Posts

October 7, 2019

Global Market Comments
October 7, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or WILL HE OR WON’T HE?)
(INDU), (USO), (TM), (SCHW), (AMTD), (ETFC), (SPY), (IWM), (USO), (WMT), (AAPL), (GOOGL), (SPY), (C)

The Market Outlook for the Week Ahead, or Will He, or Won’t He?

Once again, the markets are playing out like a cheap Saturday afternoon matinee. We are sitting on the edge of our seats wondering if our hero will triumph or perish.

The same can be said about financial markets this week. Will a trade deal finally get inked and prompt the Dow Average to soar 2,000 points? Or will they fail once again, delivering a 2,000-point swan dive?

I vote for the latter, then the former.

Still, I saw this rally coming a mile off as the Trump put option kicked in big time. That’s why I piled on an aggressive 60% long position right at last week’s low. Carpe Diem. Seize the Day. Only the bold are rewarded.

Or as Britain’s SAS would say, “Who dares, wins.”

It takes a lot of cajones to trade a market that hasn’t moved in two years, let alone take in a 55% profit during that time. But you didn’t hire me to sit on my hands, play scared, and catch up on my Shakespeare.

I think markets will eventually hit new all-time highs sometime this year. The game is to see how low you can get in before that happens without getting your head handed to you first.

Last week saw seriously dueling narratives. The economic data couldn’t be worse, pointing firmly towards a recession. But the administration went into full blown “jawbone” mode, talking up the rosy prospects of an imminent China trade deal at every turn.

This was all against a Ukraine scandal that reeled wildly out of control by the day. Is there a country that Trump DIDN’T ask for assistance in his reelection campaign? Now we know why the president was at the United Nations last week.

The September Nonfarm Payroll Report came in at a weakish 136,000, with the Headline Unemployment rate at 3.5%, a new 50-year low.

Average hourly earnings fell. Apparently, it is easy to get a job but impossible to get a pay raise. July and August were revised up by 45,000 jobs.

Healthcare was up by 39,000 and Professional and Business Services 34,000. Manufacturing fell by 2,000 and retail by 11,0000. The U-6 “discouraged worker” long term unemployment rate is at 6.9%.

The US Manufacturing Purchasing Managers Index collapsed in August from 49.7 to 47.9, triggering a 400-point dive in the Dow average. This is the worst report since 2009. Manufacturing, some 11% of the US economy, is clearly in recession, thanks to the trade war-induced loss of foreign markets. A strong dollar that overprices our goods doesn’t help either.

The Services PMI Hit a three-year low, from 53.1 to 50.4, with almost all economic data points now shouting “recession.” The only question is whether it will be shallow or deep. I vote for the former.

Consumer Spending was flat in August. That’s a big problem since the average Joe is now the sole factor driving the economy. Everything else is pulling back. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1% last month as an increase in outlays on recreational goods and motor vehicles was offset by a decrease in spending at restaurants and hotels.

The Transports, a classic leading sector for the market, have been delivering horrific price action this year giving up all of its gains relative to the S&P 500 since the 2009 crash.

Oil (USO) got crushed on recession fears, down a stunning 19.68% in three weeks. The global supply glut continues. Over production and fading demand is not a great formula for prices.

Toyota Auto Sales (TM) cratered by 16.5% in September, to 169,356 vehicles in another pre-recession indicator. It’s the worst month since January during a normally strong time of the year. The deals out there now are incredible.

Online Brokerage stocks were demolished on the Charles Schwab (SCHW) move to cut brokerage fees to zero. TD Ameritrade (AMTD) followed the next day and was spanked for 23%, and E*TRADE (ETFC) punched for 17. These are cataclysmic one0-day stock moves and signal the end of traditional stock brokerage.

The Mad Hedge Trader Alert Service has blasted through to yet another new all-time high. My Global Trading Dispatch reached new apex of 341.86% and my year-to-date accelerated to +41.72%. The tricky and volatile month of October started out with a roar +5.40%. My ten-year average annualized profit bobbed up to +35.06%. 

