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 off-shoot 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.
“When we launch a product, we're already working on the next one. And possibly even the next, next one.” – Said CEO of Apple Tim Cook
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Mad Hedge Hot Tips
October 12, 2018
Fiat Lux
The Five Most Important Things That Happened Today
(and what to do about them)
1) I’m Calling the Bottom Here on Stocks. Earnings and valuation support start kicking in big time at these levels, and the blackout period for company share buybacks starts ending from today. Start buying those dips. I’m starting to invest my 95% cash position. Click here.
2) Some $2.6 Trillion Lost in Global Stock Markets This Week. You should have become a doctor like your mother wanted. Click here.
3) JP Morgan Beats on Earnings, as do most other big banks. CEO Jamie Diamond says that a 40-basis point rise in rates is no big deal. The bull market is on. Click here.
4) Sears is Headed for Bankruptcy. Look for giant gaping holes to start appearing at your local mall. Click here.
5) Chinese Gamer Tencent Postpones US IPO. It seems they noticed that market conditions have become unfavorable. Click here.
Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:
(WHY THE STOCK MARKET IS BOTTOMING HERE),
(SPY), (INDU),
(NETFLIX SAYS WE BECOME A NATION OF COUCH POTATOES),
(NFLX), (M), (AMZN), (TSLA), (DIS), (GOOG)
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
October 12, 2018
Fiat Lux
Featured Trade:
(WHY THE STOCK MARKET IS BOTTOMING HERE),
(SPY), (INDU),
(NETFLIX SAYS WE BECOME A NATION OF COUCH POTATOES),
(NFLX), (M), (AMZN), (TSLA), (DIS), (GOOG)
