($INDU) Archives - Page 17 of 24 - Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or What a Waste of Time!

“Sell in May and go away” has long suffered from the slings and arrows of non-believers, naysayers, and debunkers.

Not this time.

Looking at the trading since April 30, we have barely seen an up day. Since then, the Dow Average has plunged 1,900 points from a 26,700 high, a loss of 7.1%. We are now sitting right at my initial downside target of the 200-day moving average.

The Dow has now given up virtually all its 2019 gains, picking up only 2.0%. In fact, the market is dead unchanged since the end of 2017. If you have been an index investor for the past 17 months, your return has been about zero. In other words, it has been a complete waste of time.

There are a lot of things I would have preferred to do rather than invest in index funds for the past year and a half. I could have hiked the Pacific Crest Trail….twice. I might have taken six Cunard round-the-world cruises and met several rich widows along the way. I might even have become fluent in Italian and Latin. Such is the value of 20-20 hindsight.

You would have done much better investing in the bond market, which has exploded to a new two-year high, taking the ten-year US Treasury yield down to a once unimaginable 2.16%. During the same period, the (TLT) has gained 11 points, or 9.0% plus another 3.0% worth of interest. You did even better if you invested in lower grade credits.

Which leads us to the big question: Will stocks bottom out here, or are we in for a full-on retrace to the December lows?

Unfortunately, recent events have conspired to point to the latter.

The United States has now declared trade wars against all neighbors and allies around the world: China, Mexico, Europe, and Canada. On Friday, it announced 25% punitive tariffs against Mexico before NAFTA 2.0 was even ratified before Congress, thus rendering it meaningless. Businesses are dropping like flies.

As a result, GDP forecasts have been falling off a cliff, down from 3.2% in Q1 to under 1% for Q2. The administration’s economic policy seems to be a pain now, and more pain later. It is absolutely not what stock investors want to hear.

If you are a business owner now, what do you do with the global supply chain being put through a ringer? Sit as firmly on your hands as possible and do nothing, waiting for either the policy or the administration to change. Stock investors don’t want to hear this either. The fact that stock markets entered this cluster historically expensively is the fat on the fire.

Having hummed the bear national anthem, I would like to point out that stocks could rally from here. We enter a new month on Monday. There will be plenty of opportunities to make amends and the G-20 meeting which starts on June 20. This should provide a backdrop for a rally of at least one-third of the recent losses, or about 600 points.

But quite honestly, if that happens, I’ll be a seller. The economy is doing the best impression of going down the toilet that I can recall, and that includes 2008. Only this time, all the injuries are self-inflicted.

As the trade war ramped up, China moved to ban FedEx (FDX) and restrict rare earth exports (REMX) to the US essential for all electronics manufacture. Most modern weapons systems can’t be built without rare earths. The big question in investors' minds becomes “Is Apple next?”

The OECD cut its global growth forecast from 3.9% to 3.1% for 2019 because of you know what. Stock markets are now down for their sixth week as the 200-day moving average comes within striking distance.

There was more bad news for real estate with April Pending Home Sales down 1.5%. If rates this low can’t help it, nothing will. Where are those SALT deductions?

The bear market in home prices continued in March with the Case Shiller CoreLogic National Home Price Index showing a 3.7% annual price gain, down 0.2%. Home price in San Francisco is posting negative numbers. When will those low-interest rates kick in?

The bond market says the recession is already here with ten-year interest rates at 2.16%, a new 2019 low. German bunds hit negative -0.21%. JP Morgan (JPM) CEO Jamie Diamond says the trade war could cause real damage to the US economy.

US Capital Goods fell out of bed in April, down 0.9%, in another important pre-recession indicator. No company with sentient management wants to expand capacity ahead of an economic slowdown.

Despite all the violence and negativity, the Mad Hedge Fund Trader managed to crawl to new all-time highs last week, thanks to some very conservative positioning on the long side in the right names.

Those would include Microsoft (MSFT), Amazon (AMZN), and Tesla (TSLA). All of these names were down on the week, but the vertical bull call spreads were up. You see, there is a method to my madness!

Global Trading Dispatch closed the week up 16.30% year-to-date and is up 0.51% so far in May. My trailing one-year declined to +19.71%.

The Mad Hedge Technology Letter did fine, making money on longs in Microsoft (MSFT) and Amazon (AMZN). 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 +316.55%. The average annualized return popped to +33.32%. With the trade war with China raging, I am now 70% in cash with Global Trading Dispatch and 80% cash in the Mad Hedge Tech Letter.

I’ll wait until the markets enjoy a brief short-covering rally before adding any short positions to hedge my longs.

