Posts

May 20, 2019

Global Market Comments
May 20, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, OR I’LL TAKE SOME OF THAT!)
(FXI), (CYB), (TSLA), (AAPL), (BA), (WMT), (TLT), (INTU), (GOOGL)

The Market Outlook for the Week Ahead, or I’ll Take Some of That!

Whatever the market is drinking right now, I’ll take some of that stuff. If you could bottle it and sell it, you’d be rich. Certainly, the Viagra business would go broke.

To see the Dow average only give up 7% in response to the worst trade war in a century is nothing less than stunning. To see it then make half of that back in the next four days is even more amazing. But then, that is the world we live in now.

When the stock market shrugs off the causes of the last great depression like it’s nothing, you have to reexamine the root causes of the bull market. It’s all about the Fed, the Fed, the Fed.

Our August central bank’s decision to cancel all interest rate rises for a year provided a major tailwind for share prices at the end of 2018. The ending of quantitative tightening six months early injected the steroids, some $50 billion in new cash for the economy per month.

We now have a free Fed put option on share prices. Even if we did enter another 4,500-point swan dive, most now believe that the Fed will counter with more interest rate cuts, thanks to extreme pressure from Washington. A high stock market is seen as crucial to winning the 2020 presidential election.

Furthermore, permabulls are poo-pooing the threat to the US economy the China (FXI) trade war presents. Some $500 billion in Chinese exports barely dent the $21.3 trillion US GDP. It’s not even a lot for China, amounting to 3.7% of their $13.4 trillion GDP, or so the argument goes.

Here’s the problem with that logic. The lack of a $5 part from China can ground the manufacture of $30 million aircraft when there are no domestic alternatives. Similarly, millions of small online businesses, mostly based in the Midwest, couldn’t survive a 25% price increase in the cost of their inventory.

As for the Chinese, while trade with us is only 3.7% of their economy, it most likely accounts for 90% of their profits. That’s why the Chinese yuan (CYB) has recently been in free fall in a desperate attempt to offset punitive tariffs with a substantially cheaper currency.

The market will figure out all of this eventually on a delayed basis and probably in a few months when slowing economic growth becomes undeniable. However, the answer for now is NOT YET!

Markets can be dumb, poor sighted, and mostly deaf animals. It takes them a while to see the obvious. One of the problems with seeing things before the rest of the world does, I can be early on trades, and that can translate into losing money. So, I have to be cautious here.

When that happens, I revert to an approach I call “Trading devoid of the thought process.” When prices are high, I sell. When they are low, I buy. All other information is noise. And I keep my size small and stop out of losers lightning fast. That’s how I managed to eke out a modest 0.63% profit so far this month, despite horrendous trading conditions.

You have to trade the market you have, not what it should be, or what you wish you had. It goes without saying that the Mad Hedge Market Timing Index become an incredibly valuable tool in such conditions.

It was a volatile week, to say the least.

China retaliated, raising tariffs on US goods, ratcheting up the trade war. US markets were crushed with the Dow average down 720 intraday and Chinese plays like Apple (AAPL) and Boeing (BA) especially hard hit.

China tariffs are to cost US households $500 each in rising import costs. Don’t point at me! I buy all American with my Tesla (TSLA).

The China tariffs delivered the largest tax increases in history, some $72 billion according to US Treasury figures. With Walmart (WMT) already issuing warnings on coming price hikes, we should sit up and take notice. It is a highly regressive tax hike, with the poorest hardest hit.

The Atlanta Fed already axed growth prospects for Q2, from 3.2% to 1.1%. This trade war is getting expensive. No wonder stocks have been in a swan dive.

US Retail Sales cratered in March while Industrial Production was off 0.5%. Why is the data suddenly turning recessionary? It isn’t even reflecting the escalated trade war yet.

European auto tariff delay boosted markets in one of the administration’s daily attempts to manipulate the stock market and guarantee support of Michigan, Wisconsin, and Pennsylvania during the next presidential election. All government decisions are now political all the time.

