Global Market Comments
November 19, 2018
Fiat Lux
Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or MASS EVACUATION)
(SPY), (WMT), (NVDA), (EEM), (FCX), (AMZN), (AAPL), (FCX), (USO), (TLT), (TSLA), (CRM), (SQ)
Tag Archive for: (USO)
I will be evacuating the City of San Francisco upon the completion of this newsletter.
The smoke from the wildfires has rendered the air here so thick that it has become unbreathable. It reminds me of the smog in Los Angeles I endured during the 1960s before all the environmental regulation kicked in. All Bay Area schools are now closed and anyone who gets out of town will do so.
There has been a mass evacuation going on of a different sort and that has been investors fleeing the stock market. Twice last week we saw major swoons, one for 900 points and another for 600. Look at your daily bar chart for the year and the bars are tiny until October when they suddenly become huge. It’s really quite impressive.
Concerns for stocks are mounting everywhere. Big chunks of the economy are already in recession, including autos, real estate, semiconductors, agricultural, and banking. The FANGs provided the sole support in the market….until they didn’t. Most are down 30% from their tops, or more.
In fact, the charts show that we may have forged an inverse head and shoulders for the (SPY) last week, presaging greater gains in the weeks ahead.
The timeframe for the post-midterm election yearend rally is getting shorter by the day. What’s the worst case scenario? That we get a sideways range trade instead which, by the way, we are perfectly positioned to capture with our model trading portfolio.
There are a lot of hopes hanging on the November 29 G-20 Summit which could hatch a surprise China trade deal when the leaders of the two great countries meet. Daily leaks are hitting the markets that something might be in the works. In the old days, I used to attend every one of these until they got boring.
You’ll know when a deal is about to get done with China when hardline trade advisor Peter Navarro suddenly and out of the blue gets fired. That would be worth 1,000 Dow points alone.
It was a week when the good were punished and the bad were taken out and shot. Wal-Mart (WMT) saw a 4% hickey after a fabulous earnings report. NVIDIA (NVDA) was drawn and quartered with a 20% plunge after they disappointed only slightly because their crypto mining business fell off, thanks to the Bitcoin crash.
Apple (AAPL) fell $39 from its October highs, on a report that demand for facial recognition chips is fading, evaporating $170 billion in market capitalization. Some technology stocks have fallen so much they already have the next recession baked in the price. That makes them a steal at present levels for long term players.
The US dollar surged to an 18-month high. Look for more gains with interest rates hikes continuing unabated. Avoid emerging markets (EEM) and commodities (FCX) like the plague.
After a two-year search, Amazon (AMZN) picked New York and Virginia for HQ 2 and 3 in a prelude to the breakup of the once trillion-dollar company. The stock held up well in the wake of another administration antitrust attack.
Oil crashed too, hitting a lowly $55 a barrel, on oversupply concerns. What else would you expect with China slowing down, the world’s largest marginal new buyer of Texas tea? Are all these crashes telling us we are already in a recession or is it just the Fed’s shrinkage of the money supply?
The British government seemed on the verge of collapse over a Brexit battle taking the stuffing out of the pound. A new election could be imminent. I never thought Brexit would happen. It would mean Britain committing economic suicide.
US Retails Sales soared in October, up a red hot 0.8% versus 0.5% expected, proving that the main economy remains strong. Don’t tell the stock market or oil which think we are already in recession.
My year-to-date performance rocketed to a new all-time high of +33.71%, and my trailing one-year return stands at 35.89%. November so far stands at +4.08%. And this is against a Dow Average that is up a miniscule 2.41% so far in 2018.
My nine-year return ballooned to 310.18%. The average annualized return stands at 34.46%. 2018 is turning into a perfect trading year for me, as I’m sure it is for you.
I used every stock market meltdown to add aggressively to my December long positions, betting that share prices go up, sideways, or down small by then.
The new names I picked up this week include Amazon (AMZN), Apple (AAPL), Salesforce (CRM), NVIDIA (NVDA), Square (SQ), and a short position in Tesla (TSLA). I also doubled up my short position in the United States US Treasury Bond Fund (TLT).
I caught the absolute bottom after the October meltdown. Will lightning strike twice in the same place? One can only hope. One hedge fund friend said I was up so much this year it would be stupid NOT to bet big now.
