Mad Hedge Technology Letter
November 22, 2024
Fiat Lux
Featured Trade:
(PICK YOUR SPOTS)
(NVDA), (TSLA), ($COMPQ)
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
(SUMMARY OF JOHN’S NOVEMBER 20, 2024 WEBINAR)
November 22, 2024
Hello everyone
TITLE – Trading One Uncertainty for Another
THE MAD HEDGE TRADERS AND INVESTORS SUMMIT
December 3-5, 2024 (9:00 am – 5:00 pm EST
24 professionals will be sharing their knowledge and expertise. They will be showing you their favourite trading strategies in all asset classes, including currencies, commodities, precious metals, and energy.
Lots of prizes.
Sign up for the link we will be sending out shortly.
Attendance is free.
PERFORMANCE
November - +15.01 to date
Since inception - +744.68%
Average annualized return - +53.02% for 16 years.
PORTFOLIO
Risk On
(JPM) 12/$210-$220 call spread 10%
(NVDA) 12/$117-$120 call spread 10%
(TSLA) 12/$230-$240 call spread 10%
(TSLA) 12/$250-$$260 call spread 10
(TSLA) 12/$270-$275 call spread
(MS) 12/$110-$115 call spread
(C) 12/$60-$65 call spread
(BAC) 12/$41-$44 call spread
(VST) 12/$115-$120 call spread
Risk Off
No positions
THE METHOD TO MY MADNESS
The election brought a total strategy flip.
All interest rate plays were dumped, including gold, silver, homebuilders, bonds, and REITS.
US dollar rockets at higher rates for longer.
Technology stocks fade on threats to international business.
Energy swings lower on coming overproduction and oil glut.
Buy the election winners, sell the losers.
THE GLOBAL ECONOMY – IN TURMOIL
Fed cuts interest rates by 0.25%, taking the overnight rate to 4.50%, but future rate cuts are now in doubt.
CPI comes in line at 2.6%, up 0.2% in October. The Core CPI accelerated 0.3% for the month and was at 3.3% annually.
Retail sales come in hot, up 0.4% in October.
PPU roses 2.4% YOY, some 0.2% in October.
China stimulates again with a $1.4 trillion package while signaling more economic support would come next year.
University of Michigan Consumer Sentiment Index comes in hot.
US Wholesale Inventories turn down in September amid a sharp decline in motor vehicle stocks.
STOCKS – THE NEW GAMES
Get out of all falling interest rates plays, like homebuilders, real estate, home repair, precious metals, and fixed income.
Get out of international commitment plays like defense and any exporters.
Go into deregulation plays like brokers, banks, money managers, and nuclear.
Defense stocks swing lower on Peter Hegspeth Defence appointment.
JFK Health & Human Services Appointment crushes Pharma stocks.
Morgan Stanley reverses bearish tilt.
Now predicting that the S&P 500 will reach 6,500 and possibly 7,400 in 2025.
Investment Guru Ron Baron sees Tesla at $1,200 in 5 years and at $7,200 someday.
NVDA's target could be around $180.
May see Tesla hit $500 in 2025.
BONDS- BEAR MARKET
Inflation fears are the next big trade.
Since Trump’s victory, the benchmark U.S. 10-year Treasury yield has risen 20 basis points.
Bonds plunge on Trump's win, with the (TLT) down $12 from the recent high, anticipating higher for longer interest rates.
Moody’s getting ready to downgrade US on the prospect of massive Trump borrowing.
Money Market Funds top $7 trillion for the first time as bond investors flee the market.
Expect (TLT) to decline to $82 as the National Debt increases by $10 trillion.
Avoid (TLT), (JNK), (NLY), (SLRN) and REITS.
FOREIGN CURRENCIES – US DOLLAR REBORN
Dollar hits two-month high on rising US interest rates. Ten-year Treasuries have risen from 3.55% to 4.50%.
Higher for longer interest rates mean higher longer US dollar.
Don’t sell the US dollar until the next recession is on the horizon.
Avoid (FXA), (FXE), (FXB), (FXC), and (FXY).
ENERGY & COMMODITIES – CRUDE AWAKENING $60 IN PLAY
Crude Oil is now down on the Year after a precipitous selloff.
Blame a weak China, lost OPEC discipline, and overproduction by Iraq.
Avoid the worst-performing asset class in the market.
US Oil production hits an all-time high. In August 2024, U.S. oil production hit a record 13.4 million barrels per day, according to the U.S. Energy Information Administration.
