I will be hitting the road this week at part of my Mad Hedge Fund Trader Spring U.S. Tour. I'll be making the rounds with the ever-faithful readers of theDiary of a Mad Hedge Fund Trader, the Mad Hedge Technology Letter, and Mad Day Trader.
After 11 years of posting daily content, I have learned that I need to speak to subscribers on a daily basis in order to continuously improve the quality of the service. Meeting people for lunch and breaking bread is even better. While I'm traveling, I'll be mailing you some of my favorite deep research and educational pieces as a regular part of your service. I'll return to my regular onslaught of inciteful comment and Trade Alerts on June 18.
Below please find my speaking schedule for this week.
The year of the cloud has been one of the most successful themes for the Mad Hedge Technology Letter since inception and rightly so.
The heavy hitters are knocking it out of the park with the top gangbuster firms facing no impediment to success.
As these firms crack on, it seems there is not a day that passes by where Amazon (AMZN) or Microsoft (MSFT) do not close up 1% for the day.
If you are feeling nervous and believe the top cloud plays are getting too frothy for your taste, even though they are not, it is time to look at alternative parts of the cloud ecosphere that could tickle your fancy.
The second-tier cloud companies focusing on a particular niche of the market is the perfect place to identify companies that are growing at higher rates than the top cloud companies in terms of revenue expansion.
Amazon, because of its sheer size, will find it harder to double its revenue in the same amount of time as cloud companies with annual revenue of just a few hundred million dollars.
Zscaler (ZS) is a cloud security company that I advised readers to buy on April,16, at $29 and after a blowout quarterly report the stock touched the $42 handle intraday.
This company is a solid buy, especially in light of the General Data Protection Regulation (GDPR) and a newfound, broad-based emphasis on Internet security that will usher in a new injection of cloud security spending.
Zscaler CEO Jay Chaudhry delivered a glorious quarterly performance and the only direction this company is going is up.
All told, Zscaler processes in excess of 45 billion Internet requests per day during peak periods.
It detects and blocks more than 100 million daily threats while performing more than 120,000 unique daily security updates.
The end result is far superior security than traditional outlets. That's the whole point.
The cloud security company was able to inspire business to a 49% YOY pace of growth and calculated billings were up 73% YOY to $54.7 million.
The quarter's success didn't stop there with operating margins gaining 9% YOY helping Zscaler go cash free positive for the quarter.
The type of security products it offers is part of an annual $17.7 billion market and rapidly expanding.
Firms are incentivized to adopt these products because reduced cost on bandwidth and lower network equipment costs benefit the bottom line.
A mobile dominant world is fast approaching, and Zscaler has positioned itself perfectly to take advantage of the new pipeline of business coming its way.
The slew of new signed contracts reinforces this trend.
The most prominent deals were with a Fortune 500 medical equipment company that purchased a bundle including a Cloud Firewall, Sandbox and Data Loss Prevention for 40,000 users.
It followed that up with a deal with a European bank that added the business bundle with SSL inspection and data loss prevention (DLP) for more than 70,000 users driven by the business moving to Office 365.
Zscaler kept going strong with another Fortune 500 tech company joining its lineup, integrating the transformation bundle for 20,000 employees and contractors just six months ago,
They were thrilled with the products, leading them to buy an additional 25,000 seats and now have all 45,000 employees served by Zscaler.
A global 500 IT services and products company in Asia went for the entry level professional bundle covering10,000 users in Q2.
It expanded the next quarter with the same bundle for more than 130,000 users domestically.
Forecasted revenue is expected to be in the range of $184 million to $185 million, substantially larger than the $126 million of revenue in 2017.
Once annual revenues start eclipsing the several billion-dollar mark, growth becomes tougher to grind out.
Zscaler is headed by an old hand and understands the market in detail.
The firm will be in a growth sweet spot for the foreseeable future. Subscribers who do not mind taking on the added risk could expect these investments to pay off many times over.
Another niche cloud company Zuora (ZUO) is performing briskly.
I recommended this stock the same day as Zscaler when it was trading at $20.50. The stock is up big, rocketing to $28.50 at the time of this writing.
Zuora is a company focused on software that helps companies manage their subscriptions business, which has been all the rage for tech companies.
The software as a service (SaaS) model has become the de-facto standard to bill for tech services, and Zuora helps automate and execute.
First quarter revenue surged 60% to $51.7 million.
Zuora's retention rate of 110% increased to 112%, demonstrating that existing customers buy premium add-ons and stick around in its ecosystem.
