(SPY) Archives

The Market Outlook for the Week Ahead, or It’s Fed Week

20/20 hindsight is a wonderful thing, especially when all of your predictions come true.

In February, I announced that markets would trade in broad ranges until the run-up to the midterm elections. That is what has happened to a tee, with the decisive upside breakout taking place last week. From here on. You’re trying to buy dips for a year-end run-up to higher highs.

For many months I was the sole voice in the darkness crying out that the bull market was still alive, it was just resting. Now quality laggards are taking the lead, such as in Industrials (XLI), Health Care (XLV), Consumer Staples (XLP), and Consumer Discretionary (XLY).

Home Depot (HD), which I recommended a month ago has taken off for the races, as has competitor Lowes (LOW), thanks to a twin hurricane boost. Even the long dead banks have recently showed a pulse (MS), (GS).

Technology stocks are taking a long-needed rest after a torrid two-and-a-half-year run. But they’ll be back. They always come back.

It’s not only stocks that have broken out of ranges, so has the bond market (TLT), the U.S. dollar (UUP), and foreign currencies (FXE). Will commodity companies like Freeport-McMoRan (FCX) and emerging markets (EEM) be the last to pick themselves off the mat, or do they really need to see the end of the trade wars first?

Markets are essentially acting like the trade war is over and we won. Why would traders believe this? That’s what a Volatility Index touching $11 tells you and is why I have been telling them to avoid buying it all week. Because the president told them so.

Another not insignificant positive is that multinationals have been slow to repatriate foreign funds, so there is a lot more still abroad to buy back their own stocks.

Weekly jobless claims hit another half century low at 201,000. Major U.S. companies such as UPS (UPS) and Target (TGT) are planning record levels of Christmas hiring. By the way, this is what economic peaks look like.

The Senate passes a mini spending bill that keeps the government from shutting down until December 7. The budget deficit keeps on soaring, but apparently, I am the only one who cares. Live through a debt crisis like we had during the early 1980s and you’d feel the same way.

The data for housing continues to be terrible, and we saw our first increase in inventories in three years.

Finally, with people camping out overnight and lines around the block, Apple’s CEO Tim Cook opens the doors to the Palo Alto, CA, store at 9:00 AM sharp on Friday to three new phones. But did the stock peak at $230, as it has in past release cycles?

Last week, the performance of the Mad Hedge Fund Trader Alert Service forged a new all-time high and then gave it up on one bad trade. September is now unchanged at -0.32%. My 2018 year-to-date performance has retreated to 26.69%, and my trailing one-year return stands at 38.23%.

My nine-year return appreciated to 303.16%. The average annualized Return stands at 34.32%. I hope you all feel like you’re getting your money’s worth.

This coming week is all about the Fed, plus a plethora of housing data.

On Monday, September 24, at 10:30 AM, we learn the August Dallas Fed Manufacturing Survey.

On Tuesday, September 25, at 9:00 AM, the new S&P Corelogic Case-Shiller National Home Price Index for July, a three-month lagging indicator.

On Wednesday September 26, at 10:00 AM, the August New Home Sales is published. At 2:00 the Fed Open Market Committee announced its decision to raise interest rates by 25 basis points.

Thursday, September 27 leads with the Weekly Jobless Claims at 8:30 AM EST, which dropped 3,000 last week to 201,000, a new 43-year low. At the same time an update on Q2 GDP is published.

On Friday, September 28, at 9:45 AM, we learn the August Chicago Purchasing Managers Index. The Baker Hughes Rig Count is announced at 1:00 PM EST.

As for me,

Good luck and good trading.

September 21, 2018

Diary, Newsletter, Summary

Global Market Comments
September 21, 2018
Fiat Lux

Featured Trade:
(SEPTEMBER 19 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (VIX), (VXX), (GS), (BABA), (BIDU), (TLT), (TBT),
(TSLA), (NVDA), (MU), (XLP), (AAPL), (EEM),
(MONDAY, OCTOBER 15, 2018, ATLANTA, GA,
GLOBAL STRATEGY LUNCHEON)

September 19 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader September 19 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader.

As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!

Q: Do you expect a correction in the near term?

A: Yes. In fact, we may even see it in October. Markets (SPY) have been in extreme, overbought territory for a month now, the macro background is terrible, trade wars are accelerating, and interest rates are rising sharply. The only thing holding the market up is the prospect of one more quarter of good earnings, which companies start reporting next month. So once that’s out of the way, be careful, because people are just hanging on to the last final quarter before they sell.