Unlimited new drilling and opening up of federal lands will crash oil prices.
Big Oil has become more productive as horizontal drilling and hydraulic fracturing, which is also known as fracking, have seen technological breakthroughs.
Russia bans Uranium Exports in response to American sanctions.
PRECIOUS METALS – GAME OVER
Interest rates higher for longer is a death knell for precious metals, with gold down 8.3% since November 5.
The opportunity cost of owning gold is about to rise sharply.
Gold is up 40% in a year, so it was ripe for profit taking.
$600 million in selling of gold ETF’s last week.
Gold has become the only way the average Chinese can save as they can no longer speculate in real estate or copper and don’t trust the Chinese Yuan, so there is support lower down.
Central banks in emerging market countries are continuing to buy gold, with 693 metric tonnes of buying, or $5.3 billion this year.
Avoid (GLD), (SLV), (AGQ), and (WPM).
REAL ESTATE – POST – ELECTION FREEZE
Post-election interest rate rise is postponing any real estate recovery.
Mortgage Rates are rocketing, off the back of a Trump win, taking the 30-year fixed-rate conventional loan up to 7.12%.
But transactions are coming back from a pre-election Zero for all cash transactions.
Apartment vacancies fall in Q3 for the first time in more than two years, down 0.2% to 5.3%
Renters are soaring to new all-time highs as the cost of home ownership rises beyond reach.
Average age of a homebuyer rises to 56 as prices and mortgage payments soar beyond the average working people.
That is up 7 years since July 2023.
TRADE SHEET
Stocks – buy the next big dip
Bonds – stand aside
Commodities – stand aside
Currencies – stand aside
Precious Metals – stand aside
Energy – buy nuclear dips
Volatility – sell over $30
Real Estate – stand aside
NEXT STRATEGY WEBINAR
12:00 EST Wednesday, December 11, from Lake Tahoe, Nevada.
Housekeeping
The recording of my October Zoom Monthly meeting will be shared next week.
Cheers
Jacquie
Global Market Comments
November 22, 2024
Fiat Lux
Featured Trade:
(WEDNESDAY, JANUARY 22, 2025 ST AUGUSTINE FLORIDA STRATEGY LUNCHEON)
(NOVEMBER 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (TSLA), (TLT), (OXY), (SLB), (MSTR), (USO), (PLTR), (SMCI), (KRE), (SMR), (UUP)
Below, please find subscribers’ Q&A for the November 20 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, Nevada.
Q: What are your stock recommendations for the end of the first quarter of 2025?
A: I say run with the winners. Dance with the girl who brought you to the dance. I think portfolio managers are going to be under tremendous pressure to buy winners and sell losers. And, of course, you all know the winners—they’re the stocks I have been recommending all year, like Nvidia (NVDA), Tesla (TSLA), and so on. And they're going to sell losers like energy to create the tax losses to offset their gains in the technology area. That could continue well into next year. Although, we’ve probably never entered a new administration with more uncertainty at any time in history, except maybe during the Civil War. I don’t think it will get as bad as that, but it could be bad.
Q: Is Putin bluffing about nuclear war?
A: Yes. First of all, Russia has 7,000 nuclear weapons, but only maybe 200 of those work. If he does use nuclear weapons, Ukraine will use its nuclear weapons in retaliation. During the Soviet Union, where did the Soviet Union make all their nuclear weapons? In Ukraine. That's where they had the scientists. They certainly have the Uranium—that's the hard part. You could literally put one together in days if you had the right expertise around. This will never go nuclear, and Putin has always been all about bluffing. There's a reason why the world's greatest chess masters are all Russian; it's all about the art of bluffing. So that doesn't worry me at all.
Q: Will Russia sacrifice a higher and higher percentage of its population in the war?
A: Yes, that is the military strategy: keep throwing bodies at your enemy until they run out of bullets.
Q: What is your prediction for 30-year US Treasury yields (TLT)?
A: They go higher. Higher for longer certainly includes the 30-year. The 30-year will be the most sensitive to long-term views of interest rates. If you get a return of inflation, which many people are predicting, the 30-year gets absolutely slaughtered. Adding a potential $10 trillion to the national debt, taking it to $45 trillion, is terrible for debt instruments everywhere.
Q: Should we be exiting the LEAPS that you put out on Occidental Petroleum (OXY) and Schlumberger (SLB)?
