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A: That is true; the U.S. GDP is somewhat out of date and we as stock traders don’t buy the GDP, we buy individual stocks.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
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Featured Trade: (LAST CHANCE TO ATTEND THE FRIDAY, AUGUST 3, 2018, AMSTERDAM, THE NETHERLANDS GLOBAL STRATEGY DINNER), (STOCKS TO BUY ON THE OUTBREAK OF TRADE PEACE), (QQQ), (SPY), (SOYB), (CORN), (WEAT), (CAT), (DE), (BA), (QCOM), (MU), (LRCX), (CRUS), (ORIENT EXPRESS PART II, or REPORT FROM VENICE)
Featured Trade: (FRIDAY, APRIL 6, INCLINE VILLAGE, NEVADA, STRATEGY LUNCHEON) (FROM THE FRONT LINES OF THE TRADE WAR), (AAPL), (AVGO), (QCOM), (TLT), (HOW THE MAD HEDGE MARKET TIMING ALGORITHM TRIPLED MY PERFORMANCE)
It seems that the harder I work, the luckier I get.
Last week I made a bet that companies with a high share of international business would be punished severely during earnings season.
Specifically, I picked QUALCOMM (QCOM), the San Diego based maker of processors for cell phones, tablets, and laptops, because it had the highest percentage of foreign earnings among the S&P 500.
Three days later, after years of dawdling, the European Central Bank announced a particularly aggressive form of quantitative easing that sent the Euro crashing. You might as well have sent a torpedo directly into QUALCOMM?s bottom line.
The company?s Q4 earnings report, announced after the Tuesday close, confirmed my worst fears. While the earnings held up surprisingly well, the second half guidance was downright apocalyptic.
The stock immediately gapped down to $65 in the aftermarket, off some 8%, in a heartbeat.
Foreign earnings are a great place to hide when the greenback is soggy. It is a terrible place to be when the buck is moving from strength to strength, as it has for the past eight months.
It turns out that there is much more that is wrong under the hood at QUALCOMM than the recent collapse of the Euro and the Yen.
Much of the meteoric growth of Apple?s (AAPL) iPhone 6 sales in recent months has been at the expense of Samsung and other competitors. I hate to say ?I told you so? but I have been predicting this all along.
While QUALCOMM sells to both companies, particularly its Snapdragon 800 quadcore processor, it gets a lesser share of the profits on its sales to Apple. QUALCOMM is therefore, effectively, an indirect short position in Apple.
I think you can take QUALCOMM?s woeful stock performance today as a warning that there is more suffering to come on the foreign earnings front by other companies yet to report.
For more depth on this, please read yesterday?s piece on ?The Unintended Consequences of the Euro Crash? by clicking here.
As for the happy holders of my recommended QUALCOMM (QCOM) February, 2015 $75-$80 in-the-money bear put spread, good for you! You have just made a nearly instant 2.25% profit on your total portfolio in a mere seven trading days. That works out to a gain of 22% on this single position.
There is no point in running this position the remaining three weeks into the February 20 expiration, as you have already reaped 95% of the potential profit. Better to free up the cash to roll into a new position, while simultaneously reducing your risk.
Or, you could simply take a long vacation from the miserable, unforgiving market.
There Goes QUALCOMM?s Earnings
https://www.madhedgefundtrader.com/wp-content/uploads/2015/01/Ship-e1422539739992.jpg262400Mad Hedge Fund Traderhttps://www.madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-01-29 09:10:192015-01-29 09:10:19Qualcomm Guidance Crushes Stock