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2014 Trade Alert Review

When is the Mad Hedge Fund Trader a genius, and when is he a complete moron?

That is the question readers have to ask themselves whenever their smart phones ping, and a new Trade Alert appears on their screens.

I have to confess that I wonder myself sometimes.

So I thought I would run my 2014 numbers to find out when I was a hero, and when I was a goat.

The good news is that I was a hero most of the time, and a goat only occasionally. Here is the cumulative profit and loss for the 75 Trade Alerts that I closed during calendar 2014, listed by asset class.

Profit by Asset Class

Foreign Exchange 15.12%
Equities 12.52%
Fixed Income 7.28%
Energy 1.4%
Volatility -1.68%

Total 37.64%

Foreign exchange trading was my big winner for 2014, accounting for nearly half of my profits. My most successful trade of the year was in my short position in the Euro (FXE), (EUO).

I piled on a double position at the end of July, just as it became apparent that the beleaguered European currency was about to break out of a multi month sideway move into a pronounced new downtrend.

I then kept rolling the strikes down every month. Those who bought the short Euro 2X ETF (EUO) made even more.

The fundamentals for the Euro were bad and steadily worsening. It helped that I was there for two months during the summer and could clearly see how grotesquely overvalued the currency was. $20 for a cappuccino? Mama mia!

Nothing beats on the ground, first hand research.

Stocks generated another third of my profits last year and also accounted for my largest number of Trade Alerts.

I correctly identified technology and biotech as the lead sectors for the year, weaving in and out of Apple (AAPL) and Gilead Sciences (GILD) on many occasions. I also nailed the recovery of the US auto industry (GM), (F).

I safely stayed away from the energy sector until the very end of the year, when oil hit the $50 handle. I also prudently avoided commodities like the plague.

Unfortunately, I was wrong on the bond market for the entire year. That didn?t stop me from making money on the short side on price spikes, with fixed income chipping a healthy 7.28% into the kitty.

It was only at the end of the year, when the prices accelerated their northward trend that they started to cost me money. My saving grace was that I kept positions small throughout, doubling up on a single occasion and then coming right back out.

My one trade in the energy sector for the year was on the short side, in natural gas (UNG), selling the simple molecule at the $5.50 level. With gas now plumbing the depths at $2.90, I should have followed up with more Trade Alerts. But hey, a 1.4% gain is better than a poke in the eye with a sharp stick.

In which asset class was I wrong every single time? Both of the volatility (VIX) trades I did in 2014 lost money, for a total of -1.68%. I got caught in one of many downdrafts that saw volatility hugging the floor for most of the year, giving it to me in the shorts with the (VXX).

All in all, it was a pretty good year.

What was my best trade of 2014? I made 2.75% with a short position in the S&P 500 in July, during one of the market?s periodic 5% corrections.

And my worst trade of 2014? I got hit with a 6.63% speeding ticket with a long position in the same index. But I lived to fight another day.

After a rocky start, 2015 promises to be another great year. That is, provided you ignore my advice on volatility.

Here is a complete list of every trade I closed last year, sorted by asset class, from best to worse.