A: For Occidental, I would say maybe; it’s already at a low. The outlook for oil prices is poor, with massive new production coming on stream. Regarding Schlumberger, they make their money on the volume of oil production—that probably is going to be a big winner.
Q: What do you think interest rates will do as we go into the end of Powell's term in 18 months?
I have no idea. It just depends on how fast inflation returns. My guess is that we'll get an out-of-the-blue sharp uptick in inflation in the next couple of months, and when that happens, stocks will get slaughtered. People assume that inflation just keeps going up forever after that.
Q: Crude oil (USO) has been choppy at around $70 a barrel. Where do you see it going next year?
A: My immediate target is $60, and possibly lower than that. It just depends on how fast deregulation brings on new oil supplies, especially from the federal lands that have been promised to be opened up. As it turns out, the federal government owns most of the western United States—all the national forests and so on. If you open that up to drilling, it could bring huge supplies onto the market. That would be deflationary. It would be death for oil companies, but it would be a death for OPEC as well. Every cloud has a silver lining. OPEC has been a thorn in my side for the last 60 years.
Q: I'm tempted to buy stocks that are flying up, like Palantir (PLTR) and MicroStrategy (MSTR). What would be an experienced investor trade in these situations?
A: Don't touch them with a 10-foot pole. You buy stocks before they fly up, not afterwards. By the way, if anyone knows of an attorney who is an expert at recovering stolen Crypto, please contact me. I have several clients who've had their crypto accounts cleaned out. Oh, and by the way, the heads of every major crypto exchange have been put in jail in the last three years. Imagine if the heads of Goldman Sachs, Morgan Stanley Fidelity, and Vanguard were all put in jail for fraud and theft? How many stocks would you want to buy after that? Not a lot.
Q: Your recommendations for AI and chips?
A: I think you get a slowdown. In order to buy the new plays in banks, brokers, and money managers, you need to sell the old plays. Those are going to be technology stocks and AI stocks—AI itself will keep winning. They will keep advancing, but the stocks have become extremely expensive. And everyone is waiting to see how anti-technology the new administration will be. Some of the early appointments have been extremely anti-technology, promising to rein in big tech companies. If you rein in big tech companies, you rein in their stock prices, too. I am being very cautious here. The next spike up in Nvidia (NVDA) might be the one you want to sell.
Q: Do you think the uranium play will continue under the new administration?
A: Absolutely, yes. Restrain the Nuclear Regulatory Commission, and costs for the new nuclear starts up like (SMR) go way down.
Q: What do you think of NuScale Power Corp (SMR)?
A: I love it. Again, deregulation is the name of the game—and if you lose a city by accident, tough luck. Let's just hope it happens somewhere else. It's only happened three times before… Three Mile Island, Chernobyl, and Fukushima.
Q: Super Micro Computer (SMCI), what do you think?
A: Don't touch it. There's never just one cockroach. Hiring a new auditor to find out how much money they misrepresented is not a great buy argument to buy the stock. I'm sorry. Very high risk if you get involved.
Q: If Nvidia (NVDA) announces great earnings but sells off anyway, what should I do?
A: Get rid of it and get rid of all your other technology stocks because this is the bellwether for all technology. Tech always comes back over the long term, but short term, they may continue going nowhere as they have done for the last six months, which correctly anticipated a Trump win. Trump is not a technology guy— he hates California. Any California-based company can't expect any favors except for Tesla.
Q: Is there any reason why you prefer in-the-money bull call spreads?
A: Well, there are lots of reasons. Number 1, it's a short volatility play. Number 2 it's a time decay play, which is why I only do front months because that's when the time decay is accelerated. Thirdly, it allows you to increase your exposure to the stock by tenfold, which brings in a much bigger profit when you're right. If you look at our trade alerts, we make 15% to 20% on every trade, and 200 trades a year adds up to a lot of money. You can see that with our 75% return for this year. And it's a great risk management tool; the day-to-day volatility of call spreads is low because you're long one call option short the other. So, the usual day-to-day implied volatility on the combination is only about 8% or 9%. The biggest problem with retail investors is the volatility scares them out of the market at market lows and scares them back in at market highs. So, call spread reduces the volatility and keeps people from doing that. The risk-reward is overwhelmingly in your favor if you have somebody like me with an 80% or 90% success rate making the calls on the stocks. And, of course, having done this for almost 60 years, nothing new ever happens in the stock market—you're just getting repetitions of old stuff. All I have to do is figure out is this the 1970s story, the 1980s story, the 1990s, the 2000s, 2010s story? I have to figure out which pattern is being repeated. People who have been in the market for one year, or even 10 years, don't have that luxury.