The Mad Hedge Technology Letter is really shooting the lights out the month, up 8.63%. It picked up Salesforce (CRM), NVIDIA (NVDA), Square (SQ), and Apple (AAPL) last week, all right at market bottoms.
The coming week will be all about October housing data which everyone is expecting to be weak.
Monday, November 19 at 10:00 EST, the Home Builders Index will be out. Will the rot continue? I’ll be condo shopping in Reno this weekend to see how much of the next recession is already priced in.
On Tuesday, November 20 at 8:30 AM, October Housing Starts and Building Permits are released.
On Wednesday, November 21 at 10:00 AM, October Existing Home Sales are published.
At 10:30 AM, the Energy Information Administration announces oil inventory figures with its Petroleum Status Report.
Thursday, November 22, all market will be closed for Thanksgiving Day.
On Friday, November 23, the stock market will be open only for a half day, closing at 1:00 PM EST. Second string trading will be desultory, and low volume.
The Baker-Hughes Rig Count follows at 1:00 PM.
As for me, I'd be roaming the High Sierras along the Eastern shore of Lake Tahoe looking for a couple of good Christmas trees to chop down. I have two US Forest Service permits in hand at $10 each, so everything will be legit.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 12, 2018
Fiat Lux
Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or IT’S FINALLY OVER),
(SPY), (TLT), (AAPL), (ROKU), (USO)
Could it have been the election all along?
Did the massive uncertainty created by the midterm elections hold back investors for all of ten months?
That’s what it looks like now. In a mere three days, shares made back half of what they lost in October, one of the worst trading months in stock market history.
All the market did was trade in a giant range until the day before we trudged out to our local ballot boxes. After that, it was off to the races. Who was the big winner? The people who want to make Donald Trump’s life miserable who now have countless means with which to do so.
Now that the wraps are off, the way is clear for markets to forge on to new all-time highs which they will do by yearend, or early 2019 at the latest.
The Mad Hedge Market Timing Index saw the sharpest rally in 30 years, from 4 to 29 in a week. I told you the market was cheap!
Oil prices (USO) are telling us we are already in recession. Prices are in free fall hitting $60 a barrel, a nine-month low. China certainly is hurting and they are the largest marginal new buyer of Texas tea.
What we are really seeing is a massive unwind of wrong-footed hedge fund oil longs who expected oil prices to soar with the implementation of new sanctions on Iran. They didn’t.
US Exports plunged 26% in September while tariffs paid by US companies soared by an eye-popping 54%. The destruction of American international trade is well underway. When will it end? Who’s benefiting?
Asians are boycotting US Treasury sales and the US needs to sell to staggering $1.3 trillion in new debt in 2019. Keep hammering the (TLT) with those short positions, your new rich uncle trade.
The Producer Price Index Soared in October, up 0.6% versus 0.2% expected. Yikes, and double yikes! Inflation is here. Keep selling short those bonds (TLT)!
Trump threatened anti-trust action against all of big tech. Market yawned, with Amazon down only $50 after an enormous run-up. A 1% market share against falling prices and enormous customer satisfaction never triggered an anti-trust action before. Jeff Bezos is not the robber baron John D. Rockefeller. Could it be political?
The Number of Job Openings exceeded workers by 1 million in August, with 7.01 million openings versus 5.96 million unemployed. It’s the first time since the Dotcom Bubble top. Are we headed for a 3% Headline Unemployment Rate?
The Golden Age of Gridlock began with the Dems taking the House by flipping 40 seats and the Republicans holding the Senate. Now you can turn off your TV and focus on trading for the next two years. Buy stocks on dips, sell bonds on rallies. Oh, and the 2020 presidential election starts tomorrow.
Housing Sentiment hit a one year low, down a humongous five points, the second fastest drop in history. Rising interest rates have driven a stake through the heart of this once rip-roaring market, but it’s no 2008 replay.
November Share Buy Backs are poised to be the largest in history. Of course, you knew this was going to happen a month ago if you read Mad Hedge Fund Trader. Gotta love that tax reform!
My year-to-date performance rocketed to a new all-time high of +32.94%, and my trailing one-year return stands at 35.33%. November so far stands at +3.31%. And this is against a Dow Average that is up a pitiful 4.43% so far in 2018.
My nine-year return ballooned to 309.41%. The average annualized return stands at 34.72%. 2018 is turning into a perfect trading year for me, as I’m sure it is for you.