The coming week will be a big one with the trifecta of big jobs reports.

On Monday, June 3 at 7:00 AM, the May US Manufacturing PMI is out.

On Tuesday, June 4, 9:00 AM EST, the April US Factory Orders are published.

On Wednesday, June 5 at 5:15 AM, the May US ADP Employment Report of private hiring trends is released.

On Thursday, June 6 at 5:30 AM, the April US Balance of Trade is printed. At 8:30 Weekly Jobless Claims are published.

On Friday, June 7 at 8:30 AM, we learn the May Nonfarm Payroll Report is announced which lately has been incredibly volatile.

As for me, I am going to be leading the local Boy Scout troop on a 20-mile hike with a 2,500-foot vertical climb in the Oakland Hills. Hey, you never know when Uncle Sam is going to come calling again. I need to stay boot camp-ready at all times.

At least I can still outpace the eleven-year-olds. I’ll be leaving my 60-pound pack in the garage so it should be a piece of cake.

Good luck and good trading.

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

March 15, 2019

Diary, Newsletter, Summary

Global Market Comments
March 15, 2019
Fiat Lux

Featured Trade:

(BUY JOHNSON & JOHNSON ON THE BAD NEWS),
(JNJ), ($INDU), (PFE), (NVS), (AZN)

Buy Johnson & Johnson on the Bad News

Diary, Newsletter

When one of the 30 Dow Average companies ($INDU) gets into trouble, I sit up and take note, stand to attention and drill down with a magnifying glass.

After all, it may have a major important on an important tradable index, thus opening up an investment opportunity. It also may sound the alarm for a great single stock pick. That is certainly the case with New Brunswick, NJ based Johnson & Johnson, one of the oldest companies traded on the NYSE.

What piqued my interest today was the news that the company lost another talcum power lawsuit, which is alleged by plaintiffs to contain asbestos. This has been among the catalog of urban conspiracies for decades now.

Johnson & Johnson (JNJ) is, in fact, carrying on with their mission to strengthen their pharma sector which has consistently served as their top revenue driver in the past years. While their strong performance in this segment has always been led by their oncology portfolio, with sales of their cancer drugs increasing by 22.1% worldwide in the previous quarter, it looks like more and more products are on their way to becoming JNJ's blockbuster items.

The company estimates to launch more than ten new drugs -- all of which have the potential to be blockbuster products -- by 2021. On top of these, JNJ expects to complete 50 line extensions on their existing products. Both efforts are anticipated to temper the effects of generic drugs that are threatening to hamper the sales of a lot of key products in JNJ's portfolio.

The latest potential blockbuster drug for JNJ is Esketamine which is an anti-depressant aimed at treatment-resistant patients. This was developed by the company’s pharmaceutical arm, Janssen Pharmaceuticals Inc. This new groundbreaking product was approved on March 5 by the FDA and will be marketed as Spravato. It is hailed as the first prescription depression drug developed from ketamine, which is more commonly used as an anesthetic.

Although ketamine has long been tagged as a party drug, aka “Special K”, and is approved as an anesthetic, no company has patented its use. This is where Janssen swooped in and patented the left section of the molecule, called esketamine, and sent their application to FDA. The approval of this drug, which FDA described as a “breakthrough therapy” thus receiving priority review, translates to a potential cash cow for JNJ as it successfully legitimized the application of ketamine as an anti-depression drug.

Aside from depression, FDA is also taking into consideration the applicability of esketamine to patients afflicted with mood disorders such as bipolar disorder. The organization looks at it as a potential solution for reducing suicides as well.

Other drugs projected to rake in massive sales for JNJ pipeline include psoriatic arthritis Tremfya, prostate cancer medication Erleada, and metastatic urothelial cancer treatment Erdafitinib. With the addition of Spravato on the list, sales are expected to reach more than $1 billion.

However, no company is perfect and the same goes for products -- even if they are poised to become blockbuster drugs. A major hindrance for the success of Spravato is cost.

Here's a sample quote for potential patients.

A one-month initial treatment will cost somewhere from $4,000 to $7,000. The exact price will depend on the dosage and if it's availed wholesale. Expenses for follow-up treatments will reach $2,360 to $3,500 a month. All in all, Spravato could become as expensive as an electroconvulsive treatment or even a transcranial magnetic stimulation therapy. Worse, this treatment might have to be shouldered by the patients themselves.

Another deterrent for investors looking into JNJ is the continuing issue concerning the talcum powder lawsuits which claim that the talc items of the company contain asbestos that resulted in ovarian cancer among many of its female users. As of August 2018, a Missouri court has ordered JNJ to pay 22 women a total of $4.7 billion for damages. While the company announced its decision to appeal the ruling, the case has been a huge red flag for investors ever since.

