Below please find subscribers’ Q&A for the Mad Hedge Fund Trader July 24Global Strategy Webinar broadcast from Zermatt, Switzerland with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: What are your thoughts on the Freeport McMoRan (FCX) long position here?
A: We could take a profit here. We probably have about 50% of the maximum potential profit, but I want to hang on and go to the max on this because we’re so far in the money. Cash always has a premium ahead on any Fed interest rate decision. But long term, I think the stock could double, and with the earnings report now out of the way, we have room to run.
Q: What can you say about semiconductor stocks?
A: Long term we love them, short term they are too high to chase here. I would wait for any kind of pullback and, better yet, pull back from the other side of the next recession. We’re not seeing an improvement in prices or orders so this is strictly a technical/momentum-driven trade right now.
Q: How do you play the Volatility Index (VIX)?
A: There are numerous ways you can do it; you can buy call options on the (VIX), you can buy futures on the (VIX), or you can buy the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX). We are probably a week away from a nice entry point on the long side here.
Q: Does a languishing U.S. dollar mean emerging market opportunities?
A: It absolutely does. If we really start to get a serious drop in the U.S. dollar (UUP)—like 5-10%—it will be off to the races for commodities, bonds (TLT), emerging stock markets (EEM), emerging bond markets (ELD), emerging currencies (CEW), and gold (GLD). All of your weak dollar plays will be off to the races—that’s why I went straight into bonds, the Aussie (FXA), and copper through Freeport McMoRan (FCX). All of these trades have been profitable.
Q: When should we sell the U.S. dollar?
A: How about now? For any kind of strength in a dollar against the (FXA), (FXE), (FXC) and (FXY), I would be buying any dips on those foreign exchange ETFs. We’re about to enter a six-month – one-year period weakness on the dollar. It could be the easiest trade out there. The only one I would avoid is the British pound (FXB) because of its own special problems with Brexit. You never want to go long the currency of a country that is destroying itself, which is exactly what’s happening with the pound.
Q: Should I start selling pounds?
A: It’s pretty late in the pound game now. We went into Brexit with the pound at $1.65 and got all the way down to $1.20. We’re a little bit above that now at $1.21. If for some reason, you get a surprise pop in the pound, say to $1.25, that’s where I would sell it, but down here, no.
Q: I missed the (FCX) trade—would you get in on the next dip?
A: Yes, we may not get many dips from here because the earnings were out. Today, they were not as bad as expected, and that was keeping a lot of buyers out of the market on (FCX), so any dips you can get, go a dollar out on your strikes and then take it because this thing could double over the medium term. If the trade war with China ends, this thing could make it to the old high of $50.
Q: Is now a good time to refi my home?
A: Yes, because by the time you get the paperwork and approvals and everything else done (that’ll take about 2 months), rates will likely be lower; and in any case you’re looking to refi either a 7/1 ARM or a 15-year fixed, and the rates on those have already dropped quite substantially. I was offered 3.0% for a 15-year fixed loan on my home just the other day.
Q: On trades like (FCX), why not sell short the put spread?
A: It’s really six of one, half dozen of the other. The profit on either one should be about the same. If it isn’t, an options market maker will step in and arbitrage out the difference. That’s something only an algorithm can do these days. I recommend in-the-money call spreads versus shorting sell short vertical bear put credit spreads because for beginners, in-the-money call spreads are much easier to understand.
Q: The Mueller hearings in Congress are today. Is there any potential impact on the market?
A: The market has completely detached itself from Washington—it couldn’t care less about what’s happening there. I don’t think politics have the capacity to affect stock prices. The only possible impact was the prospect of the government shutdown in September. That seems to have been averted in the latest deal between the House and the White House.
Q: What about Amazon (AMZN)?
A: Like the rest of technology, long term I love it, but short term it’s overdue for a small correction. I’m looking for Amazon to go to $3,000 a share—it’s essentially taking over the world. The antitrust threats will go absolutely nowhere; Congress doesn’t even understand what these companies do, let alone know how to break them up. I wouldn’t worry about it.
Q: I just received an email inviting me to buy a new Bitcoin auto trading system that is guaranteed to make me a millionaire in four months. It is being promoted by Nicole Kidman. Do you think I should try it?