In the week before the election, I strapped on the most aggressive long portfolio of this year. It worked like a charm. I then went almost entirely in cash before election day, locking a 12% gain for the model trading portfolio.
I lasted in cash on two days. On the first down 300 point Dow day, I started adding positions in the old familiar names, including Apple (AAPL), Roku (ROKU) for the Mad Hedge Technology Letter, and a short in the (TLT). Bonds could really get crushed going into yearend targeting a 3.50% yield.
Q3 earnings have finished with a whimper and the blackout periods for share buybacks are now over. Let the buying begin! Some $200 billion has to hit the market by yearend, mostly in technology stocks.
After all the recent fireworks, this will be a quiet week on the data front. The October CPI will be the big one, out on Wednesday.
Monday, November 12 is Veterans Day. Stock markets are open but bonds are closed.
On Tuesday, November 13 at 6:00 AM EST, the NFIB Small Business Optimism Index is released.
On Wednesday, November 14 at 8:30 EST, we have the all-important Consumer Price Index announced. How hot will it be?
At 10:30 AM the Energy Information Administration announces oil inventory figures with its Petroleum Status Report.
Thursday, November 15 at 8:30, we get Weekly Jobless Claims. At the same time, October Retail Sales are put out.
On Friday, November 16, at 9:15 AM, the October Industrial Production is published.
The Baker-Hughes Rig Count follows at 1:00 PM.
As for me, I am on standby to volunteer as a pilot and serve as spotter for Calfire for the latest Northern California wildfires. I put my name on the waiting list last year, and they only just got around to calling me. There were 2,000 other volunteer pilots on the waiting list ahead of me.
You gotta love America.
Good luck and good trading.
Captain John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 5, 2018
Fiat Lux
Featured Trade:
(WEDNESDAY OCTOBER 17 HOUSTON STRATEGY LUNCHEON INVITATION),
(OCTOBER 3 BIWEEKLY STRATEGY WEBINAR Q&A)
(SPY), (VIX), (VXX), (MU), (LRCX), (NVDA), (AAPL), (GOOG), (XLV), (USO), (TLT), (AMD), (LMT), (ACB), (TLRY), (WEED)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader October 3 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: Will the market keep increasing for the rest of the year?
A: We haven’t had the pullback yet, so the short answer is yes. My yearend target of and S&P 500 (SPY) for the end of 2018 still stands. You can’t argue with the immediate price action. That said, the market is wildly overbought for the medium term and is approaching valuation levels we haven’t seen since the Dotcom peak in 2000. That why I am running a 70% cash trading book now.
Q: Should I be buying the Volatility Index (VIX) here?
A: Look at the bottom where we broke back in August, if we go down there and sit for a couple of days, then go out and buy the March 2019 $40 iPath S&P 500 VIX Short-Term Futures ETN (VXX) calls—way out of the money, way far in the future—and that way if you get any bounce in the (VIX) in the next 6 months, you’ll make a ton of money on that. You can buy them today for 50 cents. Plus, we could get one of these situations where there’s a major selloff once we’re into the new year, so a 6-month (VXX) call option would hedge that.
Q: Given the choice of Apple (AAPL) or Google (GOOG), which would you buy?
A: If you’re a conservative, old lady, widow and orphan type, you’d probably want to buy Apple— it’s almost turned into a utility, it’s so reliably safe, going up and has a nice dividend. If you want to be aggressive, swinging for the fences young stud and are looking for a double, I would go with Google—much higher growth pattern, pays no dividend and has had a 3-month consolidation going sideways. The only thing that could hurt this company would be government regulation, but with the Democrats possibly taking control of Congress in November, the prospect of government regulation of the entire technology sector could rapidly fade away.
Q: When should I get into Health Care (XLV)?
A: I think you have to wait at this point. To me, it’s tremendously overbought at the moment, but is still enjoying a long-term bull move. This is one of my two favorite sectors in the entire market. It has been rising for four months now, even though the Trump threat of price cuts are constantly overhanging the market.
Q: Is oil (USO) going to 100?