Some 26 out of the last 27 trade alerts have made money, a success rate of 96.29%! Under promise and over deliver, that’s the business I have been in all my life. It works.

I used the recession-induced selloff since October 1 to pile on a large aggressive short dated portfolio. I am 60% long with the (SPY), (IWM), (USO), (WMT), (AAPL), and (GOOGL). I am 20% short with positions in the (SPY) and (C), giving me a net risk position of 40% long.

The coming week is all about the September jobs reports. It seems like we just went through those.

On Monday, October 7 at 9:00 AM, the US Consumer Credit figures for August are out.

On Tuesday, October 8 at 6:00 AM, the NFIB Business Optimism Index is released.

On Wednesday, October 9, at 2:00 PM, we learn the Fed FOMC Minutes from the September meeting.

On Thursday, October 10 at 8:30 AM, the US Inflation Rate is published. US-China trade talks may, or may not resume.

On Friday, October 11 at 8:30 AM, the University of Michigan Consumer Sentiment for October is announced.

The Baker Hughes Rig Count is released at 2:00 PM.

As for me, I’m still recovering from running a swimming merit badge class for 60 kids last weekend. Some who showed up couldn’t swim, while others arrived with no swim suits, prompting a quick foray into the lost and found.

One kid jumped in and went straight to the bottom, prompting an urgent rescue. Another was floundering after 15 yards. When I pulled him out and sent him to the dressing room, he started crying, saying his dad would be mad. I replied, “Your dad will be madder if you drown.”

I never felt so needed in my life.

Good luck and good trading.

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

 

 

 

 

 

 

October 4, 2019

Global Market Comments
October 4, 2019
Fiat Lux

Featured Trade:

(LAST CHANCE TO BUY THE NEW MAD HEDGE BIOTECH AND HEALTH CARE LETTER AT THE FOUNDERS PRICE)
(SEPTEMBER 18 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (VIX), (USO), (ROKU), (TLT), (BA), (INDU),
 (GM), (FXI), (FB), (SCHW), (IWM), (AMTD)

October 2 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader October 2 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: Would you do the S&P 500 (SPY) bull call spread if you didn’t have time to enter the short leg yesterday?

A: I would, because once again, once the Volatility Index (VIX) gets over $20, picking these call spreads is like shooting fish in a barrel. I think the long position I put on the (SPY) this morning is so far in the money that you will be sufficiently safe on a 12-day and really a 2-week view. There is just too much cash on the sidelines and interest rates are too low to see a major December 2018 type crash from here.

Q: I could not come out of the United States Oil Fund (USO) short position—should I keep it to expiration?

A: Yes, at this point we’re so close to expiration and so far in the money that you’d need a 30% move in oil to lose money on this. So, run it into expiration and avoid the execution costs.

Q: How do you see TD Ameritrade (AMTD) short term?

A: Well, it was down approximately 25% yesterday, so I would buy some cheap calls and go way out of the money so as not to risk much capital—on the assumption that maybe next week into the China trade talks, we get some kind of rally in the market and see a dramatic rise. 25% does seem extreme for a one-day move just because one broker was cutting his commissions to zero. By the way, I have been predicting that rates would go to zero for something like 30 years; that’s one of the reasons I got out of the business in 1989.

Q: Would you consider buying Roku (ROKU) at the present level?

A: Down 1/3 from the top is very tempting; however, I’m not in a rush to buy anything here that doesn’t have a large hedge on it. What you might consider doing on Roku is something like a $60-$70 or $70-$80 long-dated call spread. That is hedged, and it’s also lower risk. Sure, it won’t make as much money as an outright call option but at least you won’t be catching a falling knife.

Q: Will we see a yearend rally in the stocks?

A: Probably, yes. I think this quarter will clear out all the nervous money for the short term, and once we find a true bottom, we might find a 5-10% rally by yearend—and I’m going to try to be positioned to catch just that.

