Those were really great trade that just expired, the longs in gold (GLD) and silver (SLV) and the short in Microsoft (MSFT). I made some good money. Thankyou. Enjoy the weekend.
Richard
Fitchburg, Wisconsin
Standing Astride the Equator in Ecuador
For those of you fortunate enough to get into the January 17, 2025 $42-$45 vertical bull call debit spread LEAPS when I first recommended them ten months ago on July 25, 2023, you are now at 71% of your maximum potential profit. That means the LEAPS you bought for $1.40 last year is now worth $2.60, a gain of 85.71%.
If you are an active trader, you may want to take profits on the massive 20% rise in silver over the past 10 days. Metal producers are unable to rush supplies to the market fast enough to cover their shorts in the futures market, creating a massive short squeeze. These are conditions that most silver investors only dream about.
Long may it continue.
If you are cash-heavy, you may want to run this position eight more months into the January 17, 2025 option expiration and capture the full 114% profit over a total of 18 months. As long as silver prices stay over $45, this will be a big win.
For those new to the service, please find the full text of the July 25, 2023 trade alert below.
Mad Hedge AI
Trade Alert - (WPM) – BUY
BUY the Wheaton Precious Metals (WPM) January 2025 $42-$45 out-of-the-money vertical Bull Call spread LEAPS at $1.40 or best
Opening Trade
7-25-2023
expiration date: January 17, 2025
Number of Contracts = 1 contract
It's easy to see why AI picked this trade.
Look at the chart below and you see a perfect inverse head and shoulders in place. There is also a golden cross setting up in a month or so, with the 50-day moving average charging towards to 200-Day.
AI knows that human buyers love these things.
The entire interest rate-sensitive sector has been walloped over the last three months over fears that the Fed will keep interest rates higher for longer. That is now in the price of the gold miners.
This position is a bet that our nation’s central bank will embark on a path of interest rate CUTS sometime in the next 18 months. And the shares of Barrack Gold (GOLD) only have to return to where they were in March for the position to hit max profit.
While the chance of winning a real lottery is something like a million to one, this one is more like 10:1 in your favor. And the payoff is a double in little more than a year. That is the probability that (WPM) shares will rise over the next 18 months.
The logic behind this LEAPS is fairly simple.
After keeping interest rates too low for too long, then raising them too far too fast, what does the Fed do next? It then lowers interest rates too far too fast. In other words, a mistake-prone Jay Powell will keep on making mistakes. That’s what you get with a Fed chair who only has a degree in political science.
The rate of interest rate rises has been the most rapid in history and is possibly going to trigger a modest recession by the end of 2023. When the recession hits, demand for money will dry up and interest rates will collapse. Yields on ten-year US Treasury bonds that bottomed at 0.32% in 2020 and reached a peak of 4.46% in October will easily fall back down to 2.50% by the time this LEAPS matures.
And guess which asset class is one of the most sensitive to falling interest rates? That would be precious metals, especially gold. A drop in interest rates of this magnitude should allow the price of Barrick Gold to double. That’s where we were in March of 2021 when (GOLD) traded at $30.
Another factor driving down interest rates is the fact that the US government budget deficit is shrinking at the fast rate in history, down from $3 trillion to $1.5 trillion in the past year. A shrinking supply of bonds brings higher bond prices and lower interest rates.
I am therefore buying the Wheaton Precious Metals (WPM) January 2025 $42-$45 out-of-the-money vertical Bull Call spread LEAPS at $1.40 or best.
Don’t pay more than $1.80 or you’ll be chasing on a risk/reward basis.
During bull markets in precious metals, silver historically rises 2.5 faster than gold.
Wheaton Precious Metals Corp is a Canadian multinational precious metals streaming company. It produces over 26 million ounces and sells over 29 million ounces of silver mined by other companies (including Barrick Gold and Goldcorp) as a by-product of their main operations.
The silver (WPM) has agreed to purchase is in Mexico (40%), Portugal (20%), USA (10%), Chile (9%), Peru (9%), Argentina (7%), Sweden (4%), Greece and Canada (about 1%). (WPM) doesn't own or operate the mines but the contracts it has with their owners give it full access to any silver (gold at the Minto Mine) mined there. For more about Wheaton Precious Metals (WPM), please visit their website by clicking here.
Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.
Let’s say the Wheaton Precious Metals (WPM) January 2025 $42-$45 out-of-the-money vertical Bull Call spread LEAPS are showing a bid/offer spread of $1.00-$2.00, which is typical. Enter an order for one contract at $1.20, another for $1.30, another for $1.40, and so on. Eventually, you will enter a price that gets filled immediately. That is the real price. Then enter an order for your full position at that real price.