A: I wouldn’t touch this with a ten-foot pole. No, wait. I wouldn’t touch this with a 100-foot pole! Whenever a new type of security comes out, these types of “get rich quick” investment scams come out of the woodwork. Cryptocurrency is no different. Nicole Kidman was probably paid $500,000 to make the pitch by a promotor. Or more likely, Nicole Kidman has nothing to do with these people and they just swiped her picture off the Internet. I hear about these things daily. Follow their plan and you are more likely to get completely wiped out than become a millionaire. There are NO get rich quick schemes. There are only get rich slowly strategies, such as following this newsletter. Click here to see the above-mentioned scam which you should avoid at all cost. Gee, do you think Nicole Kidman would be interested in promoting the Mad Hedge Fund Trader?
https://www.madhedgefundtrader.com/wp-content/uploads/2016/07/John-with-Hiking-Poles-e1468528643680.jpg354400Mad Hedge Fund Traderhttps://www.madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-07-26 08:04:042019-07-26 08:59:41July 24 Biweekly Strategy Webinar Q&A
When you have constant jet log, you often have weird dreams. Take this morning, for example.
I dreamed that Fed governor Jay Powell invited me over to his house for breakfast. While he was cooking the bacon and eggs, Donald Trump started to call him every five minutes ordering him to lower interest rates. Jay got so distracted that the bacon caught fire, the house burned down, and we all died.
Fortunately it was only a dream. But like most dreams, parts of it were borrowed from true life.
Brace yourself, this could be the deadest, least interesting, most somnolescent week of the year. Thanks to all of those “out of office” messages we are getting with our daily newsletter mailings, I know that most of you will be out on vacation. Trading desks everywhere are now manned by “B” teams.
Then, the most important data release of the month doesn’t come out until Friday morning. It will be weak, but how weak? Q1 came in at a robust 3.1%. Q2 could be under 1%. The bigger unknown is how much of this widely trumpeted slowdown is already in the market?
Given the elevated levels of stock markets everywhere, most traders will rather be inclined to bet on which of two flies crawls up a wall faster. Such are the dog days of summer.
We here in Europe are bracing for the next ratchet up in climate change, where every temperature record is expected to be broken. It is forecast to hit 92 in London, 106 in Paris, and 94 in Berlin. Still, that’s a relief from India, where it was 120. Five more years of global warming and India will lose much of its population as it will become uninhabitable.
I shall have to confine my Alpine climbing to above 8,000 feet where hopefully it can reach the 70s. By the way, the air conditioning in Europe sucks, and the bars always run out of ice early.
While the Fed is expected by all to cut interest rates a quarter point next week, we have suddenly received a raft of strong economic data points hinting that it may do otherwise.
Inflation hit an 18-month high, with the CPI up a blistering 0.3% in June. That’s why bonds (TLT) took a sudden four-point hit. Soaring prices for apparel (the China trade war), used cars, rents, and healthcare costs led the charge. Is this the beginning of the end, or the end of the beginning?
The Empire State Factory Index hits a two-year high, leaping from -8.6 in June to 4.3 in July. No recession here, at least in New York.
Microsoft (MSFT) blew it away, with spectacular Q2 earnings growth, wiping out conservative analyst forecasts. Azure, the company’s cloud business, rose a spectacular 64%. Nothing like seeing your number one stock pick for 2019 take on all comers. Buy (MSFT) on every dip.
An early read on Q2 GDP came in at a sizzling 1.8%. Many forecasts were under 1%, thanks to the trade wars, soaring budget deficits, and fading tax revenues. That’s still well down from the 3.1% seen in Q1. It seems no one told Main Street, where retail sales and borrowing are on fire, according to JP Morgan’s Jamie Diamond.
US Retail Sales rose a hot 0.4% in June, raising prospects that the Fed may not cut interest rates after all. Stocks and bonds both got hit. Don’t panic yet, it’s only one number.
If the Fed only looks at the data above, it would delay a rate cut for another quarter. If they choose that option, the Dow Average would plunge 1,000 points in a week. The market-sensitive Fed knows this too.