Weekly Jobless Claims plunged by 16,000 to 212,000. Have you noticed how dumb support staff have recently become? I have started asking workers how long they have been at their jobs and the average so far is three months. No one knows anything. This is what a full employment economy gets you.

Four oil tankers were attacked at the Saudi port of Fujairah, sending oil soaring. America’s “two war” strategy may be put to the test, with the US attacking Iran and North Korea simultaneously.

Bitcoin topped 8,000, on a massive “RISK OFF” trade, now double its December low. The cryptocurrency is clearly replacing gold as the fear trade.

The Mad Hedge Fund Trader managed to blast through to a new all-time high last week.

Global Trading Dispatch closed the week up 16.35% year to date and is up 0.63% so far in May. My trailing one-year rose to +20.19%. We jumped in and out of short positions in bonds (TLT) for a small profit, and our tech positions appreciated.

The Mad Hedge Technology Letter did OK, making some good money with a long position in Intuit (INTU) but stopping out for a small loss in Alphabet (GOOGL).

Some 10 out of 13 Mad Hedge Technology Letter round trips have been profitable this year.
 
My nine and a half year profit jumped to +316.49%. The average annualized return popped to +33.21%. With the markets incredibly and dangerously volatile, I am now 80% in cash with Global Trading Dispatch and 80% cash in the Mad Hedge Tech Letter.

I’ll wait until the markets retest the bottom end of the recent range before considering another long position.

The coming week will see only one report of any real importance, the Fed Minutes on Wednesday afternoon. Q1 earnings are almost done.

On Monday, May 20 at 8:30 AM, the April Chicago Fed National Activity Index is out.

On Tuesday, May 21, 10:00 AM EST, the April Existing Home Sales is released. Home Depot (HD) announces earnings.

On Wednesday, May 22 at 2:00 PM, the minutes of the last FOMC Meeting are published. Lowes (LOW) announces earnings.

On Thursday, May 16 at 23 AM, Weekly Jobless Claims are published. Intuit (INTU) announces earnings.

On Friday, May 24 at 8:30 AM, April Durable Goods is announced.

As for me, I’ll be taking a carload of Boy Scouts to volunteer at the Oakland Food Bank to help distribute food to the poor and the homeless. Despite living in the richest and highest paid urban area in the world, some 20% of the population now lives on handouts, including many public employees and members of the military. It truly is a have, or have-not economy.

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

 

 

 

 

 

April 23, 2019

Global Market Comments
April 23, 2019
Fiat Lux

Featured Trade:
(LAS VEGAS MAY 9 GLOBAL STRAGEGY LUNCHEON)
(APRIL 17 BIWEEKLY STRATEGY WEBINAR Q&A),
(FXI), (RWM), (IWM), (VXXB), (VIX), (QCOM), (AAPL), (GM), (TSLA), (FCX), (COPX), (GLD), (NFLX), (AMZN), (DIS)

April 17 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader April 17 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: What will the market do after the Muller report is out?

A: Absolutely nothing—this has been a total nonmarket event from the very beginning. Even if Trump gets impeached, Pence will continue with the same kinds of policies.

Q: If we are so close to the peak, when do we go short?

A: It’s simple: markets can remain irrational longer than you can remain liquid. Those shorts are expensive. As long as global excess liquidity continues pouring into the U.S., you’ll not want to short anything. I think what we’ll see is a market that slowly grinds upward until it’s extremely overbought.

Q: China (FXI) is showing some economic strength. Will this last?

A: Probably, yes. China was first to stimulate their economy and to stimulate it the most. The delayed effect is kicking in now. If we do get a resolution of the trade war, you want to buy China, not the U.S.

Q: Are commodities expected to be strong?

A: Yes, China stimulating their economy and they are the world’s largest consumer commodities.

Q: When is the ProShares Short Russell 2000 ETF (RWM) actionable?

A: Probably very soon. You really do see the double top forming in the Russell 2000 (IWM), and if we don’t get any movement in the next day or two, it will also start to roll over. The Russell 2000 is the canary in the coal mine for the main market. Even if the main market continues to grind up on small volume the (IWM) will go nowhere.