Date	Position	Asset Class	Long/short	?	?	?	?	?	?
7/25/14	(SPY) 8/$202.50 - $202.50 put spread	equities	long	?	?	?	?	?	2.75%
10/16/14	(GILD) 11/$80-$85 call spread	equities	long	?	?	?	?	?	2.57%
5/19/14	(TLT) 7/$116-$119 put spread	fixed income	long	?	?	?	?	?	2.48%
4/4/14	(IWM) 8/$113 puts	equities	long	?	?	?	?	?	2.38%
7/10/14	(AAPL) 8/$85-$90 call spread	equities	long	?	?	?	?	?	2.30%
2/3/14	(TLT) 6/$106 puts	equities	long	?	?	?	?	?	2.27%
9/19/14	(IWM) 11/$117-$120 put spread	equities	long	?	?	?	?	?	2.26%
10/7/14	(FXE) 11/$127-$129 put spread	foreign exchange	long	?	?	?	?	?	2.22%
9/26/14	(IWM) 11/$116-$119 put spread	equities	long	?	?	?	?	?	2.21%
4/17/14	(TLT) 5/$114-$117 put spread	fixed income	long	?	?	?	?	?	2.10%
8/7/14	(FXE) 9/$133-$135 put spread	foreign exchange	long	?	?	?	?	?	2.07%
10/2/14	(BAC) 11/$15-$16 call spread	equities	long	?	?	?	?	?	2.04%
4/9/14	(SPY) 5/$191-$194 put spread	equities	long	?	?	?	?	?	2.02%
10/15/14	(DAL) 11/$25-$27 call spread	equities	long	?	?	?	?	?	1.89%
9/25/14	(FXE) 11/$128-$130 put spread	foreign exchange	long	?	?	?	?	?	1.86%
6/6/14	(JPM) 7/$52.50-$55.00 call spread	equities	long	?	?	?	?	?	1.81%
4/4/14	(SPY) 5/$193-$196 put spread	equities	long	?	?	?	?	?	1.81%
3/14/14	(TLT) 4/$111-$114 put spread	fixed income	long	?	?	?	?	?	1.68%
10/17/14	(AAPL) 11/$87.50-$92.50 call spread	equities	long	?	?	?	?	?	1.56%
10/15/14	(SPY) 11/$168-$173 call spread	equities	long	?	?	?	?	?	1.51%
7/3/14	(FXE) 8/$138 put spread	foreign exchange	long	?	?	?	?	?	1.51%
10/9/14	(FXE) 11/$128-$130 put spread	foreign exchange	long	?	?	?	?	?	1.48%
9/19/14	(FXE) 10/$128-$130 put spread	foreign exchange	long	?	?	?	?	?	1.45%
10/22/14	(SPY) 11/$179-$183 call spread	equities	long	?	?	?	?	?	1.44%
5/29/14	(TLT) 7/$118-$121 put spread	fixed income	long	?	?	?	?	?	1.44%
2/24/14	(UNG) 7/$26 puts	energy	long	?	?	?	?	?	1.40%
2/24/14	(BAC) 3/$15-$16 call spread	equities	long	?	?	?	?	?	1.39%
6/23/14	(SPY) 7/$202 put spread	equities	long	?	?	?	?	?	1.37%
9/29/14	(SPY) 10/$202-$205 Put spread	equities	long	?	?	?	?	?	1.29%
5/20/14	(AAPL) 7/$540 $570 call spread	equities	long	?	?	?	?	?	1.22%
9/26/14	(SPY) 10/$202-$205 Put spread	equities	long	?	?	?	?	?	1.22%
5/22/14	(GOOGL) 7/$480-$520 call spread	equities	long	?	?	?	?	?	1.16%
5/19/14	(FXY) 7/$98-$101 put spread	foreign exchange	long	?	?	?	?	?	1.14%
1/15/14	(T) 2/$35-$37 put spread	equities	long	?	?	?	?	?	1.08%
3/3/14	(TLT) 3/$111-$114 put spread	fixed income	long	?	?	?	?	?	1.07%
1/28/14	(AAPL) 2/$460-$490 call spread	equities	long	?	?	?	?	?	1.06%
4/24/14	(SPY) 5/$192-$195 put spread	equities	long	?	?	?	?	?	1.05%
6/6/14	(CAT) 7/$97.50-$100 call spread	equities	long	?	?	?	?	?	1.04%
7/23/14	(FXE) 8/$134-$136 put spread	foreign exchange	long	?	?	?	?	?	0.99%
8/18/14	(FXE) 9/$133-$135 put spread	foreign exchange	long	?	?	?	?	?	0.94%
11/4/14	(BAC) 12/$15-$16 call spread	equities	long	?	?	?	?	?	0.88%
4/9/14	(SPY) 6/$193-$196 put spread	equities	long	?	?	?	?	?	0.88%
7/25/14	(SPY) 8/$202.50 -205 put spread	equities	long	?	?	?	?	?	0.88%
6/6/14	(MSFT) 7/$38-$40 call spread	equities	long	?	?	?	?	?	0.87%
10/23/14	(FXY) 11/$92-$95 puts spread	foreign exchange	long	?	?	?	?	?	0.86%
7/23/14	(TLT) 8/$117-$120 put spread	fixed income	long	?	?	?	?	?	0.81%
3/5/14	(DAL) 4/$30-$32 Call spread	equities	long	?	?	?	?	?	0.76%
4/10/14	(VXX) long volatility ETN	equities	long	?	?	?	?	?	0.76%
1/30/14	(UNG) 7/$23 puts	equities	long	?	?	?	?	?	0.66%
4/1/14	(FXY) 5/$96-$99 put spread	foreign currency	long	?	?	?	?	?	0.60%
1/15/14	(TLT) 2/$108-$111 put spread	equities	long	?	?	?	?	?	0.47%
3/6/14	(EBAY) 4/$52.50- $55 call spread	equities	long	?	?	?	?	?	0.24%
10/14/14	(TBT) short Treasury Bond ETF	fixed income	long	?	?	?	?	?	0.22%
3/28/14	(VXX) long volatility ETN	equities	long	?	?	?	?	?	0.20%
7/17/14	(TBT) short Treasury Bond ETF	fixed income	long	?	?	?	?	?	0.08%
3/26/14	(VXX) long volatility ETN	equities	long	?	?	?	?	?	0.06%
7/8/14	(TLT) 8/$115-$118 put spread	fixed income	long	?	?	?	?	?	-0.18%
4/28/14	(SPY) 5/$189-$192 put spread	equities	long	?	?	?	?	?	-0.45%
3/5/14	(GE) 4/$24-$25 call spread	equities	long	?	?	?	?	?	-0.73%
4/28/14	(VXX) long volatility ETN	volatility	long	?	?	?	?	?	-0.81%
4/24/14	(TLT) 5/$113-$116 put spread	fixed income	long	?	?	?	?	?	-0.87%
4/28/14	(VXX) long volatility ETN	volatility	long	?	?	?	?	?	-0.87%
6/6/14	(IBM) 7/$180-$185 call spread	equities	long	?	?	?	?	?	-1.27%
9/30/14	(SPY) 11/$185-$190 call spread	equities	long	?	?	?	?	?	-1.51%
10/9/14	(TLT) 11/$122-$125 put spread	fixed income	long	?	?	?	?	?	-1.55%
9/24/14	(TSLA) 11/$200 call spread	equities	long	?	?	?	?	?	-1.62%
2/27/14	(SPY) 3/$189-$192 put spread	equities	long	?	?	?	?	?	-1.67%
3/6/14	(BAC) 4/$16 calls	equities	long	?	?	?	?	?	-2.01%
10/14/14	(SPY) 10/$180-$184 call spread	equities	short	?	?	?	?	?	-2.13%
11/14/14	(BABA) 12/$100-$105 call spread	equities	short	?	?	?	?	?	-2.38%
10/20/14	(SPY) 11/$197-$202 call spread	equities	short	?	?	?	?	?	-2.72%
7/3/14	(GM) 8/$33-$35 call spread	equities	long	?	?	?	?	?	-2.91%
3/7/14	(GM) 4/$34-$36 call spread	equities	long	?	?	?	?	?	-2.96%
11/25/14	(SCTY) 12/47.50-$52.50 call spread	equities	long	?	?	?	?	?	-3.63%
10/20/14	(SPY) 11/$197-$202 call spread	equities	short	?	?	?	?	?	-4.22%
4/14/14	(SPY) 5/$188-$191 put spread	equities	long	?	?	?	?	?	-6.63%