Nonetheless, it appears that JNJ remains a solid stock for a lot of investors.

With an annual revenue of $81.6 billion, (JNJ) is anticipated to stay ahead of its competitors Pfizer (PFE) ($53.4B), Novartis (NVS) ($51B), and AstraZeneca (AZN) ($21.9B). Taking into consideration currency impact, which is expected to negatively affect sales by roughly 1.5%, JNJ's revenues are projected to hit $80.4 to $81.2 billion this year.

While it still has a long way to go, the recent approval of Spravato spelled higher confidence in JNJ's revenue growth this year. The company's purchase of robotic surgical instruments manufacturer Auris Health, for $3.4 billion further strengthened its dominance in the industry.

In the past month alone, its shares rose by 4.55%. Investors are also anticipating more growth until the next earnings report, which is anticipated to show $2.10 earnings per share for the company. This represents a 1.49% year-over-year increase.

A Killer?

February 14, 2019

Diary, Newsletter, Summary

Global Market Comments
February 14, 2019
Fiat Lux

Featured Trade:

(WHY I’M AVOIDING PFIZER LIKE THE PLAGUE)
(PFE), (MRK), (MVS),
(THE LIQUIDITY CRISIS COMING TO A MARKET NEAR YOU),
(TLT), (TBT), (MUB), (LQD),
(TESTIMONIAL)

February 13, 2019

Diary, Newsletter, Summary

Global Market Comments
February 13, 2019
Fiat Lux

Featured Trade:

(BIDDING MORE FOR THE STARS),
(SPY), (INDU), (NVDA)
(NOW THE FAT LADY IS REALLY SINGING FOR THE BOND MARKET),
(TLT), (TBT)

January 31, 2019

Diary, Newsletter, Summary

Global Market Comments
January 31, 2019
Fiat Lux

Featured Trade:
(MARKET GETS A FREE PASS FROM THE FED),
(SPY), ($INDU), (TLT), (GLD), (FXE), (UUP),
(APPLE SEIZES VICTORY FROM THE JAWS OF DEFEAT),
(AAPL)

Market Gets a Free Pass from the Fed

Diary, Newsletter

When the Oxford English Dictionary considers the Word of the Year for 2019, I bet “PATIENCE” will be on the short list.

That was the noun that Federal Reserve governor Jerome Powell had in mind when describing the central bank's current stance on interest rates.

Not only did Powell say he was patient, he posited that the Fed was currently at a neutral interest rate. The last time he opened on this matter four months ago, the neutral rate was still 50 basis point higher, suggesting that more rate hikes were to come.

What a difference four months makes! The last time Powell spoke, the stock market crashed. Today, he might as well fire a flare gun signaling the beginning of a stampede by investors.

The Dow ($INDU) average at one point gained 500 points. Lower rates for longer term meant that bonds took it on the kisser. And gold (GLD) absolutely loved it as they now have less competition from interest-bearing instruments.

The US dollar (UUP) was taken out to the woodshed and beaten senseless paving the way for a nice pop in the euro (FXE). Even oil (USO) took the cue as cheaper interest rates mean a stronger global economy that will drink more Texas tea.

I believe that the Fed move today will definitely take a retest of the December 24 lows off the table for the time being. Now, if we can only get rid of that damn trade war with China, it will be off to the races for risk in general and stocks specifically.

What Did You REALLY Mean Jay?

January 17, 2019

Diary, Newsletter, Summary

Global Market Comments
January 17, 2019
Fiat Lux

Featured Trade:

(WHAT HAPPENED TO THE DOW?)
($INDU), (EK), (S), (BS), (CVX), (DD), (MMM),
(FBHS), (MGDDY), (FL), (GE), (TSLA), (GM)
(WHY YOUR OTHER INVESTMENT NEWSLETTER IS SO DANGEROUS)

January 15, 2019

Diary, Newsletter, Summary

Global Market Comments
January 15, 2019
Fiat Lux

SPECIAL ARMAGEDDON ISSUE

Featured Trade:
(HERE’S THE WORST-CASE SCENARIO),
($INDU), (SPY), (SDS), (TLT), (TBT), (FXE), (FXY),
(UUP), (DDP), (USO), (SCO), (GLD), (DGZ), (ITB)

Here’s the Worst-Case Scenario

Diary, Newsletter, Research

Yesterday, I listed my Five Surprises of 2019 which will play out during the first half of the year prompting stocks to take another run at the highs, and then fail.