A lot of people ask me about the appropriate size. Remember, if the (WPM) does NOT rise by 4.12% in 18 months, the value of your investment goes to zero. The way to play this is to buy LEAPS in ten different names. If one out of ten increases ten times, you break even. If two of ten work, you double your money, and if only three of ten work, you triple your money.
You never should have a position that is so big that you can’t sleep at night, or worse, need to call John Thomas asking if you should sell at a market bottom.
There is another way to cash in. Let’s say we get half of your 4.12% in the next six months, which from these low levels is entirely possible. Then you could earn half of the maximum potential profit in months. You can decide whether to keep the threefold return or go for the full ten bagger. It’s a nice problem to have.
Notice that the day-to-day volatility of LEAPS prices is miniscule since the time value is so great. This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.
Look at the math below and you will see that a 4.12% rise in (GOLD) shares will generate a 114% profit with this position, such is the wonder of LEAPS.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it.
This is a bet that the (WPM) will not fall below $45 by the January 17, 2025 option expiration in 18 months.
Here are the specific trades you need to execute this position:
Buy 1 January 2025 (WPM) $42 calls at………….………$9.00
Sell short 1 January 2025 (WPM) $45 calls at…….……$7.60
Net Cost:………………………….………..…........……….….....$1.40
Potential Profit: $3.00 - $1.40 = $1.60
(1 X 100 X $1.60) = $160 or 114% in 18 months.
“Gold is my cash. Over the long term it is not the best investment. But when you are having a monetary crisis it should be part of every portfolio,” said hedge fund legend, Ray Dalio of Bridgewater Associates.
In a world increasingly shaped by artificial intelligence (AI), Morgan Stanley has emerged as a guiding light for investors seeking to capitalize on this transformative technology. The investment bank's comprehensive analysis of the AI landscape has identified a diverse portfolio of global stocks poised to reap the rewards of the AI boom. This meticulously curated selection spans multiple industries and geographies, offering investors a multi-faceted approach to navigating this burgeoning market.
Decoding Morgan Stanley's AI Investment Thesis
At the heart of Morgan Stanley's AI investment strategy lies a deep understanding of the technology's far-reaching impact on various sectors. The bank's research team has meticulously dissected the AI ecosystem, identifying key trends, growth drivers, and potential disruptors. This rigorous analysis has led to the identification of companies that are not merely adopting AI, but are actively shaping its trajectory through innovation and strategic positioning.
Morgan Stanley's approach is not confined to a single industry or region. The bank's global outlook recognizes that AI's transformative power is not limited by geographical boundaries. As a result, their stock picks encompass a diverse array of companies worldwide, each contributing to the AI revolution in unique ways. This diversified approach mitigates risk while maximizing exposure to the various facets of the AI boom.
The Pillars of Morgan Stanley's AI Portfolio
- Data Infrastructure Powerhouses: Recognizing that data is the lifeblood of AI, Morgan Stanley has identified companies that are building and operating the robust infrastructure required to store, process, and analyze vast amounts of information. These companies are laying the foundation for AI-powered applications across industries, from healthcare to finance.
- Semiconductor Giants: The computational demands of AI are immense, and semiconductor companies are at the forefront of developing specialized chips and processors that power AI algorithms. Morgan Stanley's portfolio includes leading semiconductor manufacturers that are enabling the next generation of AI-driven innovations.
- Software Innovators: AI's true potential is unlocked through sophisticated software algorithms that can learn, reason, and make decisions. Morgan Stanley has identified software companies developing cutting-edge AI platforms and tools, empowering businesses to harness the power of AI for enhanced efficiency and decision-making.
- AI-Driven Applications: Beyond the core infrastructure and tools, Morgan Stanley's picks also include companies that are applying AI to specific industries and use cases. This includes healthcare companies leveraging AI for diagnostics and drug discovery, financial institutions using AI for risk assessment and fraud detection, and retailers deploying AI for personalized customer experiences.
Spotlight on Key Picks
While Morgan Stanley's AI portfolio is diverse, several companies have emerged as particularly compelling investment opportunities:
- Nvidia: A global leader in AI computing, Nvidia's graphics processing units (GPUs) are the workhorses behind many AI applications. The company's strong focus on AI research and development, coupled with its dominant market position, makes it a cornerstone of Morgan Stanley's AI strategy.