Q: At which price level do you go 100% long position?

A: If we somehow get to last December lows, that’s where you add the 100% long position. And there is a chance, while unlikely, that we get down to about 22,000 in the Dow Average (INDU), and that’s where you bet the ranch. Coming down from 29,000 to 22,000, you’re essentially discounting an entire recession with that kind of pullback. But we’re going to try to trade this thing shorter term; the market has so far been rewarding us to do so.

Q: The United States Treasury Bond Fund (TLT) looks like it’s about to break out. How do you see buying for the November $145 calls targeting $148?

A: We are actually somewhat in the middle of the range for the (TLT), so it’s a bit late to chase. We did play from the long side from the high $130s and took a quick profit on that, but now is a little bit late to play on the long side. We go for the low-risk, high-return trades, and $145 is a bit of a high-risk trade at this point. I would look to sell the next spike in the (TLT) rather than buy the middle where we are now.

Q: Will Boeing (BA) get recertified this year?

A: Probably, yes—now that we have an actual pilot as the head of the FAA—and that will be a great play. But if the entire economy is falling into a recession, nothing is a good play and you want to go into cash if you can’t do shorts. That would give us a chance to buy Boeing back closer to the $320 level, which was the great entry point in August.

Q: Do you expect General Motors (GM) shares to bounce if they settle with the union on their strike?

A: Maybe for a day or two, but that’s it. The whole car industry is in recession already. The union picked the worst time to strike because GM has a very high 45-day inventory of unsold cars which they would love to get rid of.

Q: What are the chances of a deal with China (FXI)?

A: Zero. How hard do the Chinese really want to work to get Trump reelected? My guess is not at all. We may get the announcement of a fake deal that resumes Chinese agricultural purchases, but no actual substance on intellectual property theft or changing any Chinese laws.

Q: Will they impeach Trump?

A: Impeach yes, convict no; and it’s going to take about 6 months, which will be a cloud hanging over the market. The market’s dropped about 1,000 points since the impeachment inquiry has started.

Q: What about the dollar?

A: I’m staying out of the dollar due to too many conflicting indicators and too much contra-historical action going on. The dollar seems high to me, but I’ve been wrong all year.

Q: E*Trade (ETFC) just announced free stock trading—what are your thoughts?

A: All online brokers now pretty much have to announce free trading in order to stay in business, otherwise you end up with the dumbest customers. It’s bad for the industry, but it’s good for you. The fact that all of these companies are moving to zero shows how meaningless your commissions became to them because so much more money was being made on selling your order flow to high frequency traders or selling your data to people like Facebook (FB).

Q: What’s your take on the Canadian dollar (FXC)?

A: It will go nowhere to weak, as long as the US is on a very slow interest rate-cutting program. The second Canada starts raising rates or we start cutting more aggressively is when you want to buy the Loonie.

Q: Fast fashion retailer Forever 21 went bankrupt—is it too late to short the mall stocks?

A: No but be very disciplined; only short the rallies. Last week would have been a good chance to get shorts off in malls and retailers. You really need to sell into rallies because the further these things go down, the more volatility increases as the prices go low. Obviously, a $1 move on a $30 stock is only 3% but a $1 move on a $10 stock is 10%. If you’re the wrong way on that, it can cost you a lot of money, even though the thing’s going to zero.

Q: Comments on defense stocks such as Raytheon (RTN)?

A: This is a highly political sector. If Trump gets reelected, expect an expansion of defense spending and overseas sales to Saudi Arabia, which would be good for defense. If he doesn’t get reelected, that would be bad for defense because it would get cut, and sales to places like Saudi Arabia would get cut off. I stay out of them myself because it’s essentially a political play and we’re very late in the cycle.

Q: Mark Zuckerberg says presidential candidate Elizabeth Warren’s proposal is an existential threat. Do you agree with him and her policies? Will they crash the economy?