Q: Why do you recommend buying the iPath Series B S&P 500 VIX Short Term Futures ETN (VXXB) instead of the Volatility Index (VIX)?

A: The VIX doesn’t have an actual ETF behind it, so you have to buy either options on the futures or a derivative ETF. The (VXXB), which has recently been renamed, is an actual ETF which does have a huge amount of time decay built into it, so it’s easier for people to trade. You don’t need an option for futures qualification on your brokerage account to buy the (VXXB) which most people don’t have—it’s just a straight ETF.

Q: So much of the market cap is based on revenues outside the U.S., or GDP making things look more expensive than they actually are. What are your thoughts on this?

A: That is true; the U.S. GDP is somewhat out of date and we as stock traders don’t buy the GDP, we buy individual stocks. Mad Hedge Fund Trader in particular only focuses on the 5% or so—stocks that are absolutely leading the market—and the rest of the 95% is absolutely irrelevant. That 95% is what makes up most of the GDP. A lot of people have actually been caught in the GDP trap this year, expecting a terrible GDP number in Q1 and staying out of the market because of that when, in fact, their individual stocks have been going up 50%. So, that’s something to be careful of.

Q: Is it time to jump into Qualcomm (QCOM)?

A: Probably, yes, on the dip. It’s already had a nice 46% pop so it’s a little late now. The battle with Apple (AAPL) was overhanging that stock for years.

Q: Will Trump next slap tariffs on German autos and what will that do to American shares? Should I buy General Motors (GM)?

A: Absolutely not; if we do slap tariffs on German autos, Europe will retaliate against every U.S. carmaker and that would be disastrous for us. We already know that trade wars are bad news for stocks. Industry-specific trade wars are pure poison. So, you don't want to buy the U.S. car industry on a European trade war. In fact, you don’t want to buy anything. The European trade war might be the cause of the summer correction. Destroying the economies of your largest customers is always bad for business.

Q: How much debt can the global economy keep taking on before a crash?

A: Apparently, it’s a lot more with interest rates at these ridiculously low levels. We’re in uncharted territory now. We really don't know how much more it can take, but we know it’s more because interest rates are so low. With every new borrowing, the global economy is making itself increasingly sensitive to any interest rate increases. This is a policy you should enact only at bear market bottoms, not bull market tops. It is borrowing economic growth from futures year which we may not have.

Q: Is the worst over for Tesla (TSLA) or do you think car sales will get worse?

A: I think car sales will get better, but it may take several months to see the actual production numbers. In the meantime, the burden of proof is on Tesla. Any other surprises on that stock could see us break to a new 2 year low—that's why I don’t want to touch it. They’ve lately been adopting policies that one normally associates with imminent recessions, like closing most of their store and getting rid of customer support staff.

Q: Is 2019 a “sell in May and go away” type year?

A: It’s really looking like a great “Sell in May” is setting up. What’s helping is that we’ve gone up in a straight line practically every day this year. Also, in the first 4 months of the year, your allocations for equities are done. We have about 6 months of dead territory to cover from May onward— narrow trading ranges or severe drops. That, by the way, is also the perfect environment for deep-in-the-money put spreads, which we plan to be setting up soon.

Q: Is it time to buy Freeport McMoRan (FCX) in to play both oil and copper?

A: Yes. They’re both being driven by the same thing: China demand. China is the world’s largest new buyer of both of these resources. But you’re late in the cycle, so use dips and choose your entry points cautiously. (FCX) is not an oil play. It is only a copper (COPX) and gold (GLD) play.

Q: Are you still against Bitcoin?

A: There are simply too many better trading and investment options to focus on than Bitcoin. Bitcoin is like buying a lottery ticket—you’re 10 times more likely to get struck by lightning than you are to win.

Q: Are there any LEAPS put to buy right now?

A: You never buy a Long-Term Equity Appreciation Securities (LEAPS) at market tops. You only buy these long-term bull option plays at really severe market selloffs like we had in November/December. Otherwise, you’ll get your head handed to you.

Q: What is your outlook on U.S. dollar and gold?