Q: I just got out of my cannabis stock, what should I do now?

A: Thank your lucky stars you got away with that—it was an awful trade and you made money on it anyway. Stay away in droves. After all, the cannabis industry is all about growing a weed and how hard is that? This means the barriers to entry are zero. In fact, I’m thinking of growing some in my own backyard. My tomatoes do well, so why not Mary Jane?

Q: The Volatility Index (VIX) is now at $11.79—should I buy?

A: No, the rule of thumb for the (VIX) is to wait for it to sit on a bottom for one to two weeks and let some time decay work itself out. You’ll see that in the ETF, the iPath S&P 500 VIX Short-Term Futures ETN (VXX). When it stops breaking to new lows, that means it’s ready for another bounce. I would wait.

Q: What do you think about banks here? Is it time to get in?

A: No, these are not promising charts. If anything, I’d say Goldman Sachs (GS) is getting ready to do a head and shoulders and go to new lows. I would stay away from financials unless I see more positive evidence. The industry is ripe for disruption from fintech, which has already started. That’s said, they are way overdue for a dead cat bounce. That’s a trade, not an investment.

Q: Would you short Alibaba (BABA) and Baidu (BIDU) here?

A: No. Shorting is what I would have done six months ago; now it’s far too late. If anything, I would be a buyer of those stocks here, based on the possibility that we will see progress or an end to the trade war in the next couple of months. If the trade wars continue, they will put the U.S. in recession next year, and then you don’t want to own stocks anywhere.

Q: Is Apple (AAPL) going to get hit by the trade wars?

A: So far, this has not been the case, but they are whistling past the graveyard right now—an obvious target in the trade wars from both sides. For instance, the U.S. could suddenly start applying a 25% import duty to iPhones from China, which would make your $1,000 phone a $1,250 phone. Similarly, the Chinese could hit it in China, restricting their manufacturing in one way or another. I’m being very cautious of Apple for this reason. The stock already has one $10 drop just because of this worry.

Q: Can the U.S. ban China from selling bonds?

A: No, they can’t. The global U.S. Treasury bond market (TLT) is international by nature—there is no way to stop the selling. It would take a state of war to reach the point where the Fed actually seizes China’s U.S. Treasury bond holdings. The last time that happened was when Iran seized the U.S. embassy in Tehran in 1979. Iran didn’t get its money back until the Iran Nuclear Deal in 2015. Before that you have to go back to WWII, when the U.S. seized all German and Japanese assets. They never got those back.

Q: What are your thoughts on the chip sector?

A: Stay away short-term because of the China trade war, but it’s a great buy on the long term. These stocks, like NVIDIA (NVDA) and Micron Technology (MU) have another double in them. The fundamentals are outrageously good.

Q: Is the market crazy, or what?

A: Yes, it is crazy, which is why I’m keeping 90% cash and 10% on the short side. But “Markets can remain irrational longer than you can stay liquid,” as my friend John Maynard Keynes used to say.

Q: What’s your take on the Consumer Staples sector (XLP)?

A: It will likely go up for the rest of the year, into the Christmas period; it’s a fairly safe sector. The uptrend will remain until it doesn’t.

Q: Should we buy TBT now?

A: No, the time to buy the ProShares Ultra Short 20+ Year Treasury ETF (TBT) was two months ago. Now is the time to sell and take profits. I don’t think 10-year U.S. Treasury yields (TLT) are going above 3.11% in this cycle, and we are now at 3.07%. Buy low and sell high, that’s how you make the money, not the opposite.

Q: Does this webinar get posted on the website?

A: Yes, but you have to log in to access it. Then hover your cursor over My Account and a drop-down menu magically appears. Click on Global Trading Dispatch, then the Webinars button, and the last nine years of webinars appear. Pick the webinar you want and click on the “PLAY” arrow. Just give us a couple of hours to get it up.

Q: Can Chinese companies use Southeast Asia as a conduit to export to the U.S.?

A: Yes. This is an old trick to bypass trade restrictions. For example, most of the Chinese steel coming into the U.S. is through third countries, like Singapore. Eventually they do get found out, at which point companies or imports from Vietnam will be identified as Chinese origin and get hit with the import duties anyway, but it could take a year or two for those illegal imports to get discovered. This has been going on ever since trade started.