A: They would be bad for the economy; however, I think it’s highly unlikely Warren gets elected. The country’s looking for a moderate president, not a radical one, and she does not fit that description. If you did break up the Tech companies, they’d be worth more individually than they are in these great monolithic companies.

Q: Does the Russell 2000 (IWM) call spread look in danger to you?

A: It’s a higher risk trade, however we are hedged with that short S&P 500, so we can hang onto the long (IWM) position hedging it with your short S&P 500 (SPY) trade reducing your risk.

Q: What do you have to say about shrinking buybacks?

A: It’s another recession indicator, for one thing. Corporate buybacks have been driving the stock market for the last 2 years at around a trillion dollars a year. They have suddenly started to decline. Why is that happening? Because companies think they can buy their stocks back at lower levels. If companies don’t want to buy their stocks, you shouldn’t either.

Q: When is the time for Long Term Equity Anticipation Securities (LEAPS)?

A: We are not in LEAPS territory yet. Those are long term, more than one-year option plays. You really want to get those at the once-a-year horrendous selloffs like the ones in December and February. We’re not at that point yet, but when we get there, we’ll start pumping out trade alerts for LEAPS for tech stocks like crazy. Start doing your research and picking your names, start playing around with strikes, and then one day, the prices will be so out of whack it will be the perfect opportunity to go in and buy your LEAPS.

Q: Was it a Black Monday for brokerages when Charles Schwab (SCHW) cut their commission to zero?

A: Yes, but it’s been one of the most predicted Black Mondays in history.

Q: Will the Fed save the market?

A: I would think they have no ability to save the market because they really can’t cut interest rates any more than they already have. There really are no companies that need to borrow money right now, and any that does you don’t want to touch with a ten-foot pole. The economy is not starved for cash right now—we have a cash glut all over the world—therefore, lowering interest rates will have zero impact on the economy, but it does eliminate the most important tool in dealing with future recessions. You go into a recession with interest rates at zero, then you’re really looking at a great depression because there’s no way to get out of it. It’s the situation Europe and Japan have been in for years.

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

 

 

 

 

 

September 6, 2019

Global Market Comments
September 6, 2019
Fiat Lux

Featured Trade:

(SEPTEMBER 4 BIWEEKLY STRATEGY WEBINAR Q&A),
(INDU), (FXY), (FXB), (USO), (XLE), (TLT), (TBT),
(FB), (AMZN), (MSFT), (DIS), (WMT), (IWM), (TSLA), (ROKU), (UBER), (LYFT), (SLV), (SIL)

August 26, 2019

Global Market Comments
August 26, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TWEET THAT SANK A THOUSAND SHIPS),

(SPY), (TLT), (GOOGL), (FB), (DIS), MSFT), (WMT), (IWM)

August 19, 2019

Global Market Comments
August 19, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHAT A ROLLER COASTER RIDE!),
(SPY), (TLT), (VIX), (VXX), (M),
(WMT), (FB), (AMZN), (GOOGL), (IWM)

The Market Outlook for the Week Ahead, or What a Roller Coaster Ride!

I like roller coasters. The Giant Dipper at the Santa Cruz Boardwalk is tough to beat, the last operating wooden coaster in the United States. And I’ll always have fond memories of the Cyclone at Coney Island in New York.

I especially liked this week in the financial markets, which provided more profitable trading opportunities, both on the long and the short side, that any other week of the past decade.

Perhaps the highpoint was on Thursday when I was staring at my screens watching ten year US Treasury bond yields (TLT) bottom at a near historic 1.46%, and my own Mad Hedge Market Timing Index plunging to a lowly 19.

Impulsively, I covered the last of my short positions and started piling on longs in the FANGs. The next morning, the Dow Average opened up 300 points. But then, it’s easy to be bold and decisive when you’re up 30% on the year, compared to only 11% for the Dow Average.

And guess what? The best may be yet to come!

As long as the Volatility Index stays over $20, you will be able to print all the money you want with options spreads. I’m talking 10%-15% A MONTH!