What a Year!

The Bottom Building Process Has Begun

Diary, Newsletter, Research

I have an arrangement with several large hedge funds where they pay me a small fortune every month for the privilege of calling me one day a year.

Wednesday was that day.

It was a day when the $20 billion hedge fund waited on hold while I got off the phone with the $100 billion hedge fund. And that?s not including urgent calls from the White House, the office of the Joint Chiefs, and the Federal Reserve.

Of course, no one needs to tell these guys how to chew gum. They were interested to know if they were missing anything.

The advice I gave them was very short and simple: ?Keep your eye on the economic data, and ignore everything else.?

You can palpably feel the tension when enduring crisis like these. The Internet noticeably slows down. Transatlantic and Transpacific phone lines get clogged up. Traffic on our website, www.madhedgefundtrader.com, rises tenfold.

So do plaintive emails from followers, everyone of which I attempt to answer quickly. To save time, I will give a generic answer to all of you in advance: ?No, it is not time to stop out of your ProShares Ultra Short 20+ Treasury Bond ETF (TBT) position at the $46 handle.? We are at a multiyear peak in bonds, and this is absolutely not the place to puke out. That?s why I always keep my positions small.

You have to allow room for markets to breathe and still be able to hang on when it goes against you. It is also nice to have the dry powder to double up.

I know some of you are suffering from sleepless nights, so I?ll make it easy for you. We have hit bottom for the year. This is the best time in three years to buy stocks, just in case you forgot to load up at any time since 2011. Ditto for bonds on the sell side.

Earnings started coming out last week, and many companies have been delivering blockbuster reports, as I expected. Over all, I think we can expect total S&P 500 earnings to rise by $11.

This means that, given the market?s recent 10% plunge, stocks are now selling at 12.5 X 2015 earnings. That is a rare bargain. It is a chance to buy shares at 2011 valuations. Don?t blink and miss it.

The big driver hasn?t been the Ebola virus, the risk of which has been wildly exaggerated by the media, but the collapse of the price of oil.

I think we got very close to a bottom of the entire move this morning when we tickled $80. I take North Dakota fracking pioneer John Hamm?s view: If this isn?t the bottom, it is close, and wherever the bottom, we will race right back up to $100 sometime next year on China?s insatiable demand.