Q: Will the currency crisis in Argentina and Turkey spread to a global contagion?

A: Yes, and this could be another cause of a global recession late next year. The canaries in the coal live there (EEM).

Q: Would you use the DOJ probe to buy into Tesla (TSLA)?

A: No, buy the car, not the stock as it is untradeable. This is in fact the third DOJ investigation Tesla has undergone since Trump came into office. The last one was over how they handled the $400 million they have in deposits for their 400,000 orders. It turns out it was all held in an escrow account. There are easier ways to make money. It’s a black swan a day with Tesla. This is what happens when you disrupt about half of the U.S. GDP all at once, including autos, the national dealer network, big oil, and advertising. All of these are among the largest campaign donors in the U.S.

Time to Bring Out the Big Guns

September 10, 2018

Diary, Newsletter, Summary

Global Market Comments
September 10, 2018
Fiat Lux

Featured Trade:
(WEDNESDAY, OCTOBER 17, 2018, HOUSTON
GLOBAL STRATEGY LUNCHEON INVITATION),
(THE MARKET OUTLOOK FOR THE WEEK AHEAD,
or “IT WASN’T ME!”),
(AMZN), (NKE), (SPY), (PCG)

The Market Outlook for the Week Ahead, or “It Wasn’t Me!”

Diary, Newsletter

First of all, I want to confirm absolutely and without any doubt that I did not write the anonymous and controversial New York Times op-ed entitled “I Am Part of the Resistance Inside the Trump Administration.” It wasn’t me.

During the 1970s I tried to write for the Grey Lady about the Chinese Cultural Revolution, the threat to the U.S. posed by the Japanese auto industry, and the coming appreciation of the Japanese yen. But they would have none of it.

That’s because they only ran copy from their own full-time journalists and didn’t accept work from freelancers. The Wall Street Journal, Barron’s, The Economist, no problem. The New York Times, no way Jose.

Anyway, anyone with any knowledge of military aviation knows who wrote it. Yes, it’s that obvious.

I was driving over the Oakland Bay Bridge on my way to San Francisco the other day and what I saw stunned me.

This time of year, you usually see 18 enormous Chinese container ships waiting to offload their cargo at the Port of Oakland in the run-up to the Christmas shopping season. This time I saw only 10.

Either the Chinese are sending their toys, electronics, and apparel to other U.S. ports, or they are not sending them at all. If it’s the latter it means that U.S. consumer demand is about to fall off a cliff, driven away by the high prices demanded by the new 25% import duties.

I called around to see if this was just a local problem. In fact, U.S. port landings are down 10% year on year, and off by a dramatic 25% in the hardest hit ports such as New Orleans, a major agricultural exporter.

If this is true, the consequences for U.S. investors are dire.

Let me give you one of my secret trading insights borne of a half century of stock market research. Real world observations front run official government data releases by three to six months. This is why I spend so much time in the field kicking tires, chatting up store managers, and flying over auto landing docks. If this is true, you could see early signs of a recession by early 2019.

The August Nonfarm Payroll Report came in at 201,000 on Friday, with the headline Unemployment Rate unchanged at 3.9%. June and July were revised down by 50,000 jobs.

The real news here is that Average Hourly Earnings popped to 2.9%, the biggest gain in nine years, proving that inflation is edging its way closer.

Health Care added 33,000 jobs, Construction 23,000, and Transportation up 20,000. Manufacturing lost 3,000 jobs, a victim of the trade wars, while Retail lost 5,000.

The U-6 broader “discouraged worker” unemployment fell to 7.4%, a new decade low. Certainly, the job market is firing on all cylinders.

The news gave us a nice little gap down in our short position in the bond market, taking the 10-year U.S. Treasury yield up to 2.95%, a one month high.

Still, you have to wonder why the stock market behaved so poorly after the release of such a healthy number. Was it “buy the rumor, sell the news,” the September effect, or the end of the 8 ½-year bull market? Obviously, I came out of my long (VXX) position too soon.

All doubts were removed when the president delivered a sucker punch to stocks by announcing new tariffs on a further $267 billion in Chinese imports. This is on top of the duties that applied to $200 billion of imports on Monday. The trade war steps up another notch. Now ALL Chinese imports are subject to punitive U.S. duties.

Amazon (AMZN) finally topped $1 trillion in market capitalization, delivering for my followers a ten-bagger on a recommendation I made several years ago.