Zuora increased the numbers of clients with an active contract value greater than $100,000 by 6% to 441, resulting in a net add of 26.
Zscaler and Zuora are around the same size and could experience similar bullish price trajectories in the stock going forward.
DocuSign (DOCU), a digital signature software company, is another niche player whose services have been valuable in the business environment.
Instead of scrawling out your name with a quill and ink, clicking to sign makes the process faster than ever.
The stickiness of its services led Forbes to anoint DocuSign as the fourth best cloud company on the Forbes Cloud 100 list in 2017.
Last year saw DocuSign blow past the half a billion-number bringing in revenue of $518 million, up 36% YOY.
The lion's share of its business comes from its subscription business carving out $484 million in 2017, passing the $348 million in 2016.
DocuSign set an IPO price range between $24 to $26 in April 2018, and the stock has more than doubled to $58 today.
Do not fight against the cloud; embrace it like your lovable pet dog. There is no reason to short these stocks because chances are likely you will get badly burned on these ultimate buy on the dip stocks.
However, DocuSign has seldom even dipped, even in the face of a trade war, crushing dip buyers' dreams.
It has gone up in a straight line.
Only once since its late April IPO has there been a pullback of more than $1.50, and that happened in mid-May when the stock went from $45.50 to $43.
Remember, the trend is your friend.
Zscaler's 37% bump to its share prices after the earnings beat is why you want to get into this stock.
The moves up are legendary.
Zuora's earnings beat earned them a not-too-shabby 20% one-day return as well.
No matter how well Amazon does, there is no 37% up move in one day unless it finds the cure for cancer in a single pill form.
As Amazon and Microsoft grow stronger, so does the appetite for these niche cloud services.
The tide will lift all boats and choosing either a dinghy or a luxury yacht will stand you in good stead.
"I don't care about revenues," - said Cofounder and Executive Chairman of Alibaba Jack Ma.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2018-06-11 01:05:522018-06-11 01:05:52Here are Some Great Second-Tier Cloud Plays to Salt Away
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
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2018-06-08 15:24:062018-06-08 15:24:06June 8, 2018 - MDT Alert (APA) (correction)
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
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2018-06-08 12:02:352018-06-08 12:02:35June 8, 2018 - MDT Alert (BERY)
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
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2018-06-08 09:26:462018-06-08 09:26:46June 8, 2018 - MDT Pro Tips A.M.
Come join me for lunch at the Mad Hedge Fund Trader's Global Strategy Update, which I will be conducting in New Orleans, LA, on Tuesday, June 12, 2018. An excellent meal will be followed by a wide-ranging discussion and an extended question-and-answer period.
I'll be giving you my up-to-date view on stocks, bonds, currencies, commodities, precious metals, and real estate. And to keep you in suspense, I'll be throwing a few surprises out there, too. Tickets are available for $268.
I'll be arriving at 11:30 AM, 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 lunch will be held at an exclusive downtown restaurant. The precise location will be emailed with your purchase confirmation.
I look forward to meeting you and thank you for supporting my research.
To purchase tickets for the luncheon, click on our online store.
https://www.madhedgefundtrader.com/wp-content/uploads/2018/03/New-Orleans-e1522244262999.jpg268480MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2018-06-08 01:07:562018-06-08 01:07:56Last Chance to Attend the Tuesday, June 12, 2018, New Orleans, LA, Global Strategy Luncheon
Below please find subscribers' Q&A for the Mad Hedge Fund Trader June 6 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader.
As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!
Q: What does the coming Kim Jong-un summit with North Korea mean for the market?
A: It means absolutely nothing for the market. The entire North Korean threat has been wildly exaggerated as a distraction from the chaos in Washington. So, you may get a one- or two-day rally if it's successful. If it's not expect a one- or two-day sell-off, but no more. Whatever North Korea agrees to, we will not see any follow through; they won't buy the Libyan model of denuclearizing North Korea for fear of their leader meeting the same end as Libya's Khadafy (i.e. being hunted and shot in a storm drain.) North Korea will never give up its nuclear weapons.
Q: What do you do at market tops?
A: Well, hopefully if you're reading this letter you're long up the wazoo, so you sell everything you have. Then, wait for a double top in the market (which is clear as day) and falling volume. You start looking at things like the ProShares Ultra Short S&P 500 ETF (SDS). That's the -2X version (there's the (SH), which is the -1X short S&P 500) and you just start buying outright puts on a lot of different things, particularly the overbought sectors of the market, which are generally pretty obvious. It's also good to look for a stock that has made a new high and has negative money flow.