That means you buy stocks right now.

For a fuller explanation of the fundamentally bullish argument for the stock market, please click here ?10 Reasons Why the Bull Market is Still Alive?.

Now Is the Time to Have a Gunslinger Working on Your Behalf

How to Execute a Vertical Bull Call Spread

Diary, Newsletter, Research

For those readers looking to improve their trading results and create the unfair advantage they deserve, I have just posted a new training video on How to Execute a Vertical Bull Call Spread.

This is a pair of positions in the options market that will be profitable when the underlying security goes up, sideways, or down small in price over a defined period of time. It is the perfect position to have on board during markets that have declining or low volatility, much like we have experienced over the past year.

I have strapped on quite a few of these across many asset classes this year, and they are a major reason why I am up 40%.

To understand this trade, I have used the recent example of Apple, which I executed on July 10, 2014. I felt very strongly that Apple shares would rally into the release of their new iPhone 6 on September 9, 2014.

So followers of my Trade Alert service received text messages and emails to add the following position:

Buy the Apple (AAPL) August, 2014 $85-$90 in-the-money bull call spread at $4.00 or best

To accomplish this, they had to execute the following trades:

Buy 25 August, 2014 (AAPL) $85 calls at????..?$9.60

Sell short 25 August, 2014 (AAPL) $90 calls at??..$5.60
Net Cost:????????????????................$4.00

This gets traders into the position at $4.00, which cost them $10,000 ($4.00 per option X 100 shares per option X 25 contracts).

The vertical part of the description of this trade refers to the fact that both options have the same underlying security (AAPL), the same expiration date (August 15, 2015) and only different strike prices ($85 and $90).

The breakeven point can be calculated as follows:

$85.00 Lower strike price
? $4.00 Price paid for the vertical call spread
$89.00 Break even Apple share price

The great thing about these positions is that your risk is defined. You can?t lose anymore than the $10,000 you put up.

If Apple goes bankrupt, we get a flash crash, or suffer another 9/11 type event, you will never get a margin call from your broker in the middle of the night asking for more money. This is why hedge funds like them so much.

As long as Apple traded at or above $89 on the August 14 expiration date, you will make a profit on this trade.

As it turns out, my read on Apple shares proved dead on, and the shares closed at $97.98 on expiration day, or a healthy $8.98 above my breakeven point.

The total profit on the trade came to:

($1.00 X 100 X 25) = $2,500

This means that the position earned a 25% profit in little more than a month. Now you know why I like Vertical Bull Call Spreads so much.

Occasionally, these things don?t work. As hard as it may be to believe, I am not infallible.

So if I?m wrong and I tell you to buy a vertical bull call spread, and the shares fall not a little, but a lot, you will lose money. On those rare cases when that happens, I?ll shoot out a Trade Alert to you with stop-loss instructions before the damage gets out of control.

To watch the video edition of How to Execute a Vertical Bull Call Spread, complete with more detailed instructions on how to execute the position with your online platform, please click here.

Vertical Bull Call Spreads Are the Way to Go in a flat to Rising Market

What to Do About Apple?

Newsletter, Research

Those who followed my advice to buy Apple a year ago are now drowning in riches (click here for ?Buy Apple on the Dip?). Since the July, 2013 bottom, the shares have risen by a meteoric 92%. It is the largest company in the world once again.

As a result, I have heard of my readers shopping for second homes on Lake Tahoe, sponsoring NASCAR teams, or buying new Rolex watches for significant others.

I recommended China Mobile (CHL) then as well, the big beneficiary of a new deal with Apple, whose shares have also gone ballistic.

The question of the day is: ?Now what do we do?

You are right to ask the question. The company?s stock is notorious for running up massively into every major product launch, and then giving back a big chunk afterwards.

So while the expected announcement of the iPhone 6 on September 9 is welcomed as producing a major new source of revenue, it could also signal the end of the current run.

Take a look at the long-term charts, and the hair on the back of your neck should stand up. The fanfare for the iPhone 6 will almost exactly come at a potential double top in the stock price. Could we be setting up for the greatest ?buy the rumor, sell the news? of all time?

The last time we visited this territory, which we visited on the launch of the iPhone 5, Apple?s shares plunged a gut churning 45%, prompting some shareholders to dump their iPhones in the trash.

Certainly the problems that caused the rally to fail last time are kicking in once again. The law of large numbers applies once more. Apple?s market capitalization is at $607 billion today. There may not be enough equity investors in the world to push the shares up appreciably from here.

Oh, and because of the recent rapid appreciation, most institutions are now overweight Apple, as they were in September, 2012. The only difference is that Apple accounts for only 3% of the S&P 500, compared to a hefty 5% two years ago.