Nike (NKE) delivered the ad campaign of the century, led by former San Francisco 49ers quarterback Colin Kaepernick. Just think of all the new demand created in the market by all those burning shoes.

The State of California passed a bill to stick the utility PG&E (PCG) with the bill for last year’s big fires. The company will pass it on to rate payers. Thank goodness I went all solar three years ago!

With the Mad Hedge Market Timing Index diving from 78 to 52 we definitely got some topping action in the market, and our short positions paid off handsomely. Both of my remaining positions are making money, my longs in Microsoft (MSFT) and my short in the U.S. Treasury bond market (TLT).

We are off to the races in September, giving us a robust return of 1.37%. My 2018 year-to-date performance has clawed its way back up to 28.39% and my nine-year return appreciated to 304.86%. The Averaged Annualized Return stands at 34.51%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 29.59%.

This coming week only has one important data release, the Fed Beige Book on Wednesday afternoon.

On Monday, September 10, at 3:00 PM, July Consumer Credit is out and should be at an all-time high as people max out their credit cards at the top of an economic cycle.

On Tuesday, September 11, at 6:00 AM, the NFIB Small Business Optimism Index is released at 6:00 AM.

On Wednesday, September 12, at 2:00 PM, the Federal Reserve discloses its Beige Book, which includes the data from the 12 Fed districts the Federal Open Market Committee at its September 19-20 meeting.

Thursday, September 13 leads with the Weekly Jobless Claims at 8:30 AM EST, which saw an amazing fall of 10,000 last week to 203,000.

On Friday, September 14, at 9:15 AM, we learn August Industrial Production. The Baker Hughes Rig Count is announced at 1:00 PM EST.

As for me,

Good luck and good trading.

41.79% Trailing One Year Return

It Wasn’t Me!

September 6, 2018

Diary, Newsletter, Summary

Global Market Comments
September 6, 2018
Fiat Lux

Featured Trade:
(TUESDAY, OCTOBER 16, 2018, MIAMI, FL,
GLOBAL STRATEGY LUNCHEON),
(HOW THE RISK PARITY TRADERS ARE RUINING EVERYTHING!),
(VIX), (SPY), (TLT),
(TESTIMONIAL)

August 27, 2018

Diary, Newsletter, Summary

Global Market Comments
August 27, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD),
(AAPL), (TLT), (SPY),
(BIDDING MORE FOR THE STARS),
(SPY), (INDU), (AAPL), (AMZN)

The Market Outlook for the Week Ahead

Diary, Newsletter, Research

Ahhhh…the wonders of global excess liquidity.

Last week saw senior-level felony convictions, the real estate and auto industries rolling over and playing dead, rising inflation, escalating trade wars, sagging exports. It’s as if an entire flock of black swans landed on the markets.

And what did stocks do? Rocket to new all-time highs, Of course! What, are you, some kind of dummy? Didn’t you get the memo? With $50 trillion of global excess liquidity spawned by a decade of quantitative easing, of course stocks will go straight up, forever!

Until they don’t.

Even my favorite, Apple (AAPL) blasted through to new highs at $219 after an analyst raised his target to $245. You may recall me loading the boat with Apple calls during the February meltdown when the shares hit $150.

My target for Apple this year was $200, which I then raised to $220. Am I going to raise my target again? No. As my late mentor, Barton Biggs used to say, “Always leave the last 10% for the next guy.”

It kind of makes my own split adjusted cost of Apple shares of 50 cents, which I picked up in 1998, look pretty good. Yup. That double bottom on the charts at 40 cents said it all.

I used the strength to increase my cash position from 80% to 90%, unloading my long position in Walt Disney options at cost. That leaves me with a single short position in bonds (TLT), which have to see yield on the 10-year U.S. Treasury bond market to fall below 2.67% in three weeks before I lose money.

I am even focusing a sharp eye on the Volatility Index (VIX) for a trade alert this week. If you buy the January 2019 (VXX) $40 calls at $2.90 and the ETF rises 25 points to its April high of $54, these calls would rocket by 382% to $14.00. Sounds like a trade to me! Then I can say thank you very much to Mr. Market, thumb my nose at him, and then take off for the rest of the year. TA-TA!

In the meantime, much of industrial America is getting ready to shut down. Tariffs on 50% of all Chinese imports come into force in September. It turns out that you can’t make anything in the U.S. without the millions of little Chinese parts you’ve never heard of, which also have no U.S. equivalent.

