Page 2050 - Mad Hedge Fund Trader

Global Trading Dispatch Scores Two Day 75% Gain

Finally, all that driving down dusty, bumpy, washboard dirt roads in the Barnet Shale in Texas paid off. The thing about a great trade is that when it works, new reasons to justify it that you never thought of suddenly come out of the woodwork. That is exactly what happened with my decision to sell short natural gas two days ago.

That unloved molecule, CH4, cratered this morning, the ETF (UNG) trading all the way down to $5.07. The value of my April puts soared, jumping 75% in a mere two days. Being a trader all the way down to my DNA, I took the money and run. The gain took the value of my Global Trading Dispatch model trading portfolio up to 1.41% year to date.

I got up at 4:00 AM this morning to call my friends in Texas before they headed off the fields. I wanted to get the lowdown on what caused the catastrophic decline in natural gas yesterday, the sharpest one day sell off in 18 months. What I got was a complete earful, which I will summarize below:

1) Chesapeake Energy?s (CHK) announcement that they would cut natural gas production was complete BS. If you cap a well prematurely you damage the field. You might as well blow it up. What they probably will do is cut back new drilling by 50% going forward. But that does nothing to address the glut of gas that is spewing out of the wells now.

2) The fear is that so much gas will be produced that we will completely run out of storage by summer, leading to a further collapse in prices. While new storage is being built, it will be woefully inadequate.

3) The winter never showed. This has been the warmest winter in a decade, and traditional heating demand for gas has vaporized.

4) Efforts to build an LNG export industry to ship product to China are being slowed by law suits from pesky environmentalists and zoning officials in local neighborhoods nervous about the construction of new liquifaction facilities that might blow up.

5) In the meantime, other companies are in a race to out produce each other to offset lower prices with volume, causing further price cuts.

6) President Obama can promise all he wants about natural gas corridors, but is unlikely to get anything he wants through a gridlocked congress. See a national map of the proposed corridors below.

The pros in the pits assure me that we are not anywhere close to a bottom in natural gas. If we break the ten year low at $2/MBTU, then we could see trapdoor stop loss selling that takes is all the way down from the current $2.36 to $1.75, down 25%. That would take the ETF (UNG) down to $3.75 and the April, 2012 $6 puts up to $2.20, up 340% from my cost. But hey, nobody ever got fired for taking a profit.

To subscribe to the Mad Hedge Fund Trader?s Trade Alert Service, please go to my website at www.madhedgefundtrader.com , find the Global Trading Dispatch box on the right, and click on the lime green ?SUBSCRIBE NOW? button at the bottom. I look forward to working with you. And thank you for supporting my research.

Testimonial

Testimonials

My name is Julian and I am currently a finance student in Montreal, Canada. I've been reading some of the free material you've posted and I think you are dead on with your analysis. It?s really good stuff. I've been trading for 4 years and turned $3000 into $17000. It?s paying my way through college.
Wishing you continued success in 2012.

Julian
Montreal, Canada

February 2, 2012 - Quote of the Day

Diary

?The only way out for Europe is to devalue the Euro to help the peripheral countries,? said Scott Minerd, chief investment officer at Guggenheim Partners.

Trade Alert - (UNG) Update - February 1, 2012

Diary, Trade Alert

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more

Farewell to the Wealth Insider Alliance

Diary

All good things must come to an end, and it is time for me to bid adieu to the Wealth Insider Alliance. There is no doubt that this innovative and aggressive online marketing firm played a major role in placing the Mad Hedge Fund Trader on the map in the virtual world. They acted as the able midwives to the birth of my Macro Millionaire Trade Alert Service. One of the most successful online launches in Internet history brought thousands of new followers to my site. I give my heartfelt thanks to the hard working and imaginative WIA staff for a job well done.

Mad Hedge Fund Trader has since grown into a major international business, with subscribers in over 130 counties (including two in the Maldives). Apparently, I am still weak in Mali and North Korea, perhaps because of the absence of electricity. So I am plowing the profits back into the business to improve the service at every level.

Existing paid up subscribers will be transferred to my new database this week and sent new user ID?s and passwords necessary to access the premium content. To prevent your daily letters and trade alerts from getting caught up in spam filters, please add the addresses, alert@madhedgefundtrader.com and newsletter@madhedgefundtrader.com to your address book.

A link will be emailed to you directly that will give you live access and enable you to participate in my biweekly strategy webinars. If anyone has trouble with any of this, please email my dedicated live customer support at support@madhedgefundtrader.com .

Time to Short Natural Gas Again

Diary

Long term readers are well aware of my antipathy towards natural gas, which has been in your worst nightmare of a bear market for the past three years.