Q: Why are the banks doing so poorly?
A: I believe they fully discounted all of this year's interest rate hikes last year when the stocks nearly doubled. We just talked about a technical setup; Goldman Sachs (GS), Bank of America (BAC), and other stocks had those bear setups. At this point, I believe they're coming down to a place of support and probably getting a decent dead cat bounce. They've had their sell-off, they had their run, and it was triggered by one of the best technical short setup patterns you'll see.
Q: Would you buy financials here?
A: Absolutely not. It's unclear why they're doing so badly, but I would not buy it with anyone's money. Their earnings growth is nowhere what you see with technology stocks.
Q: Is crude oil poised for the next leg up?
A: No, it's not. The oil game may be over if they rush to overproduce once again. It's clearly been artificially boosted to get the Saudi Aramco IPO done. After the end of the quota system, you can get oil back down to the $50s easily. I don't want to touch it here; if anything, I'm more inclined to buy it if we get down to the $50s, which would essentially be the February low.
Q: Is the U.S. dollar overbought here?
A: Yes. The dollar has had a great run all year, which is evident from the rising interest rates. It's done a 10% move up in a fairly short time, which is a lot for the foreign exchange market. It's way overbought; you could easily get a round of profit taking in the dollar, either going into or right after the next Fed interest rate hike in two weeks. I'm staying away from the currencies. There are too many better fish to fry in the equities.
Q: Can you expect Tech to keep going up after this next run?
A: Yes, I expect us to break out to a new high and give back some ground in a retest of the old high. The old high will then hold and then I expect a sort of slow grind up. Tech could well go up for the rest of 2018.
Q: If the S&P 500 is in a trading range, would you sell any rally?
A: Yes, but I'm going to wait for the rally to come to me; I'm not going to reach for any marginal trades. When the (SPY) gets to $280, I'll be looking very closely at the $285-$290 vertical bear put spread one or two months out. So, that peak should hold for the summer and you can make a good 25%-30% on that kind of spread.
Q: Would you buy Biotech here?
A: Yes, the chart setup here is looking very positive, and it's natural for people to rotate out of Tech to Biotech because the earnings growth is so dramatic. That's why I sent out a Trade Alert to buy the NASDAQ Biotechnology ETF (IBB) yesterday. They have been unfairly held back by fears of drug pricing regulation, which has nothing to do with biotech, but it affects their share prices anyway. But so far, it has been all talk from Trump and no action. I think he's busy with North Korea and the trade wars anyway.
Q: My custodian won't let me sell short the United States Treasury Bond Fund (TLT) so I bought the ProShares Ultra Pro Short 20+ Treasury Fund (TTT). Is that alright?
A: You definitely want to be short the Treasury bonds market for the next several years going forward, so you have the right idea. If the 10-year U.S. Treasury bond yield jumps from 2.95% today to 4% in a year as I expect, that takes the (TLT) down from $119 to $97. If you can't make money shorting bonds in that environment you should consider another line of work.
The problem with these 3X leveraged funds is that the cost of carry is very high. In the case of the (TTT) it is three times the 3.0% 10-year bond coupon you are shorting plus a 1% management fee for a total of 10% a year. For that reason, the 3X funds are really only good for day trading. You run into a similar problem with the 2X (TBT). This is why I use non-leveraged put spreads or outright puts for this asset class.
Q: Why are we seeing strength in the Alerian master limited partnership (AMLP) when oil prices are falling, and interest rates are rising? Shouldn't it be going the other way?
A: How about more buyers than sellers? There are so many retirees out there desperate for yield they will take on inordinate amounts of risk to get it. With an 8.0% dividend yield you always have an underlying bid for this ETF. That's why we have been recommending this since April. An 8% dividend can cover up a lot of sins, even when interest rates are rising and oil prices are falling. Also, the U.S. is infrastructure constrained now that production is approaching 11 million barrels a day. That is great for the kind of energy projects (AMLP) finances.
Q: What's the next support price for NVIDIA (NVDA)?
A: With the stock going straight up there is little need for support. Our 2018 target is $300. If you recall, we have been recommending this cutting-edge GPU manufacturer since $68, and people have made fortunes. Those who bought long dated deep out-of-the-money leaps $100 out made 1,000% on this Trade Alert 18 months ago. That said, the 200-day moving average at $213 looks rock solid.
Good luck and good trading to all.
John Thomas
CEO & Publisher
Diary of a Mad Hedge Fund Trader
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
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