Factories will have to either pass their costs on to consumers in a deflationary economy or shut down. What the administration has done is offset a tax cut with a tax increase in the form of higher import taxes. It was not supposed to work out like that.

The bond rally has pared back my August performance to a dead even at 0.02%. My 2018 year-to-date performance has pulled back to 24.84% and my nine-year return appreciated to 301.31%. The Averaged Annualized Return stands at 34.76%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 32.24%.

This coming week will be real estate dominated on the data front.

On Monday, August 27, at 10:30 AM EST, we obtain the Dallas Fed Manufacturing Survey.

On Tuesday, August 28, at 9:00 AM EST, we get the June S&P CoreLogic Case-Shiller National Home Price Index. Will we start to see the price falls that more current data are already showing?

On Wednesday, August 29, at 10:00 AM EST, we learn July Pending Home Sales, which lately have been weak.

Thursday, August 30, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 2,000 last week to 210,000.

On Friday, August 31, at 10:00 AM EST, we get Chicago Purchasing Managers Index for July. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.

As for me, I think I’ll pop over to the Pebble Beach Concours d'Elegance vintage car show this weekend and place a bid on Ferris Bueller’s red 1962 Ferrari GT California. It’s actually a Hollywood custom chassis built around a Ford engine. I can’t afford a real vintage Ferrari GTO, one of which is expected to sell for an eye-popping $60 million this weekend.

Good luck and good trading.

Bidding More for the Stars

Diary, Newsletter

The stock market has turned into the real estate market, where everyone is afraid to sell their shares for fear of being unable to find a replacement. Will it next turn into the Bitcoin market?

Risk assets everywhere are now facing a good news glut.

My 2019 market top target of 28,000 for the Dow Average is rushing forward with reckless abandon.

Today's price action really gives you the feeling of an approaching short-term blow-off market top.

A few years ago, I went to a charity fundraiser at San Francisco's priciest jewelry store, Shreve & Co., where the well-heeled men bid for dates with the local high society beauties, dripping in diamonds and Channel No. 5.

Amply fueled with champagne, I jumped into a spirited bidding war over one of the Bay Area's premier hotties, whom shall remain nameless. Suffice to say, she is now married to a tech titan and has a sports stadium named after her.

Obviously, I didn't work hard enough.

The bids soared to $23,000, $24,000, $25,000.

After all, it was for a good cause. But when it hit $26,000, I suddenly developed a severe case of lockjaw.

Later, the sheepish winner with a severe case of buyer’s remorse came to me and offered his date back to me for $24,000. I said, “No thanks.” He then implored, “$23,000, $22,000, $21,000?"

I passed.

The altitude of the stock market right now reminds me of that evening.

If you rode the S&P 500 (SPX) from 667 to 2,790 and the Dow Average (INDU) from 7,000 to 25,790, why sweat trying to eke out a few more basis points, especially when the risk/reward ratio sucks so badly, as it does now?

Here we are eight months into the year, and my top picks for the year have gone ballistic. Amazon (AMZN) has doubled off its February low of $1,000, and Apple (AAPL) shares have soared from $150 to $217. Today, an analyst raised his forecast to $245.

As my late mentor, Morgan Stanley’s Barton Biggs, always used to tell me, “Always leave the last 10% for the next guy.”

I realize that many of you are not hedge fund managers, and that running a prop desk, mutual fund, 401k, pension fund, or day trading account has its own demands.

But let me quote what my favorite Chinese general, Deng Xiaoping, once told me: "There is a time to fish, and a time to hang your nets out to dry.

You don't have to chase every trade.

At least then I'll have plenty of dry powder for when the window of opportunity reopens for business. So, while I'm mending my nets, I'll be building new lists of trades for you to strap on when the sun, moon, and stars align once again.

What Am I Bid?

August 24, 2018

Diary, Newsletter, Summary

Global Market Comments
August 24, 2018
Fiat Lux

Featured Trade:
(AUGUST 22 BIWEEKLY STRATEGY WEBINAR Q&A),
(BIDU), (BABA), (VIX), (EEM), (SPY), (GLD), (GDX), (BITCOIN),
(SQM), (HD), (TBT), (JWN), (AMZN), (USO), (NFLX), (PIN),
(TAKING A BITE OUT OF STEALTH INFLATION)

Tag Archive for: (SPY)

Time to Bring Out the Big Guns

41.79% Trailing One Year Return

It Wasn’t Me!

What Am I Bid?