A: U.S. dollar should be decreasing on its lower interest rates but everyone else is lowering their rates faster than us, so that's why it’s staying high. Eventually, I expect it to go down but not yet. Gold will be weak as long as we’re on a global “RISK ON” environment, which could last another month.

Q: Is Netflix (NFLX) a buy here, after the earnings report?

A: Yes, but don't buy on the pop, buy on the dip. They have a huge head start over rivals Amazon (AMZN) and Walt Disney (DIS) and the overall market is growing fast enough to accommodate everyone.

Q: Will wages keep going up in 2019?

A: Yes, but technology is destroying jobs faster than inflation can raise wages so they won’t increase much—pennies rather than dollars.

Q: How about buying a big pullback?

A: If we get one, it would be in the spring or summer. I would buy a big pullback as long as the U.S. is hyper-stimulating its economy and flooding the world with excess liquidity. You wouldn't want to bet against that. We may not see the beginning of the true bear market for another year. Any pullbacks before that will just be corrections in a broader bull market.

Good Luck and Good Trading
John Thomas
CEO & Publisher
Diary of a Mad Hedge Fund Trader

 

 

 

 

March 18, 2019

Global Market Comments
March 18, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, OR A STIFF DOSE OF HUMILITY),
(FCX), (AAPL), (IWM), (SPY), (BA), (FXI), (FXB)

The Market Outlook for the Week Ahead, or a Stiff Dose of Humility

Sometimes markets have to give you a solid dose of humility, blindside you with a sucker punch, and slap you across the face with a wet kipper. Last week was definitely one of those weeks for me.

It was only just a matter of time before this happened. We posted new record gains for the first ten weeks of 2019. It was just a matter of time before the reality check kicked in.

I believed that we have seen the sharpest rally in stocks since the 2009 bottom, we were overdue for a respite. That respite came and only lasted a week. It has been an especially frustrating week for those few of us who watch economic data because it has been unremittingly awful while stocks rose daily.

There were really no reasons for shares to rise that week. There were also no reasons to sell, other than a dozen or so complete disasters that are looming just over the horizon. Still, to quote an old friend of mine, “Markets can remain irrational longer than you can remain liquid.”
 
The bull market reached ten years old last week, and if you read this letter you caught every dollar of the move up since then, plus some. But how much longer will it last? The technicals say it’s already in its death throes.

China trade negotiations (FXI) endlessly continued as they have for a year, but now the Chinese have thrown up a roadblock. They want everything in writing. In the wake of the North Korean disaster, can you blame them? This will weigh heavily on stocks until it's done.

Another day, another Brexit vote failed again. The pound (FXB) is doing the Watusi. Avoid all UK plays until the issue is decided.

The share buyback blackout started on Friday for many companies which are not allowed to repurchase their own shares up to 30 days ahead of the Q1 earnings reports. If you take the largest buyers of shares out of the market, what is left? Look to play the short side for the market.

Boeing (BA) hit bottom as the US became the last country to ban the 737 Max 8. Imagine being 35,000 feet in the air and you find out your plane is grounded for safety reasons, as 6,000 people did last week. Buy more (BA) on the dip. The next move is from $360 to $450.

Weekly Jobless Claims jumped, by 6,000 to a seasonally adjusted 229,000. Notice claims aren’t falling anymore. Another sign the tax cut stimulus is shrinking? Or that there is no one left to hire with any skills whatsoever?

Tesla (TSLA) released its Model Y SUV, but the cheaper $39,000 version won’t be available until 2021 and the stock dove. We are approaching the make or break level for the stock, the bottom of a two-year range. Get ready to buy on the meltdown. This is a ten bagger in a decade. Buy (TSLA).
 
The Mad Hedge Fund Trader lost ground last week. The tenth rally in 11 weeks made my short positions lose money faster than my long positions could make it back.

The Mad Hedge Technology Letter was stopped pit of a short position in Apple (AAPL) for a small loss a heartbreaking three days before its options expiration.

February came in at a hot +4.16% for the Mad Hedge Fund Trader. March started negative, down -2.18%.

My 2019 year to date return retreated to +11.46%, a new all-time high and boosting my trailing one-year return back up to +23.72%. 
 