- Microsoft: With its Azure cloud platform and investments in AI research, Microsoft is well-positioned to capitalize on the growing demand for cloud-based AI solutions. The company's recent integration of OpenAI's ChatGPT into its products further solidifies its commitment to AI innovation.
- Amazon: As the world's leading cloud provider, Amazon Web Services (AWS) offers a comprehensive suite of AI services, making it a preferred choice for businesses looking to leverage AI in the cloud. Amazon's vast data resources and commitment to AI research also contribute to its strong position in the AI market.
- Alphabet: The parent company of Google, Alphabet is a major player in the AI landscape. Google's AI research arm, DeepMind, is responsible for groundbreaking advancements in AI, and the company's various products and services are increasingly infused with AI capabilities.
Navigating the AI Landscape with Confidence
Morgan Stanley's carefully curated AI portfolio is more than just a collection of stocks; it's a strategic roadmap for investors seeking to navigate the complexities of the AI boom. By diversifying across industries, geographies, and AI sub-sectors, the bank's approach offers a balanced and comprehensive exposure to this transformative technology.
However, investing in AI has its challenges. The rapid pace of technological change, the evolving regulatory landscape, and the ethical considerations surrounding AI all present potential risks. Morgan Stanley's research team is acutely aware of these challenges and continuously monitors the AI landscape to identify emerging trends and mitigate potential risks.
Conclusion
As the AI revolution unfolds, Morgan Stanley's strategic playbook provides investors with a valuable tool to navigate this uncharted territory. By combining in-depth research, a global perspective, and a diversified approach, the bank has identified a portfolio of stocks that are poised to ride the wave of the AI boom. While challenges remain, the potential rewards of investing in AI are immense, and Morgan Stanley is well-positioned to guide investors toward a successful AI investment journey.
Mad Hedge Technology Letter
May 20, 2024
Fiat Lux
Featured Trade:
(AI GETS INTO MILITARY CONFLICT)
(PLTR), (AI)
Palantir (PLTR) sold off on its earnings report, but that doesn’t mean it’s a bad stock.
Sometimes stocks can’t live up to their potential in the short-term, but long-term they should have no problem.
Growth slowed down a little and there is worry that revenue is too reliant on sources from America.
It’s positioned as an American-first company and the CEO Alex Karp doesn’t shy away from that fact.
The company is positioned perfectly as the best-in-class AI war stock and that label goes quite far in 2024.
The business model does well when an explosion of conflict breaks out around the globe and one could argue that has been the case since 2022.
So it’s not a shocker to find out that the stock has done quite well since 2022 after tanking before that.
As the wars pile up, the company shares intel with agencies that pay for their knowledge through software and AI modeling.
They also offer companies a chance to use Palantir software to optimize their commercial business models.
If you haven’t heard, the Pentagon has failed audits for 6 years on the trot with trillions of bucks unaccounted for.
Even if PLTR investments are accounted for, the point is that money is pouring into the defense side of the equation.
This stock is certainly a “recession-proof” tech stock, and I would not say that PLTRs relatively short history brings uncertainty with it.
In the first quarter of 2024, Palantir's revenue of $634 million increased by 21%. While that is a considerable increase, it does not compare to a stock like Nvidia, which has experienced triple-digit revenue growth in recent quarters.
Additionally, the full-year 2024 revenue forecast calls for just under $2.7 billion. That would mean a 20% annual revenue growth rate, which may seem a little light when compared to other growth stocks.
PLTR’s U.S. commercial customer account rose 69% compared to year-ago levels.
Furthermore, when talking about its latest artificial intelligence platform (AIP), the company has reported eye-popping productivity gains. Palantir stated on its quarter-one earnings call that Lowe's utilized AI in its customer service department and reduced overdue tasks by 75%. Also, Cleveland Clinic was impressed enough to commit to a 10-year plan to deploy AIP across a network of hospitals.
In total, I do believe that PLTR will make major headway on the commercial side of revenue while profiting from the stable government revenue.
In a new era of AI, companies want to reduce tasks and optimize operations translating into bountiful revenue growth for PLTR.
Granted, the 20% revenue growth isn’t stuff of legends, but I do see a roadmap to double the company’s valuation from $50 billion to $100 billion if they execute well and keep improving the product.
That being said, buy incrementally on big dips of over 10% and that should be an effective strategy if a reader holds this stock long term.
“Be stubborn on vision, but flexible on details.” – Said Founder of Amazon Jeff Bezos
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
(ECONOMIC DATA POINTS ARE POSITIVE FOR THE MARKET)
May 20, 2024
Hello everyone,
Week ahead calendar
Monday, May 20
Australia Consumer Confidence Chg.