All eyes are now on September 1 when the Chinese announce their own retaliation to our tariff increase. Will they target ag again? Or does the bond market (TLT) take the hit this time (the Chinese government owns $900 billion worth of our debt).

And now for the question that everyone is asking: How far will the stock market fall in this cycle. We have already plunged 10% from the highs on an intraday basis. Could we drop another 10% in this period of high anxiety? Certainly. However, I tend to think it will be less than that.

The initial market pop on Monday came when the new Chinese tariffs were delayed, from September 1 to December 15, on some items. Tell me who saw this one coming. The potential costs of the tariffs are hitting the US more than China. It was worth a 550-point rally in the Dow Average. In 50 years, I’ve never seen such blatant market manipulation.

Gold hit a new six-year high, with the collapse of the Argentine Peso a new factor. A poor election result drove the beleaguered currency down 15% in one day, a massive move.

Now you have to worry about what’s happening in China AND Argentina. For the first time in history, gold now has a positive yield versus the Europe and the Japanese Yen, which both offer negative interest rates.

Hong Kong is becoming a factor driving US markets down. If there is a repeat if the 1989 Tiananmen Square massacre where thousands died, global markets could collapse. The hit to growth will be more than it currently can stand in its present weakened state.

Inflation is taking off, with Core Consumer Inflation for July coming in at a red hot 0.3%, delivering the strongest two-month price burst since 2006. If it keeps up, you can kiss those future interest rate cuts goodbye.

Germany is in recession. That is the only conclusion possible when you see Q2 at -0.1% growth and the economy still in free fall. The ZEW’s figures regarding Germany yesterday were nothing short of horrific as the Economic Sentiment Index fell to -44. When you damage China’s economy, it puts the rest of the world into recession. The global economy has become so interlinked, it can’t become undone without another great recession.

Bonds rates bottomed yesterday, at least for the short term, the intraday low for the ten-year US Treasury yield hitting 1.46%. Welcome to inversion land, where long term interest rates are below short-term ones. Confidence in the economy is melting like an Alaskan glacier. But with three more 25 basis point rate cuts to come, an eventual break below 1.0% is inevitable. Watch for stocks to remake half their recent losses.

Consumer Sentiment cratered in August from 97.0 estimated to 92.1. And that was before the stock market sold off. Consumer spending remains strong. The last time it was this strong was at the market top in 2008, the market top in 1999, and the market top in 1987.

July Housing Starts plunged 4.0%, to 1.191 million units as homebuilders move into recession mode. Not even record low-interest rates can get them to stick their necks out this time. Those that did last time got wiped out.

It’s been pedal to the metal all month with the Mad Hedge Trade Alert Service, with no less than 31 Trade Alerts going out so far. Some 18 or the last 19 round trips have been profitable, generating one of the biggest performance jumps in our 12-year history.

Since July 12, we have clocked a blistering 15.15% in profits or $15,150 for the model $100,000 trading portfolio.

My Global Trading Dispatch has hit a new all-time high of 330.65% and my year-to-date shot up to +30.51%. My ten-year average annualized profit bobbed up to +34.20%. 

I have coined a blockbuster 12.18% so far in August. All of you people who just subscribed in June and July are looking like geniuses. My staff and I have been working to the point of exhaustion, but it’s worth it if I can print these kinds of numbers.

The coming week will be a snore on the data front. Believe it or not, it could be quiet.

On Monday, August 19, nothing of note is released.

On Tuesday, August 20 at 10:30 AM, we get API Crude Oil Stocks.

On Wednesday, August 21, at 10:00 the Existing Home Sales are published for July.

On Thursday, August 22 at 8:30 AM, the Weekly Jobless Claims are printed. The Jackson Hole conference of global central bankers and economists begins.

On Friday, August 23 at 8:30 AM the July New Home Sales are announced.

The Baker Hughes Rig Count follows at 2:00 PM.