Well, the simple molecule finally got some good news last week. First, major producer, Chesapeake Energy (CHK) announced that it was cutting its natural gas production by 50%, taking some immediate pressure off the market. Sure, (CHK) is just one company, but others may follow suit.

Second, at the urging of my friend, Boone Pickens, Present Obama announced funding of some natural gas corridors in his State of the Union address. These are chains of natural gas stations placed every 100 miles stretching from east to west and north to south that would allow heavy trucks on transcontinental routes to refuel. This would provide the extra incentive for these 18 wheelers to convert from diesel fuel to CH4 at a nominal cost and put a major dent in our oil imports.

The news was enough to trigger a massive short covering rally in this most unloved of molecules. The spot market soared 25%, from $2.25 to $2.82 per MBTU?s, while the ETF (UNG) leapt from $5 to $6.

I am going to call the bluff of the market here and buy the United States Natural Gas Fund April, 2012 $6 puts at $0.65 or best. That way I can take advantage of the huge contango that exists between the spot and forward markets for natural gas futures contracts. To avoid actually drilling its own wells, the (UNG) buys forward contracts at huge premiums and holds them until they expire at spot. They then roll the cash forward into new contracts and repeat the process. It is one of the best wealth destruction machines I have ever seen and explains why (UNG) has, by far, outperformed natural gas on the downside. It is a great thing to be short.

To see how extreme this contango is, please visit the CME website. June futures natural gas futures are trading at a 10% premium to March, which is more than 40% annualized. All of that premium goes to money heaven for the (UNG).

If (UNG) double bottoms at $5, the put options should double in value. If a continuing glut of gas breaks us down to new lows, you could make much more. With the industry expected to run out of new storage capacity by the summer, I am betting on the latter, hence the heavy position. One other thing worth knowing here is that once drilled with the fracking process, you cannot turn off or cap a natural gas well without damaging the output. There is no ?OFF? switch.

For a much more detailed explanation on why natural gas is in dire straits, please click here. Subscribers to my Global Trading Dispatch received this research piece as a trade alert on Monday. To subscribe to the Mad Hedge Fund Trader?s Trade Alert Service, please go to my website at www.madhedgefundtrader.com , find the Global Trading Dispatch box on the right, and click on the lime green? ?SUBSCRIBE NOW? button at the bottom.

Where Did You Say the ?OFF? Switch is?

February 1, 2012 - Quote of the Day

Quote of the Day

Favorite headline of the day: ?Greece Offers to Pay Back Debt With Giant Horse.?

Trade Alert - (UNG) - January 31, 2012 Update

Diary, Trade Alert

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more

Will Facebook Mark the Market Top?

Diary

The street is chattering today over the prospect of an enormous payday with the imminent IPO for the social media company, Facebook. Price talk is valuing the company as high as $100 billion, making it the largest such floatation in history. Could the mega deal spell the end of the current bull market?

Look at it this way. Assuming that Facebook sells only 5% of itself to the public, that sucks $5 billion out of the stock market. It is $5 billion that gets diverted away from existing equity allocations. Many investors will need to sell existing positions in other companies to pay for their new Facebook shares, especially in the technology sector.

Can the market afford to lose $5 billion in buying power in its current fragile condition? I think not. Take a look at the chart below which has the (SPY) making a near parabolic move since the beginning of the year. At the very least, we need to pull back to just above $126, which takes us down to 1,256 on the S&P 500, smack dab on the 200 day moving average. If you don?t believe me, then take a look at the chart for the financials sector ETF (XLF), which has led the market this year and is clearly rolling over.

I?ll tell you who the big winner in a Facebook IPOP will be. The San Francisco Bay area. $100 billion is a ton of money to pour into a single urban area. The issue is expected to create several billionaires and as many as 3,000 new millionaires in my neighborhood.

The last time that happened was when Google (GOOG) went public, creating a wealth effect that never went away, taking the waiting list for a new Ferrari or Tesla out two years. Better buy real estate near Facebook?s Menlo Park headquarters, such as in Atherton, Palo Alto, and Mountain View. The bidding wars are about to begin!

If you have any doubts about this analysis, you can take it up with any of my 1,209 Facebook friends by clicking here.

Is Mark a Market Killer?

January 31, 2012 - Quote of the Day

Quote of the Day

?People are investing with a rear view mirror. Last year, you had people legitimately scared out of the market. Unfortunately, you are losing a generation of investors at a time when they ?out to be thinking about buying high quality stocks,? said Hersh Cohen of Clearbridge Advisors.