What if I’m wrong? I’ve always been a glass half full kind of guy. What if instead, we get the opposite of my five surprises? This is what they would look like. And better yet, this is how financial markets would perform.

*The government shutdown goes on indefinitely throwing the US economy into recession.

*The Chinese trade war escalates, deepening the recession both here and in the Middle Kingdom.

*The House moves to impeach the president, ignoring domestic issues, driven by the younger winners of the last election.

*A hard Brexit goes through completely cutting Britain off from Europe.

*The Mueller investigation concludes that Trump is a Russian agent and is guilty of 20 felonies including capital treason.

*All of the above are HUGELY risk negative and will trigger a MONSTER STOCK SELLOFF.

It’s really difficult to quantify how badly markets will behave given that this scenario amounts to five black swans landing simultaneously. However, we do have a recent benchmark with which to make comparisons, the 2008-2009 stock market crash and great recession. I’ll list off the damage report by asset class. I also include the exchange-traded fund you need to hedge yourself against Armageddon in each asset class.

*Stocks – Depending on how fast the above rolls out, you will see a stock market (SPY) collapse of Biblical proportions. You’ll easily unwind the Trump rally that started at a Dow Average of 18,000, down 25% from the current level, and off a gut-churning 9,000 points or 33% from the September top. The next support below is the 2015 low at 15,500, down 11,500 points, or 43% from the top. By comparison, during the 2008-2009 crash, we fell 52%. Everything falls and there is no safe place to hide. Buy the ProShares UltraShort S&P 500 bear ETF (SDS).

*Bonds – With the ten-year US Treasury yield peaking at 3.25% last summer, a buying panic would spill into the bond market. Inflation is nonexistent, we are running at only a 2.2% YOY rate now, so widespread deflation would rapidly swallow up the entire economy. In that case, all interest rates go to zero very quickly. The Fed cuts rates as fast as it can. Eventually, the ten-year yield drops to -0.40%, the bottom seen in Japanese and German debt three years ago. Buy the 2X short bond ETF (TBT) which will rocket to from $35 to $200.

*Foreign Exchange – With US interest rates going to zero, the US Dollar (UUP) gets the stuffing knocked out of it. The Euro soars from $1.10 to $1.60 last seen in 2010, and the Japanese yen (FXY) revisits Y80. Strong currencies then crush the economies of our largest trading partners. Their governments take their interest rates back to negative numbers to cool their own currencies. Cash becomes trash….globally.

*Commodities

Here’s the really ugly part about commodities. They are only just starting to crawl OUT of a seven-year bear market. To hit them with another price collapse now would devastate the industry. Producer bankruptcies would be widespread. The ags would get especially hard hit as they have already been pummeled by the trade war with China. Midwestern regional banks would get wiped out. Buy the DB Commodity Short ETN (DDP).

*Energy

The price of oil (USO) is also just crawling back from a correction for the ages, down from $77 to $42 a barrel in only three months. Hit the sector with a recession now in the face of global overproduction and the 2009 low of $25 becomes a chip shot, and possibly much lower. Those who chased for yield with energy master limited partnerships will get flushed. Several smaller exploration and production companies will get destroyed. And gasoline drops to $1 a gallon. The Middle East collapses into a geopolitical nightmare and much of Texas files chapter 11. Buy the ProShares UltraShort Bloomberg Crude Oil ETF (SCO).

*Precious metals

Gold (GLD) initially rallies on the flight to safety bid that we have seen since September. However, if things get really bad, EVERYTHING gets sold, even the barbarous relic, as margin clerks are in the driver’s seat. You sell what you can, not what you want to, as liquidity becomes paramount. This is what took the yellow metal down to $900 an ounce in 2009. Buy the DB Gold Short ETN (DGZ).

*Real Estate

Believe it or not, real estate doesn’t do all that bad in a worst-case scenario. It is perhaps the safest asset class around if a new crisis financial unfolds. For a start, interest rates at zero would provide a huge cushion. The Dodd-Frank financial regulation bill successfully prevented lenders returning to even a fraction of the leverage they used in the run-up to the last recession. We are about to enter a major demographic tailwind in housing as the Millennial generation become the predominant home buyers. I’ve never seen a housing slump in the face of a structural shortage. And homebuilder stocks (ITB) have already been discounting the next recession for the past year. A lot is already baked in the price.

Conclusion

Of course, it is highly unlikely that any of the above happens. Think of it all as what Albert Einstein called a “thought experiment.” But it is better to do the thinking now so you can do the trading later. There may not be time to do otherwise.

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A Killer?

What Did You REALLY Mean Jay?