My nine-year return pared back to +311.60%. The average annualized return appreciated to +33.69%. 

I am now 60% in cash, 20% long Freeport McMoRan (GLD), 10% short the S&P 500, and 10% short the Russell 2000. My short bond position (TLT) expired at its maximum profit point of $1,140.

As for the Mad Hedge Technology Letter, it covered its short in Apple (AAPL) for a small loss.

Q4 earnings reports are pretty much done, so the coming week will be pretty boring on the data front after last week's fireworks.

On Monday, March 18, at 10:00 AM EST, the March Homebuilders Index is out.

On Tuesday, March 19, 8:30 AM EST, February Housing Starts is published.

On Wednesday, March 20 is the first official day of Spring, at last!

Thursday, March 21 at 8:30 AM EST, the Weekly Jobless Claims are announced. At 10:00 AM, we get a new number for Leading Economic Indicators.

On Friday, March 22 we get a delayed number for Existing Home Sales.

The Baker-Hughes Rig Count follows at 1:00 PM.

As for me, it’s fundraising time here in the San Francisco Bay Area for local schools and gala balls are now a weekly event. I, who have pursued a lifelong pursuit of low prices and great deals, ended up paying $1,000 for a homemade coffee cake, $7,000 for tickets to the Golden State Warriors, and $10,000 for the best table in the house. Hey, what’s the value of money if you can’t spend it? You can’t take it with you.

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

 

 

 

 

 

 

February 11, 2019

Global Market Comments
February 11, 2019
Fiat Lux

Featured Trade:
(THE MARKET FOR THE WEEK AHEAD, or DON’T STAND NEXT TO THE DUMMY),
(AAPL), (MSFT), (TSLA), (VIX), (TLT), (TBT), (FXI)

The Market Outlook for the Week Ahead, or Don't Stand Next to the Dummy

When I was a war correspondent (Cambodia, Laos, Iraq, Kuwait, Indonesia), my seniors gave me a sage piece of advice that saved my life many times.

“Don’t stand next to the dummy.”

Don’t go near the guy wearing the Hawaiian shirt, NY Yankees baseball cap, and aviator sunglasses. You want to be dressed in the same color as the troops and blend in as much as possible. Otherwise, the enemy will aim at the dummy and hit you.

As much as I tried, at 6’4” I was never going to blend in anywhere in Asia. So, I went into the stock market instead.

Now 50 years later, I am facing another dummy problem. Except that the next hit I may take will be of the financial kind rather than the metallic one.

The reaction to the Trump tax cuts is going to be far worse than any benefits the privileged class was able to reap from the cuts in the first place. Listening to the proposals aired, I shudder: A maximum 70% tax rate, the end of special estate tax treatment, a millionaire’s surtax, and the banning of corporate share buybacks.

It’s that last one that that will be particularly damaging for the US economy. Often, a company’s best possible investment is in its own shares where returns are frequently higher than possible through investing in their own business. Just think of all those shares Apple (AAPL) bought at $25, now at $170,  and Microsoft (MSFT) picked up at $10.

This is one of the only occasions were management and shareholder interests are one and the same. The event is tax-free as long as you don’t sell your shares. And companies don’t have to pay dividends on stock they have retired, boosting profits even further.

The media loves pandering to the most extreme views out there. I know because I used to do it myself. Cooler heads will almost certainly prevail when the tax code is completely rewritten again in two years. Still, one has to worry.

The week had plenty for we analysts and strategists to chew on.

Is the Fed pausing because of political pressure or an economy that is falling apart? Neither answer is good for equity holders. Start cutting back risk while you can. There are lots of bids on the way up, but none on the way down as December showed.

There has lately been a rising tide of weak data to confirm the negative view.

Factory orders nosedived 0.6% in November, the worst in a year. Funny how nobody wants to make stuff ahead of a recession. ISM Non-Manufacturing Index Cratered to 56.7. Should we be worried? Hell, yes! Why are we getting so many negative data points and stocks keep rising?

