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
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
February 16, 2018
Fiat Lux
Featured Trade:
(FEBRUARY 14 GLOBAL STRATEGY WEBINAR Q&A),
(VIX), (VXX), (FCX), (BAC), (GS), (JPM), (HEDJ), (SPG), (HEDJ),
(IT???S TIME TO PULL THOSE OLD INFLATION PLAYS OUT OF THE DRAWER),
(TIP), (TIPZ), (TIPX), (GLD), (SLV)
Q: How much more will interest rates rise and how will that affect equities?
A: We've essentially discounted all the negative effects of rising interest rates for the rest of the year with this correction, so I don't believe we'll have much interest rate impact from here. I'm looking for 3.25% on the 10 year by the end of this year - that's 10 1/2 months, so we're basically almost there.
In regard to how it will affect equities: It won't. We basically digested 150 basis points of interest rate rise ALREADY. Now, if we get another hot CPI in a month, all bets are off. Then the sushi will really hit the fan.
Q: Which sector will lead after this meltdown?
A: Technology, technology, technology. That's why I started a technology letter at the beginning of the month. I want to focus everyone's attention on the technology letter. It will overwhelmingly lead, not only this year, but for the next 20 years.
Q: Has the Volatility Index Bottomed?
A: Absolutely. We'll never see the $9 number again. We're now looking to find a new volatility range. Currently we are at a (VXX) of $41.65 and a (VIX) of $19.61. I expect we'll find a range-maybe $15-$25-?and we'll trade in that range for the rest of the year. With the entire short VIX industry wiped out you will never again return to those old low ranges.
Q: With volatility so high right now, is it better to buy naked calls instead of call spreads?
A: No it is not. Assume your range will be $15-$25 in the (VIX) you want to be buying the put spread at the top and the call spreads at the bottom; that way you don't get wiped out with time decay. If you go outright naked long calls or puts the time decay in these things will absolutely destroy you.
Q: Does this market shake-up change your end of year targets for the S&P 500?
A: The answer is yes. I know I upgraded them to a 20% increase this year. My original, beginning January forecast was for 10% correction, which we got, then a 20% rally to be up 10% on the year. That's a much more realistic forecast than the upgrade that followed. So yes, it does change. I'm still looking for 10% by the end of the year -we're essentially at 0% right now. We gave up all of the year's gains, and at the bottom we went all the way back to October/November prices.
Q: Will wage increases and higher inflation bring down companies who have high labor costs?
A: Yes, they will. Who are the highest labor cost companies in the United States? Walmart (WMT), Target (TBT) and McDonald's (MCD). And that may be why those share prices have recently been acting so poorly.
Q: Will housing stocks like Lennar (LEN) get crushed with the new interest rate narratives?
A: They've already been crushed, which you can see on the housing charts we'll be looking at. However, I expect them to recover; interest rates are rising but not enough yet to hurt the housing market. It will be a year or two before they get to that point.
Q: Which is better: Bank of America (BAC), Goldman Sachs (GS), or J.P. Morgan (JPM)?
A: J.P. Morgan is the better-quality company, but that is already discounted in the price. If you want to buy a laggard, I recommend Goldman Sachs, which should be making significant profits trading in these conditions and is much cheaper. Goldman can double from here, whereas (BAC) and (JPM) may only increase 50%. J.P. Morgan also held up at the 50-day, which is incredibly encouraging; that's a buy right here, right now. No need to wait for a dip on J.P. Morgan. If I had the funds, I'd be buying myself.
Q: Should I sell the (AEX)? (a Europe-wide ETF traded in Holland)
A: No. If the U.S. rallies to new all-time highs over the next several months, which it will, Europe will do exactly the same, but probably rise twice as much. So, if anything, I would be a buyer of Europe at these levels, including the (HEDJ), which hedges out your Euro currency risk.
Q: I still own the Apple 140/145's. Thoughts?
A: Keep them. I think there is just 0% chance Apple will ever return to $150 a share, at least not until the next real recession, which is 2 years off.
Q: Is it acceptable to enter a Trade Alert a few days after it was originally issued, if I can get the same price?
A: Yes. If you can get that Trade Alert at a good price- and often, you can- then take it.
Q: If the market can absorb interest rates grinding higher, what is the next red flag that will take the market down?
A: Even higher interest rates.
Q: Microsoft's (MSFT) cloud business grew 100% YOY- would you look at getting into these levels?