The shares are now at a 15.5 earnings multiple, up from under 10 at the recent bottom, and 7 if you took out all of the cash. That is still a discount to the main market, as well as most other technology stocks.

The truth is that this is not your father?s Apple.

CEO Tim Cook has shown a much greater respect for investors compared to founder, Steve Jobs, who despised Wall Street with a passion. I know, because I escorted Steve to meet with institutional investors looking at a secondary share issue during the early 1980?s. It was not a happy time for me.

There is a $50 billion stock buyback program in place, which soaked up a ton of shares at the bottom.

We also now have a 2% dividend yield, a mere 37 basis points through ten year Treasury bond today, another idea Jobs poo pooed.

The company is also strategically in a much stronger position than it was in 2012. Apple has a far broader, more attractive, and more advanced product range than it did only 24 months ago. The China Mobile deal has kicked in big time.

There is immense demand for the new larger screen, faster iPhone 6, which will offer consumer untold bells and whistles. Some 50% of the iPhones in existence are 4s?s or older, so upgrades from the installed base will the largest in history.

This will enable it to retake market share from hated rival, Samsung, which moved to a big screen in 2013. This will open the way for an expansion of Apple?s profit margins, possibly by 25% or more.

Samsung?s smart phone strategy all along has been to copy Apple?s patents and milk them for whatever they are worth, before they inevitably lose the next infringement case in court. As I never tire of telling listeners at my speaking engagements and luncheons, you can?t steal your way to the top in technology.

I would expect, at the very least, that the market has to put the double top theory to the test at least once. That alone will prompt a 10% correction, back down to $92.

Then, if we really are still in a bull trend, it will bounce off that number and head to new highs. If it doesn?t, then it?s game over until the run up to the next big product launch. The iPhone 7?

So the clever thing to do here has to be to do a buy write and sell short Apple September, 2014 $105 calls against you existing stock position.

At this moment, you can get 96 cents for them, with September 19 expiration. If you are braver still, you can go out another month and take in $2.01 for the October 17, 2014 calls. Don?t go farther out than that, or you might miss the yearend rally.

That way, if the stock keeps rising, you will sell your shares out at the higher price of $105. If it falls, your average cost declines by 96 cents, or $2.01. Either way, it is a win-win.

Isn?t that what you pay me for?

Meet Your New iPhone

Apple Breaks $100

Diary, Free Research, Newsletter

Since I am in a major patting myself on the back mood, I thought I would rerun a piece I ran last October entitled ?Apple is Ready to Explode?. This is back when the shares were trading at a lowly $490 a share.

Since then I have been urging readers to get in on the long side at every opportunity. They are now up a mind boggling 43% from that timely recommendation. They are laughing all the way to the bank.

?You have to be impressed how Apple shares have been trading during the Washington shutdown and the debt ceiling crisis. While other highflying technology stocks have crashed and burned, Apple has held like the Rock of Gibraltar.

Is this presaging much better things to come?

After the bar was set extremely low in the run up to the iPhone 5s launch, there has been an onslaught of good news. The first weekend sales came in at a staggering 9 million units, nearly double analyst forecasts. That?s a lot of units to be wrong by.

This has led to a series of broker upgrades by Cantor Fitzgerald, Cowen & Co., Piper Jaffray, Sanford Bernstein, and most recently by Jeffries. Entrenched bears are slowly an inexorably turning into bulls. Targets range up to $780.

During the summer, when the shares were trading in the low $400?s, Apple emerged as the largest buyer of its own stock. Still, it only made a dent in the $60 billion the company has dedicated to the program.

Of course, corporate raider and green mailer Carl Icahn (he lived in my building in Manhattan and was always a bit of a jerk) wants Apple to buy $160 billion of its stock, about $36% of the total market capitalization. But with a position of only $2 billion, Carl doesn?t have enough skin in the game to get anything more than a free dinner from CEO Tim Cook.

Still, the more Icahn bangs the drum about the value of Apple, the more money he sucks in. His blustering has probably added about $50 to the stock price. That works for me.

Like the Origin of the Universe and the 105-year long losing streak suffered by the Chicago Cubs baseball team, the cheapness of Apple shares is one of those mysteries that baffles investors. Sure, you?d expect some natural profit taking after the meteoric 15 year run in the shares, from $4 to $707. But a 46% drawdown is a lot, and many would say too much.

The company has eye popping net profits of $3.5 million per business hour (click here for the most recently quarterly announcement). Some one third of it capitalization, or $150 billion, sits in cash in European bank accounts.