However, the Fed has to be maintaining a laser-like focus on the Conference Board Index of Leading Economic Indicators, which lately have been rolling over like the Bismarck and always presage a recession. For your convenience, I have included a 60-year chart below with the recessions highlighted.
And there were a few soft spots in the numbers as well.
China growth slowed to 6.2%, a 27-year low. Never mind that the real rate is probably only 3%. The slowdown is clearly the outcome of the trade war. That’s what happens when you make war on your largest customer. Markets rallied because it was not worse.
Banks beat on earnings, but stocks yawned, coming off an “OK” quarter. It’s still the sector to avoid with a grim backdrop of sharply falling interest rates. They’re also getting their pants beat by fintech, from which there is no relief.
There is no end to the China trade war in sight, as Trump once again threatened another round of tariff increases. It looks like the trade war will outlast the presidential election, since the Chinese have no interest in helping Trump get reelected. The puzzle is that the stock market could care less.
Trump’s war on technology expanded. First, Facebook (FB) got hit with a $5 fine over privacy concerns. Now Google (GOOGL) is to be investigated for treason for allegedly helping the Chinese military. In the meantime, Europe is going after Amazon (AMZN) on antitrust concerns. If the US isn’t going to dominate technology, who will. Sorry, but this keyboard doesn’t have Chinese characters.
June US Housing Starts fell 0.9%, while permits dove 6%. If builders won’t build in the face of record low interest rates, their outlook for the economy must be grim. Maybe the 36% YOY decline in buying from Chinese has something to do with it.
Oil popped on the US downing of an Iranian drone in the Straits of Hormuz, which I flew over myself only last week on my way to Abu Dhabi. Expect this tit for tat, “Phony War” to continue, making Texas tea (USO) untradeable. In the meantime, the International Energy Agency has cut oil demand forecasts, thanks to a slowing global economy.
My strategy of avoiding stocks and only investing in weak dollar plays like bonds (TLT), foreign exchange (FXA), and copper (FCX) has been performing well. After spending a few weeks out of the market, it’s amazing how clear things become. The clouds lift and the fog disperses.
My Global Trading Dispatch has hit a new high for the year at +17.78% and has earned a respectable 2.54% so far in July. Nothing like coming out of the blocks for an uncertain H2 on a hot streak.
My ten-year average annualized profit bobbed up to +33.12%.With the markets now in the process of peaking out for the short term, I am now 70% in cash with Global Trading Dispatch and 100% cash in the Mad Hedge Tech Letter. If there is one thing supporting the market now, it is the fact that my Mad Hedge Market Timing Index has pulled back to a neutral 44. It’s a Goldilocks level, not too hot and not too cold.
The coming week will be a fairly sedentary one on the data front after last week’s fireworks, except for one big bombshell on Friday.
On Monday, July 22, the Chicago Fed National Activity Index is published.
On Tuesday, July 23, we get a new Case Shiller National Home Price Index. June Existing Home Sales follow.
On Wednesday, July 24, June New Home Sales are released.
On Thursday, July 25 at 8:30 AM EST, the Weekly Jobless Claims are printed. So are June Durable Goods.
On Friday, July 26 at 8:30 AM EST, we get the most important release of the week, the advance release of US Q2 GDP. The numbers are expected to be weak, and anything above 1.8% will be a surprise, compared to 3.1% in Q1. Depending on the number, the market will either be up big, down big, or flat. I can already hear you saying “Thanks a lot.”
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I’ll be attending a fund raiser tonight for the Zermatt Community band held in the main square in front of St. Mauritius church. If you don’t ski, there isn’t much to do in the winter here but practice your flute, clarinet, French horn, or tuba.
We’ll be eating all the wurst, raclete, beer, and apple struddle we can. As an honorary citizen of Zermatt with the keys to the city, having visited here for 51 years, I get to attend for free.
Good luck and good trading.
John Thomas CEO & Publisher The Diary of a Mad Hedge Fund Trader
Mad Hedge Market Timing Index
https://www.madhedgefundtrader.com/wp-content/uploads/2019/07/zermatt-direction.png668899Mad Hedge Fund Traderhttps://www.madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-07-22 01:04:242019-08-19 16:04:23The Market Outlook for the Week Ahead, or Brace Yourself