Previous: -2.4%
Time: 8:30 pm ET
Earnings: Palo Alto Networks
Tuesday, May 21
Canada Inflation Rate
Previous: 2.9%
Time: 8:30 am
Earnings: Auto Zone, Lowe’s Companies
Wednesday, May 22
10 a.m. Existing Home Sales (April)
2 p.m. FOMC Minutes
UK Inflation Rate
Previous: 3.2%
Time: 2:00 am ET
Earnings: Nvidia, TJX Cos, Analog Devices, Target, Raymond James
Thursday, May 23
8 a.m. Building Permits
8:30 a.m. Chicago Fed National Activity Index
8:30 a.m. Continuing Jobless Claims
8:30 a.m. Initial Claims
9:45 a.m. PMI Composite preliminary
9:45 a.m. S&P PMI Manufacturing preliminary
10 a.m. New Home Sales
11 a.m. Kansas City Fed Manufacturing Index
Japan Inflation Rate
Previous: 2.7%
Time: 7:30 pm
Earnings: Intuit, Ralph Lauren
Friday, May 24
8:30 a.m. Durable Orders
UK Retail Sales
Previous: 0%
Time: 2:00 am
Last week the Dow pushed through 40,000 for the first time ever. The S&P500 also broke through 5,300 for the first time. And there are higher targets ahead.
Are you going to argue with a market making new highs? But many of you will be scratching your heads wondering how healthy this market is and how we got here in the first place.
Let’s start with aggressive market positioning at the end of the first quarter and a test of Wall Street’s faith in an ideal soft economic landing, followed closely by a friendlier set of inflation numbers, and a stellar show of earnings by big companies, and last, but not least, a reversal of the April Treasury yield surge (which I have been predicting for several months through charts on my monthly zoom meetings).
The advice here, then, is not to overthink things and look for elements that don’t fit the narrative thus far. Many strategists conclude that record closes are more to be respected than feared when they arrive. Records tend to persist, though one exception is the brief visit to unprecedented heights in 2007.
So, what could go wrong?
Maybe, ugly inflation reports later this month or a not-so-rosy set of numbers from Nvidia’s earnings? This could stir up the placid landscape and place us all into rethink mode. But the characteristics we have at the present time are not to be argued with, so let’s go with what the market is giving us – a market with “just the right mix”.
While valuations are elevated at 20.7 times forward earnings, the S&P500 P/E at 5,300 is slightly lower than it was on March 28 with the index at 5,250 because profit forecasts are up more.
The market has shown itself to be a bit more defensive lately. Consumer cyclicals are losing steam, and transportation stocks are lagging. The Citi U.S. Economic Surprise index has fallen into negative territory more deeply than any time since late 2022, meaning that the macro data is slipping relative to increased forecasts. Retail sales for April were flat, too.
So, is this just about the right amount of negative data? It could actually be seen as a welcome deceleration in the economy that could help the Fed’s disinflationary cause rather than the start of more pronounced weakness.
Lower-income spending softness is being offset by an industrial and tech-hardware capital-spending boom.
Looking more broadly gives us some insights into what is helping sustain bullish sentiment: there were two bear markets in the past four years, the S&P500 is less than 11% higher than it was 28 months ago, and the current bull run is so far modest in both length and total appreciation compared to historical averages. In other words, this market has further to run.
In other news:
Nvidia will be in the spotlight this week and I’m sure it will attract a lot of attention. Can Nvidia’s earnings results propel the market higher, for those that are sitting on the AI gravy train?
This week also brings inflation data releases for Canada, Japan, and the UK. Bank of England officials and GBP/USD traders will be watching the data release closely on Wednesday, as the numbers could either solidify the likelihood of an impending rate cut, or further delay cuts.
Market Update
S&P 500 - has rallied as anticipated. The market is undergoing a 5th wave advance onto new highs for the year. First target lies around mid 5,400 and then next target = around 5,700.
Gold – advance in progress.Target = around $2,500.Higher targets are around $2,650 and $3,270.
Silver – advance in progress.Target = around $34.80.
Bitcoin – Uptrend has resumed. The rally will first meet resistance around $73,790 (March 14 peak).After breaking through this resistance, the next target = around the mid $80,000’s.Support is found around $63,000 max. (There is a chance that Bitcoin could retest the low $50k level at some point before continuing to rally – you are forewarned).
Cheers,
Jacquie
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