That works out to $165 of the current $490 share price. This brings the ex cash trailing price earnings multiple down to a subterranean 11.8 times, or a 25% discount to the 16X market multiple. The dividend yield of 2.5% still exceeds that of the ten year Treasury bond. This is absurdly cheap.

Anyone who makes their living looking at the numbers has been loading up on the stock for the past eight months. Even permabear and short seller, Jim Chanos, has been buying on the theory that both Apple, and competitor Samsumg, together have been demolishing the Wintel architecture.

I think there is something important going on here. Apple is bringing out the next generation iPad in two weeks. Product refreshes for the iMac, Macbook, and Airbook in coming months are already well known. Every time an announcement of an announcement is made, the stock spikes $10.

But the 800-pound gorilla in Apples earnings stream is the iPhone, which accounts for more than 70% of its profits. The wildly successful 5s and 5c launches will take total smart phone sales from around 36 million in Q3 to at least 56 million units in Q4. The analyst community is nowhere near these numbers, so they are substantially underestimated the profitability of the company.

Apple has already cracked the China market for cash buyers with the latest upgrade of its wireless operating system. The whale here is a deal with China Mobile (CHL) with its 740 million customers, which has been to subject to on again and off again negations for years. Still, Apple has already told its manufacturers to add china Mobile to its approved carrier list.

I think the stock is beginning to discount the launch of the iPhone 6, which is still a distant 11 months away. That will take the company another generation ahead, with an expansive six-inch screen and a blazing fast A8 processor, leaving competitors in the dust.

The business is so big that my favorite airline, Virgin America, has initiated nonstop service from San Francisco to Austin. I?m told the plane is always full. That?s where they make processors for the new phones.

All of this leads me to believe that Apple will be a major mover in 2014. The chip shot is $600, and we get a real head of steam into the iPhone 6 rollout, we could match the old high at $707.

You can buy the stock here with some comfort. If you are hyper aggressive, try playing the weekly call options on the next breakout. The more cautious can settle for the Technology Select Sector SPDR ETF (XLK), or the ProShares Ultra Technology 2X leveraged ETF (ROM). Apple has major weightings in both of these ETF?s.?

For the link to the original story, please click here.

So Where is the Power Button on this Thing?

Is the Turnaround at Hand, and Ten Stocks to Buy at the Bottom?

Newsletter, Research

War threatens in the Ukraine. Iraq is blowing up. Rebels are turning our own, highly advanced weapons against us. Israel invades Gaza. Ebola virus has hit the US. Oh, and two hurricanes are hitting Hawaii for the first time in 22 years.

Should I panic and sell everything I own? Is it time to stockpile canned food, water and ammo? Is the world about to end?

I think not.

In fact the opposite is coming true. The best entry point for risk assets in a year is setting up. If you missed 2014 so far, here is a chance to do it all over again.

It is an old trading nostrum that you should buy when there is blood in the streets. I had a friend who reliably bought every coup d? etat in Thailand during the seventies and eighties, and he made a fortune, retiring to one of the country?s idyllic islands off the coast of Phuket. In fact, I think he bought the whole island.

Now we have blood in multiple streets in multiple places, thankfully, this time, it is not ours.

I had Mad Day Trader, Jim Parker, do some technical work for me. He tracked the S&P 500/30 year Treasury spread for the past 30 years and produced the charts below. This is an indicator of overboughtness of one market compared to another that reliably peaks every decade.

And guess what? It is peaking. This tells you that any mean reversion is about to unleash an onslaught of bond selling and stock buying.

There is a whole raft of other positive things going on. Several good stocks have double bottomed off of ?stupid cheap? levels, like IBM (IBM), Ebay (EBAY), General Motors (GM), Tupperware (TUP), and Yum Brands (YUM). Both the Russian ruble and stock market are bouncing hard today.

There is another fascinating thing happening in the oil markets. This is the first time in history where a new Middle Eastern war caused oil price to collapse instead of skyrocket. This is all a testament to the new American independence in energy.

Hint: this is great news for US stocks.

If you asked me a month ago what would be my dream scenario for the rest of the year, I would have said an 8% correction in August to load the boat for a big yearend rally. Heavens to Betsy and wholly moley, but that appears to be what we are getting.

It puts followers of my Trade Alert service in a particularly strong position. As of today, they are up 24% during 2014 in a market that is down -0.3%. Replay the year again, and that gets followers up 50% or more by the end of December.