As for me, I will be attending the Pebble Beach Concourse d’Elegance vintage car show where I will be exhibiting my 1925 Rolls Royce Phantom I, the best car ever made.

I don’t mind the wooden brakes, but it’s too bad they didn’t make adjustable seats in those days to fit my 6’4” frame. However, its price appreciation has been better than Apple’s (AAPL) which I bought as a fixer upper in England during the 1980s for $20,000. My average cost on Apple is a split adjusted 25 cents.

My Rolls will be shown alongside James Bond’s 1964 Aston Martin which sold for $6.3 million, a 1939 Volkswagen Type 64 priced at more than $20 million, and a $13 million 1958 Ferrari 250 GT BBT.

And what am I doing next weekend? Taking the Boy Scouts to the Six Flags roller coaster farm in Vallejo.

Good luck and good trading.

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

 

 

 

 

 

 

 

My Phantom I

 

1939 Volkswagen

 

1954 Ferrari

August 5, 2019

Global Market Comments
August 5, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or TAKING THE ELEVATOR DOWN),
($INDU), (SPY), (TLT), (IWM), (WMT), (FXB)

The Market Outlook for the Week Ahead, or Taking the Elevator Down

It is often said the markets take the escalator up and the elevator down. A thousand Dow points in three days? That’s like taking the elevator down from the 101st floor of the Empire State Building down to the basement in one shot.

Welcome to your new $30 billion tax, or about $90 per American per year. That will be the effect of the new 10% tariff increase on $300 billion worth of goods imported from China. Unfortunately, this comes on top of an existing $210 per American, bring the total bill due from the China trade war to $300 per person.

Clearly, the Chinese think they can get a better deal from the next president and are inclined to wait it out. This has been my base case since the trade war started 18 months ago.

It was one of the most frenetic, emotion-charged, and violent weeks of the year, with almost daily wild swings on a daily basis. This is the environment where hedge funds and newsletters like this one earn their pay.

The July Nonfarm Payroll Report came in at 164,000, keeping the headline unemployment report to 3.7%. Average hourly earnings grew by a hot 3.2% YOY. The previous two months were revised down by 41,000. Overall, it was a disappointing report.

Manufacturing has been especially weak all year, adding only 16,000 jobs in July and averaging 8,000 jobs a month all year. The headline charge into the services economy continues. Retail lost 3,600, the sixth consecutive monthly decline. The strength was in Professional Services, up 31,000, Health Care at 30,000, and Social Assistance at 20,000.

The broader U-6 “discouraged worker” structural unemployment rate dropped from 7.2% to 7.0%, a new cycle low.

The British Pound (FXB) crashed by 1%, as the harsh reality of a hard Brexit looms. That’s because Boris Johnson, the pro Brexit activist, was named UK prime minister and filled his cabinet with anti-EC doormats. It virtually guarantees a recession there and will act as an additional drag on the US economy.

The end result may be a “Disunited Kingdom”, with Scotland declaring independence in order to stay in the EC, and Northern Ireland splitting off to create a united Emerald Island. The stock market there will crater and the pound will go to parity against the greenback.

Home Price Gains are Still Shrinking, from a 3.5% to a 3.4% annual gain in May, according to the S&P Corelogic Case Shiller National Home Price Index. The Median Home Price hit a new high of $285,700. That can’t buy you a parking space in San Francisco. This is removing a major leg from the economy.

Las Vegas saw the biggest increase at 6.4%, followed by Phoenix at 5.7% and Tampa at 5.1%. Shrinking price gains in the face of falling interest rates is a classic pre-recessionary indicator.

Apple hurdled a low bar, with an upward forward guidance delivering a 5% pop in the stock. Revenues rose 1% to $53.8 billion, while profits dropped 7%. The future looks bright on the eve of 5G iPhones. Hardware drops to less than half of sales for the first time. Services revenues jump to 21% of the total.