A: Because of the disruptions caused by the Iran sanctions and the tearing up of the Iran Nuclear Treaty, Trump has created a short squeeze in oil prices. He is threatening to boycott any country that buys oil from Iran, so Iran is shipping their oil through China, which is already under sanctions itself. However, that is easier said than done. The oil business is much more complicated than people realize. For China to take Iranian oil, they literally have to build new refineries from scratch to process the crude from Iran; no two crudes are alike. When you build a major supply, you have to build refineries to match that, and you have to get it there. This market will eventually stabilize, but in the meantime, there is a big short squeeze going on in Europe.
Q: Do you see the economy going strong into the end of the year?
A: Yes, I do—we still have the tax cuts, global liquidity, and deregulation kicking in, and those things will all work until the end of the year. I think we close at the highs of the year, and after that we’re going to have to start to work hard for our money once again in 2019. The US economy is like a supertanker; it takes a long time to turn it around.
Q: Will the interest rate spike kill the market?
You think? Investors are so used to ultra-low interest rates that a transition to normal rates will be traumatic. Next Friday, we get Core CPI, and if that comes in hot we could see another spike to 3.35% in the ten-year US Treasury bond (TLT). There are now a ton of people desperate to get out of their bond holdings at last week’s prices. This is why I have been selling short the bond market for the past three years and selling as recently as Monday. The next leg down in a 30-year bear market has begun.
Q: Advanced Micro Devices (AMD) has shot over $30—would you sell it?
A: We love the company long term but short term it is just way overdone; take the double and run, and then buy back on the next dip.
Q: Are you still bearish on the chip company?
A: Short term yes, long term no. This sector is now totally driven by the trade war with China. This includes NVIDIA (NVDA), Micron Technology (MU) and LAM Research (LRCX). Lam is particularly exposed because they had ordered to sell ten entire chip factories to China which is now on hold. That said, the day the trade way ends these stocks will all start a 50% run up. If China gets the same free pass and symbolic treaty that Canada did, that could happen sooner than later. If you can’t sleep at night until then, cut your position in half. If you still can’t sleep, cut it again.
Q: Do you think Lockheed Martin (LMT) is a buy Here at $350?
A: No, there is a double top risk for the stock right here. And if the Democrats get control of congress, the whole Trump trade could unwind. That would give the opposition the purse strings and the first thing they’ll do is cut defense spending, which Trump bumped up by $50 billion.
Q: Do you have any views on pot stocks like Aurora Cannabis (ACB), Tilray (TLRY) and (WEED)?
Stay away in droves. They’re this year’s bitcoin stocks. It’s still illegal. That’s why these companies are all based in Canada. And after all it’s a weed. How hard is it to grow? The barriers to entry are zero.
Global Market Comments
October 3, 2018
Fiat Lux
Featured Trade:
(TAKING A LOOK AT GENERAL ELECTRIC LEAPS), (GE),
(TEN SURPRISES THAT WOULD DESTROY THIS MARKET),
(USO), (AMZN), (MCD), (WMT), (TGT)
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)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader August 22 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: How do you think the trade talks will resolve?
A: There will be no resolution this next round of trade talks. China has sent only their most hawkish negotiators who believe that China has done nothing wrong, so don’t expect results any time soon.
Also, because of the arrests in Washington, China is more inclined to just wait out Donald Trump, whether that’s 6 months or 6 1/2 years. They believe they have the upper hand now, sensing weakness in Washington, and in any case, many of the American requests are ridiculous.
Trade talks will likely overhang the market for the rest of this year and you don’t want to go running back into those China Tech plays, like Alibaba (BABA) and Baidu (BIDU) too soon. However, they are offering fantastic value at these levels.
Q: Will the Washington political storm bring down the market?
A: No, it won’t. Even in the case of impeachment, all that will happen is the market will stall and go sideways for a while until it’s over. The market went straight up during the Clinton impeachment, but that was during the tail end of the Dotcom Boom.
Q: Is Alibaba oversold here at 177?
A: Absolutely, it is a great buy. There is a double in this stock over the long term. But, be prepared for more volatility until the trade wars end, especially with China, which could be quite some time.
Q: What would you do with the Volatility Index (VIX) now?
A: Buy at 11 and buy more at 10. It’s a great hedge against your existing long portfolio. It’s at $12 right now.
Q: Are the emerging markets (EEM) a place to be again right now or do you see more carnage?
A: I see more carnage. As long as the dollar is strong, U.S. interest rates are rising, and we have trade wars, the worst victims of all of that are emerging markets as you can see in the charts. Anything emerging market, whether you’re looking at the stocks, bonds or currency, has been a disaster.