Here is my own shopping list of what to buy when we hit the final bottom, which is probably only a few percent away:

Longs

JP Morgan (JPM)
Apple (AAPL)
Google (GOOG)
General Motors (GM)
Freeport McMoRan (FCX)
Corn (CORN)
Russell 2000 (IWM)
S&P 500 (SPY)

Shorts

Euro (FXE), (EUO)
Yen (FXE), (YCS)

No, Not This Time

Jumping Back Into Apple

Newsletter

Last Thursday,?Trade Alert?followers saw?Mad Day Trader?Jim Parker and I both jump into Apple (AAPL) on the long side, once again. When two old critters with a combined 85 years of trading experience, such as ourselves, agree on something, it is usually a pretty good idea.

We were both responding to a rare $3, or 3.1% dip in the share price of Apple in response to the financial crisis du jour emanating from Europe?thanks to Portugal?s Banco Espiritu Santo.

Of course, Apple has nothing to do with the Portuguese financial system, except to the extent that they have to recycle all the profits from the many iPhones they sell in the country. It didn?t take traders long to figure this out, running (AAPL) shares right back up to unchanged on the day.

Jim already has issued a second?Trade Alert?to take profits?such is the short-term nature of his strategy. I, however, am looking to hold on longer, possibly as far out as September.

That is when the next generation iPhone 6 will almost certainly make its debut. A similar launch two years ago marked a multiyear high in the stock.

Rumors about Apple products have grown into a full-scale cottage industry of its own over the decades. Sometimes these speculations come true, and with the shares in play, it is worthwhile to explore a few of these.

The big one is that some hedge funds and/or business publications have bribed underpaid workers at China?s Foxconn, the principal manufacturers of the world?s most popular smart phone, to reveal that they have an order to supply a stunning 68 million units by the end of the year.

This is more than double the initial order for the iPhone 5s. Foxconn, a company famed for working its people to death, is hiring a stunning 100,000 new workers to meet the gargantuan order. Confirmation has been found all the way down the supply line among OEM parts manufacturers.

One possible explanation for the massive ramp up in numbers is that Apple may offer two versions of the iPhone 6, one with a 4.7-inch screen, and a second premium model with a much more generous 5.5-inch screen. The company did much the same last year, when it brought out both the iPhone 5s and the 5c. Higher prices and profit margins are predicted for both products.

The move is in no doubt in response to the emerging ?phablet? market, or the convergence of the smart phone and the tablet. Google?s Android and Samsung?s Galaxy are already well down the road on this front.

This is in response to the runaway growth of Apple?s market share in China, where larger screens are needed to read Chinese characters. It also may be an attempt to capture more of the baby boomer market here in the US, where aging (but big spending) eyes require larger letters and images.

As for me, I can only use my iPhone 5s with reading glasses.

All of this explains why Apple has been on an absolute tear for the past year, rising some 78%. It is the world?s largest company once again, with a market capitalization at an eye popping $574 billion. Exxon (XOM), eat your heart out.

Brokers upgrades of the company are now nearly a daily occurrence. It has also been a major component of NASDAQ?s recent blistering gains, which account for more than 20% of the tech heavy index.

Unfortunately, I have seen this movie before, in 2012, when the iPhone 5 first came out. Which is why I?m only hanging on until September.

I was never one of the many Apple naysayers. I think CEO Tim Cook has done a great job transitioning the firm from the sway of the late founder, Steve Jobs. I think the shares will one day see $150, if not $200.

But given the history, when shares plunged 45% after the last major product launch, and the temptation to take sizeable profits in an otherwise morose market, caution is called for.

Reweighting of investment funds with major Apple holdings, which will have to unload stock to avoid going too overweight in their annual report, will be a further drag on the stock going into yearend.

I Hear They?re About to Upgrade?

?And Diversify

The Worst Trade in History

Diary, Newsletter

Say you owned 10% of Apple (AAPL) and you sold it for $800 in 1976. What would that stake be worth today?

Try $22 billion. That is the harsh reality that Ron Wayne, 76, faces every morning when he wakes up, one of the three original founders of the consumer electronics giant. Ron first met Steve Jobs when he was a spritely 21-year-old marketing guy at Atari, the inventor of the hugely successful ?Pong? video arcade game.

Ron dumped his shares when he became convinced that Steve Jobs? reckless spending was going to drive the nascent start up into the ground and he wanted to protect his assets in a future bankruptcy. Co-founders Jobs and Steve Wozniak each kept their original 45% ownership. Today Job?s widow?s 0.5% ownership is worth $1.5 billion, while the Woz?s share remains undisclosed. Ron designed the company?s original logo and wrote the manual for the Apple 1 computer, which boasted all of 8,000 bytes of RAM (which is 0.008 megabytes to you non-techies).

Today, Ron is living off of a meager monthly Social Security check in remote Pahrump, Nevada, about as far out in the middle of nowhere as you can get, where he can occasionally be seen playing the penny slots.

Apple Strikes Again

Newsletter

Let me tell you my thinking here.