Q: I’m having trouble getting filled on your orders.
A: You put out a spread of orders. So if I put in an order to buy at $9.00, split your order up into five pieces: at $9.00, $9.10, $9.20, $9.30, $9.40; and one or all of those orders will get filled. Another hint is that algorithms often take my trade alerts to the maximum price. Don't pay more than that price immediately, but they have to be out by the end of the day, so if you just enter good-till-cancel orders, you have an excellent chance of getting filled by the end of the day or at the opening tomorrow.
Q: Should I purchase SPDR S&P Regional Banking ETF (KRE)?
A: I'd say yes. That probably is a good buy with deregulation, making all of these small banks takeover targets.
Q: What should we be looking for in the fear and greed index?
A: When we get to the high end, like in the 70s, start taking profits. When we get to the low end, like the 20s, start buying and adding LEAPS and more long-term leverage option plays.
Q: What are we looking for to go short?
A: Much higher highs and a bunch of other monetary and technical indicators flashing warning signals, which are too many to go into here. Suffice to say, we did make good money on the short side this year, a couple of times on Tesla (TSLA), including a pre-election short that we covered in Tesla, and we were short a whole bunch of technology stocks going into the July meltdown. So, you know, we do both the long side and the short side, but it's been a long play—11 months this year and a short play for a month.
Q: Is the euro going back up eventually, or does the dollar (UUP) rule?
A: Sorry, but as long as the US dollar has the highest interest rates in the developing world and the prospect of even higher rates in the future, it's going to be a dollar game for the next couple of years.
Q: Will a ceasefire in the Middle East affect the markets?
A: No. The U.S. interest in geopolitical data ends at the shores—all three of them. So if the war of the last couple of years doesn't change the market—and it's been an absolutely horrific war with enormous civilian casualties—why should the end of it affect markets?
Q: What stock market returns do you see for the next four years?
A: About half of what they were for the last four years, which will be about 90% by the time Biden leaves office. You're going to have much higher interest rates and much higher inflation, and while the new administration is very friendly for some industries, it is very hostile for others, and the net could be zero. So, enjoy the euphoria rally while it lasts.
Q: What about crypto?
A: Well, I did buy some crypto for myself at $6,000, and I'm now thinking of selling it at $96,000. Would I recommend it to a customer? Not on pain of death—not at this level. You missed the move. Wait for the next 95% decline, which is a certainty in the future. And, by the way, absolutely nobody in the industry can tell you when that is.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
"There are many companies in the US that are running out of time because of leverage. There is still $1 trillion in distressed or defaulted debt. Any company that could refinance has already done so. For all those companies that couldn't refinance, they're going to be hitting a wall this year or next year," said Marc Lasry, chairman of Avenue Capital Management, a top-performing fixed-income hedge fund.
Mad Hedge Biotech and Healthcare Letter
November 21, 2024
Fiat Lux
Featured Trade:
(TRACE ELEMENTS)
(SNY), (MTZPY), (BIIB), (IONS), (AMLX)
In a corner office somewhere in Cambridge, Massachusetts, a team of scientists is attempting something that sounds like it belongs in a sci-fi novel: they're trying to reprogram the genetic instructions that tell our neurons how to behave.
If they succeed, they might help 97% of people with ALS keep their neurons from self-destructing.
Welcome to Trace Neuroscience, where $101 million in venture capital is betting on what amounts to a molecular spell-check for your nervous system.
You might be wondering, as I did, how one starts a company with the audacious goal of tackling one of medicine's most notorious puzzle boxes.
The answer, it turns out, involves three scientists, working in three different labs, who all stumbled upon the same cellular culprit – a protein called UNC13A - the sort of name that makes you wonder if scientists moonlight as license plate generators.
But to understand why UNC13A has everyone buzzing, we need to talk about ALS itself.
ALS, if you're not familiar with it, is the kind of disease that keeps neurologists up at night. Every year, it claims about 5,000 new victims in the US alone, and we still don't know what causes 90% of cases.
Here's a simple way to envision it – think of your nervous system as a complex metropolitan subway system.
ALS is like having someone systematically shut down every station, one by one, until the entire network grinds to a halt. Despite decades of research and millions in funding, we're still mostly watching helplessly as stations go dark.