Farm sector bankruptcies are soaring, hitting a decade high. Apparently, the trade wars and global warming aren’t working for them. Ironically, ag prices are about to take off to the upside when a Chinese trade deal gets done. Buy the ags for a trade.

Tesla (TSLA) cut prices again in a blatant bid for market share and global domination. The low-end Tesla 3 price drops to $42,900. Next stop $35,000. Too bad they laid off my customer support personnel to cut costs. I can’t find my AM radio.

China trade talks (FXI) hit the skids, taking the stock market down with it as an administration official concedes they are “nowhere close to a deal” with the deadline 3 weeks off. Trump desperately needs a deal while the Chinese don’t, who think they can do better under the next president. If you disagree with this view in China, your organs get harvested and sold on the open market.

The European economy is also going down the drain with the EC’s forecast of economic growth cut from 1.9% to 1.3%. The US-China trade war is cited as a major factor. The global synchronizes slowdown accelerates. Looks like they’ll have more time to drink cheap wine and smoke Gauloises.

The Volatility Index (VIX) hit $15 and that seems to be the bottom for the time being. The market was more overbought than at any time since July. Is the “fear gauge” signaling that happy days are here again? I doubt it. Don’t whistle past the graveyard.

The Mad Hedge Market Timing Index is entering danger territory with a reading of 67 for the first time in five months. Better start taking profits on those aggressive leveraged longs you bought in early January. Your best performers are about to take a big hit. The market has since sold off 500 points, proving its value.

There wasn’t much to do in the market this week, given that I am trying to wind my portfolio down to 100% cash as the market peaks.

I stopped out of my short portion in Apple when my stop loss was triggered by pennies. The second I was out, it began a $6 selloff. Welcome to show business.

I used a major 3 ½ point rally in the bond market to put on a new double short position there. The yield on the ten-year US Treasury bond has to plunge to 2.40% in a month, a three-year low, for me to lose money on this position. It’s a bet that I am happy to make.

My 2019 year to date return leveled out at +10.03%, boosting my trailing one-year return back up to +35.75%. 
 
My nine-year return maintained +310.17%, a new high. The average annualized return stabilized at +33.83%. 

I am now 70% in cash and triple short the bond market.

Government data is finally starting to trickle out now that the government shutdown is over.

On Monday, February 11 there is nothing of note to report. Everything important is delayed.

On Tuesday, February 12, 10:00 AM EST, we get the January NFIB Small Business Index. Earnings for Activision Blizzard (ATVI) are out and should be a complete disaster, along with Twilio (TWLO).

On Wednesday, February 13 at 8:30 AM EST, the all-important January  Consumer Price Index is published. Barrick Gold (GOLD) reports.

Thursday, February 14 at 8:30 AM EST, we get Weekly Jobless Claims. We also get December Retail Sales which should be good.

On Friday, February 15, at 8:30 AM EST, the February Empire State Index is out. The Baker-Hughes Rig Count follows at 1:00 PM.

As for me, I will be battling my way through the raging snowstorms of the High Sierras trying to get over Donner Pass to my Lake Tahoe estate. Unless I clear the six feet of snow off the roof soon, or the house will get crushed from the weight as it did three years ago.

Where are all those illegal immigrants hanging out in front of 7-Eleven now that I need them?

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

 

 

 

 

 

September 13, 2018

Global Market Comments
September 13, 2018
Fiat Lux

Featured Trade:
(EXPANDING MY “TRADE PEACE” PORTFOLIO),
(BABA), (BIDU), (TCTZF) (MU), (LRCX), (KLAC), (EEM),
(FXI), (EWZ), (SOYB), (CORN), (WEAT), (CAT), (DE),
(THE LEAGUE OF EXTRAORDINARY TRADERS)

August 30, 2018

Global Market Comments
August 30, 2018
Fiat Lux

Featured Trade:
(TUESDAY, OCTOBER 16, 2018, MIAMI, FL, GLOBAL STRATEGY LUNCHEON),
(IT’S TIME TO START LOOKING AT EMERGING MARKETS),
(EEM), (EPHE), (PIN), (FXI), (EWZ),
(INDUSTRIES YOU WILL NEVER HEAR ABOUT FROM ME)