More than 51 million iPhones sold is good enough for me, 3.2 million more than they moved a year ago, and they are more expensive devices. IPads leapt from 22.9 million to 26 million, including the five high end ones I bought.

The earnings announcement wasn?t that bad, with record quarterly YOY revenues of $57.6 billion reported. Earnings per share jumped a middling 5%, from $13.81 to $14.50, partially in response to the company?s own massive buy back program. ?Gross margins came in at 37.9%, which would be gigantic if Apple were in any other industry but technology.

The dividend was nailed at $3.05 per share, setting the yield today at 2.43% annualized, a mere 30 basis points below ten-year Treasury bonds.

However, I think that traders have become so conditioned to selling on the news that the stock wasn?t going to take a dump no matter what the company said. This is why I went into the release flat on Apple this time. It?s too early in the year to lick wounds. At today?s low of $502, we were down $73 from the recent high, or 12.7%.

If you look back at the collapse after the September, 2012 $706 peak, it took two months for the shares to fall $100. For us to lose money on the Apple February, 2014 $460-$490 bull call spread, it would have to fall twice as fast as back then, and it has to do it in only 17 trading days. Sounds like a good bet to me.

We are also getting huge valuation support down here, with an ex cash multiple of 9, versus a market multiple of 16. Investors are going to hold a gun to the head of their portfolio managers to get them to average up in this neighborhood.

You also have corporate raider, green mailer, and former Manhattan neighbor of mine (activist, to be polite) Carl Icahn twittering away about how cheap the stock is, and buying another $500 million worth of shares today to cash in on the plunge. You can see him coming in every time the stock takes a run at $507. Carl was not a factor in the last melt down.

My whole theory on why Apple has disappointed continuously for the past 18 months is that the company has just gotten too big. A different sort of physics seems to apply when companies exceed $500 billion in market capitalization. The more money the company makes, the cheaper it gets. This is causing even the most seasoned value players to adopt a surly attitude, throw their handsets at their monitors, and tear out there hair, if they have any left.

Steve Jobs must be laughing from the grave.

For your edification, I have included a proprietary chart from my colleague, Mad Day Trader Jim Parker, showing huge technical support at the $470-$480 level. It is days like this that Jim is worth hit weight in gold. Too bad he isn?t heavier.

Cashing In on Apple

Newsletter

Apple (AAPL) has delivered again, choosing the expiration week of my January, 2014 $490-$520 bull call spread to take forward their gigantic joint venture with China Mobile (CHL), far and away the world?s largest phone company. Expect to see video of long lines forming at Apple stores throughout china. This is always good for the share price.

This assures that the spread will expire at its maximum value of $30, up 22.7% from my $24.45 cost. Not bad for a six week position.

The China deal promises to take Apple a quantum leap forward in the global marketplace. There are 40 million high-end consumers in the Middle Kingdom who already own deactivated and unsubsidized iPhones costing $1,000 each. The (CHL) deal is expected to add another 10-30 million buyers to that figure, taking the total China market up to 70 million units.

That is equivalent to a hefty 26% of global sales. Some 57% of China?s Internet traffic takes place using Apple?s IOS operating system, another indicator of how widely these devises are used.

The China deal caps a six-month offensive by the company on the good news front. It has upgraded virtually its entire product line. The iPad Air, which I bought yesterday, is a wonder to behold. Sales are coming in ahead of expectations, and earnings are improving. Competitor Samsung has been knocked back on its heels.

The grand finale for this move could come when the company announces calendar Q4 earnings on January 27. The average consensus EPS of 22 analysts is $14.04/share, compared to $13.81 for the same period a year earlier, a gain of 17%.

Apple has been a steady earner for me since the stock bottomed last July. Since then, Apple has been one of the top performing technology shares, rocketing some 49%. So I wouldn?t necessarily load the boat right here. Better to wait for the next 10% dip, which always seems to come.

The valuation of Apple remains a mystery to long time equity analysts, who can?t understand why the firm remains so constantly cheap. It now trades at only 12 times earnings, a 25% discount to the market S&P 500.

With a market capitalization of $504 billion, it is the world?s largest publicaly listed company. It therefore takes a lot of money to move the needle on this stock. It is already owned by 1,279 mutual funds and is their largest holding. It seems that a different physics applies when exploring balance sheets and income statements of this size.

By the way, if you have switched your company over to an all Apple network, as I have, and are dying for some first class technical support, check out the company?s Joint Venture service (click here for website). For $500 a year you can get a genius to call you at any time, anywhere, to answer questions about any Apple product. Since I have all of them, it is worth its weight in gold. These people are really worthy of the term ?genius.?

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?And Diversify