A: I would. In fact, if I could take an 11th position, it would be a long in Microsoft at these levels.
Q: Which part of the stock market should I avoid if interest rates are rising?
A: You want to avoid heavy borrowers; those include REITS (SPG) and Utility Stocks (XLU).
Q: Are commodities a buy since you have been telling us to stay away for years?
A: While the stock market may be going crazy, the global synchronized economic recovery continues, and that is a very pro-commodity move- when people move out of expensive stocks, what do they buy? Cheap commodities. Which have been in a 5-year bear market.
Q: How will the new Fed Governor Jerome Powell change from Yellen once he saw the huge sell-off on the first day of the job?
A: He won't change but he will be facing different challenges than Yellen did: the need to raise interest rates faster. Yellen was all about keeping interest rates low for as long as possible- that is now ancient history. It's all about how fast we raise rates from now on that impacts the market.
Q: Is it ok to keep my Freeport-McMoRan (FCX)?
A: Yes, it will rally back strong and this is a good entry point. Historically, going into silver is better than gold. Historically that has been true, but it's not happening this time. I would stay away.
Q: What do you think about commodities this year?
A: They will outperform stocks.
Mad Hedge Technology Letter
February 16, 2018
Fiat Lux
Featured Trade:
(HERE'S AN EASY WAY TO PLAY ARTIFICIAL INTELLIGENCE),
(BOTZ), (NVDA), (ISRG)
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
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
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
Global Market Comments
February 15, 2018
Fiat Lux
Featured Trade:
(THE NEW CASE FOR EUROPE),
(FXE), (DXJ), (RSX), (FXE), (EUO),
(WHY ARE BOND YIELDS STILL SO LOW?),
(TLT), (TBT), (JNK), (LQD), (MUB)
It is time to revisit this once troubled continent. The reality is that the European economy is now growing substantially faster than the US, with a better stock market performance to match.
Not only that, the Euro has been rising, thanks to America’s exploding budget deficits.
Rising markets and rising currencies create an upward hockey stick effect on your profits.
I bet you didn’t know that the Greek stock market rose over 40% from November, and the Euro (FXE) added another 7%!
I have been to Greece many times over the past 50 years, and I’ll tell you that I just love the place.
The beaches are perfect, the Ouzo wine enticing, and I’ll never say “No” to a good moussaka.
As for the old Youth Hostel in Athens with the permanently clogged sewer lines, I now much prefer the five star King George Hotel.
However, I don’t let Greece dictate my investment strategy.
Greece, in fact, accounts for less than 2% of Europe’s GDP.
It is not a storm in a teacup that is going on there, but a storm in a thimble.
Greece is really just a full employment contract for financial journalists, who like to throw around big words like bankruptcy, default, and contagion.
I have other things to worry about.
In fact, I am starting to come around to the belief that Europe is looking pretty good right here, refugee crisis, Brexit, and trade wars be damned!
That’s why the better hedge funds have been piling in there since the presidential election. In fact, many managers prefer foreign developed stock market than the domestic US variety.
Fiat CEO, Sergio Marchionne, the brilliant personal savior of Chrysler during the crash, thinks the beleaguered continent is about to recover from “hell” to only “purgatory.”
Only a devout Catholic could come up with such a characterization.
But I love Sergio nevertheless because he generously helps me with my Italian pronunciation when we speak (“aspirapolvere” means “vacuum cleaner”, really?).
Notice that these European based equity ETF’s vastly outperform those for the main US indexes during the same time by a large margin, many by 2:1.
And here is where I come in with my own 30,000-foot view.
The undisputed lesson of the past nine years is that you always want to own stock markets that are about to receive an overdose of quantitative easing.
Since the US Federal Reserve launched their aggressive monetary policy, the S&P 500 (SPY) has nearly quadrupled off the bottom.
Europe was a late entrant to the QE game, and it could run for at least six more months.
Corporations across the pond are being force-fed mountains of cash at recently neagative interest rates, much like a goose being fattened for a fine dish of foie gras (only decriminalized in California last year).
Get Europe off the mat, and you can also add another 10% to US share prices as well, as the global economy revives.
Buy the Wisdom Tree International Hedged Equity Fund ETF (HEDJ) down here on dips, which is long a basket of European stocks and short the Euro (FXE). The recent correction just gave us a nice fat entry point.
These could be the big performers this year.
Praise the Lord and pass the foie gras!