China is still a drag. Amazingly, Apple only bought $17 billion worth of its own stock last quarter against a commitment of $100 billion. So why are analyst “BUY” ratings at a decade low? Maybe it’s because threats of retaliation in the China trade war are hanging over Apple like a sword of Damocles.

It took only three words to kill Wall Street. Confusion reigns. “Mid Cycle Adjustment” was how Fed governor Jay Powell described Wednesday’s 25 basis point interest rate cut, the first in 12 years, absolutely what the market didn’t want to hear. That implies that the Fed is “one and done,” and that there will be no more interest rate cuts in this economic cycle.

The president added insult to injury piling abuse on his own appointee, further eroding confidence in the independence of the Fed. A truly data dependent Fed wouldn’t have budged last week.

Bonds soared on “one and done.” Higher rates for longer give a new lease on life for the fixed income markets everywhere. Since 2008, major central bank balance sheets have exploded from $3 trillion to $16 trillion, and there is nowhere better for this mountain of money to go but the ten-year US Treasury bond.

Yields have smashed the four-year low at 1.82% and are headed to 1.40% by yearend. The market is wildly overbought for now on the back of an instant three-point rally, so keep buying those dips. Next up is the century low in rates.

Oil crashed 8% on increased global recession fears, in the worst plunge in four years and one of the biggest swan dives in history. The strong dollar doesn’t help either. I have recommended that investors avoid energy like the plague all year and it has worked like a charm. Long term, it’s going out of business anyway, so I don’t even want to trade it here.

Retailers got destroyed on the China news, with stocks down 6%-12% across the board. Best Buy (BBY) did a 12% swan dive. This will be the stick that broke the camel’s back for a lot of retailers already hanging on by their fingernails. Some 42% of US apparel, 69% of footwear, and 84% of accessories come from China.

Squeezed by Amazon on one side and administration China policies on the other, this will spell the death of retail. It looks like we’re going to have to go barefoot this winter. Thank goodness there’s global warming. The death spiral was further confirmed by the weak jobs figures in retail this morning.

I went into the week 100% in cash, giving me the dry powder to pursue the short side aggressively. I always tell followers that cash is a position, that it has option value, and this was a classic example of how well that can work.

The second I heard about the China tariff increase, I went pedal to the metal and increased my shorts from 0% to 40%, against 60% cash. My current shorts include the S&P 500 (SPY), US Treasury bonds (TLT), the Russel 2000 (IWM), and the giant retailer (WMT).

I see August as the best short selling opportunity of the year. I put out my first shorts the day after the Fed rate cut. My Global Trading Dispatch has hit a new all-time high of 320.30% and my year-to-date shot up at +20.16%. A robust earned a robust 1.83% so far in August, and 4.78% since I went back into the market from Zermatt, Switzerland three weeks ago.  

My ten-year average annualized profit bobbed up to +33.13%.  My Mad Hedge Market Timing Index saw one of the sharpest declines in its history, plunging from 65 to 23 on only two days. We could even be back to “BUY” territory by the end of next week.

The coming week will be a feeble one on the data front. Believe it or not, it could be a quiet week.

On Monday, August 5 at 2:00 PM, the July ISM Non-Manufacturing PMI is out.

On Tuesday, August 6 at 2:00 PM, the June JOLTS Jobs Openings report is published.

On Wednesday, August 7, at 8:30 AM, June Consumer Credit is released.

On Thursday, August 8 at 8:30 AM, the Weekly Jobless Claims are printed.

On Friday, August 9 at 8:30 AM, July Core Purchasing Price Index is printed, an inflation indicator.

The Baker Hughes Rig Count follows at 2:00 PM.

As for me, believe it or not, I have not been to the beach this year. As a native Californian, that is near high treason. So I am loading up the old Tesla with an ice chest, boogie boards, and kids and headed to nearby Stinson Beach in Marin County. I’m going early to beat the traffic and will take my usual short cuts I learned while living there eons ago.

Surf’s up!

Good luck and good trading.

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