Q: Is it time to go short or neutral in the S&P 500 (SPY)?
A: Keep a minimal long just so you have some participation if the slow-motion melt-up continues, but that is it. I’m keeping risks to a minimum now. I only really have one position to prove that I’m not dead or retired. If it were up to me I’d be 100% cash right now.
Q: Would you buy Bitcoin here around $6,500?
A: No, I would not. There still is a 50/50 chance that Bitcoin goes to zero. It’s looking more and more like a Ponzi scheme every day. If we do break the $6,000 level again, look for $4,000 very quickly. Overall, there are too many better fish to fry.
Q: Is it time to buy gold (GLD) and gold miners (GDX)?
A: No, as long as the U.S. is raising interest rates, you don’t want to go anywhere near the precious metals. No yield plays do well in the current environment, and gold is part of that.
Q: What do you think about Lithium?
A: Lithium has been dragged down all year, just like the rest of the commodities. You would think that with rising electric car production around the world, and with Tesla building a second Gigafactory in Nevada, there would be a high demand for Lithium.
But, it turns out Lithium is not that rare; it’s actually one of the most common elements in the world. What is rare is cheap labor and the lack of environmental controls in the processing.
However, it’s not a terrible idea to buy a position in Sociedad Química y Minera (SQM), the major Chilean Lithium producer, but only if you have a nice long-term view, like well into next year. (SQM) was an old favorite of mine during the last commodity boom, when we caught a few doubles. (Check our research data base).
Q: How can the U.S. debt be resolved? Or can we continue on indefinitely with this level of debt?
A: Actually, we can go on indefinitely with this level of debt; what we can’t do is keep adding a trillion dollars a year, which the current federal budget is guaranteed to deliver. At some point the government will crowd out private borrowers, including you and me, out of the market, which will eventually cause the next recession.
Q: Time to rotate out of stocks?
A: Not yet; all we have to do is rotate out of one kind of stock into another, i.e. out of technology and into consumer staple and value stocks. We will still get that performance, but remember we are 9.5 years into what is probably a 10-year bull market.
So, keep the positions small, rotate when the sector changes, and you’ll still make money. But, let's face it the S&P 500 isn’t 600 anymore, it’s 2,800 and the pickings are going to get a lot slimmer from here on out. Watch the movie but stay close to the exit to escape the coming flash fire.
Q: What kind of time frame does Amazon (AMZN) double?
A: The only question is whether it happens now or on the other side of the next recession. We can assume five years for sure.
Q: More upside to Home Depot (HD)?
A: Absolutely, yes. The high home prices lead to increases in home remodeling, and now that Orchard Hardware has gone out of business, all that business has gone to Home Depot. Home Depot just went over $204 a couple days ago.
Q: Do you still like India (PIN)?
A: If you want to pick an emerging market to enter, that’s the one. It’s a Hedge Fund favorite and has the largest potential for growth.
Q: What about oil stocks (USO)?
A: You don’t want to touch them at all; they look terrible. Wait for Texas tea to fall to $60 at the very least.
Q: What would you do with Netflix (NFLX)?
A: I would probably start scaling into buy right here. If you held a gun to my head, the one trade I would do now would be a deep in the money call spread in Netflix, now that they’ve had their $100 drop. And I can’t wait to see how the final season of House of Cards ends!
Q: If yields are going up, why are utilities doing so well?
A: Yields are going down right now, for the short term. We’ve backed off from 3.05% all the way to 2.81%; that’s why you’re getting this rally in the yield plays, but I think it will be a very short-lived event.
Q: Do you see retail stocks remaining strong from now through Christmas?
A: I don’t see this as part of the Christmas move going on right now; I think it’s a rotation into laggard plays, and it’s also very stock specific. Stocks like Nordstrom (JWN) and Target (TGT) are doing well, for instance, while others are getting slaughtered. I would be careful with which stocks you get into.
Good luck and good trading
John Thomas
CEO & Publisher
Diary of a Mad Hedge Fund Trader
Global Market Comments
August 22, 2018
Fiat Lux
Featured Trade:
(WHY DOCTOR COPPER IS WAVING A RED FLAG),
($COPPER), (FCX), (USO),
(HANGING OUT WITH THE WOZ),
(AAPL)