Sure, the global market for ALS treatments reached $667.3 million in 2023, but that impressive-sounding number masks an uncomfortable truth: we're still barely keeping the lights on, let alone fixing the underlying problem.
The current FDA-approved medications, Sanofi’s (SNY) Riluzole and Mitsubishi Tanabe Pharma’s (MTZPY) Edaravone (marketed as Radicava), are like trying to stop a flood with a handful of sandbags. They might slow things down a bit, but they're not exactly what you'd call a solution.
So how do you tackle a troublemaker like UNC13A? Enter Trace Neuroscience's bold approach: antisense oligonucleotides, or ASOs for those who don't enjoy tongue twisters.
Think of ASOs as tiny molecular scissors that can edit the body's protein-making instructions with surprising precision - in this case, they're specifically designed to fix how UNC13A behaves when it goes rogue.
The science behind this approach comes from a rather serendipitous confluence of research.
Aaron Gitler at Stanford, Pietro Fratta at University College London, and Michael Ward at the NIH – three scientists who probably should have just gotten a group chat going – independently discovered how certain RNA-processing molecules go haywire in ALS patients.
It's like they each found a different piece of the same puzzle, and when they put them together, the picture suddenly made sense.
And where there's breakthrough science in biotech, money usually follows.
In November 2024, Trace managed to convince some of the biggest names in venture capital – Third Rock Ventures, Atlas Venture, GV (formerly Google Ventures), and RA Capital Management – to part with $101 million.
That's quite a vote of confidence for a company whose main product is still theoretical.
The timing couldn't be more interesting. The ALS treatment market is expected to grow at a rather specific 5.8% per year until 2030, reaching about $1.1 billion.
But in this field, even the success stories come with asterisks.
Take Biogen's (BIIB) Qalsody, which got FDA-approved in May 2024 despite not actually meeting its main trial goals.
It's a rare win in a field where the scoreboard has been mostly zeros, as the rest of the ALS treatment landscape makes painfully clear.
Ionis Pharmaceuticals (IONS) had to shut down their ALS program with Biogen in May 2024, and Amylyx Pharmaceuticals (AMLX) faced the bitter task of pulling their drug Relyvrio from the market in April 2024, laying off 70% of their staff in the process.
These setbacks illuminate an uncomfortable truth about ALS drug development: the path from lab bench to pharmacy shelf is paved with perfectly logical theories that simply didn't work in real bodies.
The math is brutal - only 6.2% of neurological drugs survive the journey from Phase I to approval. Trace's response to these odds? Assemble a team that's seen enough clinical trial failures to know how to (hopefully) avoid them.
Their CEO, Eric Green, M.D., Ph.D., leads a squad that includes Chief Medical Officer Irina Antonijevic and Chief Operating Officer Megan Baierlein.
They're aiming to start clinical trials by early 2026, which in drug development terms is practically tomorrow.
For investors, timing like this transforms Trace from a scientific curiosity into a near-term catalyst.
Their approach - anchored in genetic evidence and measurable biomarkers - stands out in a field where most companies are still shooting in the dark with better bullets.
The story of Trace Neuroscience reads like molecular medicine's version of going from medieval star-gazing to GPS navigation.
While traditional ALS treatments chase symptoms, Trace is tracking proteins with the precision of an atomic clock.
They've transformed one of medicine's most frustrating puzzles into something remarkably concrete: either their molecular markers will move, or they won't.
In the biotech world, that kind of clarity is worth watching.
Global Market Comments
November 21, 2024
Fiat Lux
Featured Trade:
(THURSDAY, JANUARY 16, 2025 SARASOTA FLORIDA STRATEGY LUNCHEON)
(TEN REASONS WHY I ONLY EXECUTE VERTICAL CALL DEBIT SPREADS)
(AAPL), ($VIX), (SPY)
Come join me for lunch at the Mad Hedge Fund Trader’s Global Strategy Luncheon, which I will be conducting in Sarasota, Florida on Thursday, January 16, 2025. The cost of the luncheon will be $277.
An excellent meal will be followed by a wide-ranging discussion and an extended question and answer period.
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 lunch will be held at an exclusive Sarasota hotel. The precise location will be emailed with your purchase confirmation. Mad Hedge guests will be assigned their own dedicated table in a ballroom with 200 other participants.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets for this luncheon, please click here.
