Global Market Comments
September 4, 2020
Fiat Lux
Featured Trade:
Below please find subscribers’ Q&A for the September 2 Mad Hedge Fund Trader 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: Tesla (TSLA) is down 25% today from the Monday high. What are your thoughts?
A: Yes, I've been recommending to people all last week that they dump their big leverage positions, like their one- and two-year LEAPS in Tesla and quite a few people got out at the absolute highs near $2,500 just before the new stock issue was announced. People who bought the Tesla convertible bonds ten years ago got an incredible tenfold return, plus interest!
Q: Are we at-the-money at the bear put spread in (SPY)?
A: Yes, and if we go any higher, you are going to get a stop loss in your inbox because I have good performance this year to protect. I do this automatically without thinking about it. In this kind of crazy market, you cannot run shorts indefinitely. Hope is not a strategy. And it’s easy to stop out of a loser when 90% of the time you know the next one is going to be a winner.
Q: Doesn’t gold (GLD) normally go up in falling stock markets?
A: Yes, in a normal market that’s what it does. The problem is that all asset classes have produced identical charts in the last 2.5 years, and when they all go up in unison, they all go down in unison. This time around, gold will sell off with the stock market and gold miners (GDX) will go down three times as fast. Remember gold miners are stocks first and gold plays second, so when a big stock dive hits, will see big dives in gold miners as well, as we saw in February and March.
Q: Why is JP Morgan (JPM) a good buy?
A: JP Morgan is the quality play in the banks. And once inflation starts to kick in and interest rates rise, and you get a positive yield curve and a strengthening economy—that is fantastic news for banks. They are also one of the few underperforming sectors left in the market, so in any stock market selloff banks will rise. And that’s JP Morgan (JPM), Bank of America (BAC), Citigroup (C) that will lead the charge. Avoid Wells Fargo (WFC). It’s still broken.
Q: I see iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) starting to move up. Should we buy it?
A: Only on dips and only if you expect a dramatic selloff in the stock market very soon, which I do. The (VXX) trade is very high risk. The contango is huge. I tried making money on it a couple of times this year and failed both times; this really is for professional intraday traders in Chicago with an inside look at customer order flows. Retail traders rarely make money on the (VXX) trade—usually, they get killed.
Q: Will gold hold up as interest rates rise?
A: No, it won’t. Rising interest rates are death for gold and other precious metals. Your gold theory is that interest rates stay lower for longer, which the Fed has essentially already promised us.
Q: What do you think of the United States Treasury Bond Fund (TLT)?
A: I’m looking to sell shorts in big size as I did in the spring and I’m looking for five-point rallies to sell into. I missed the last one last week because it just rolled over so fast on an opening gap down that you couldn’t get any trade alerts out, and that’s happening more and more. So, if we get going up to $166-$167, that will be a decent short and then you want to be doing something like the $175-$178 vertical bear put spread in October. I don’t think bonds are going to go to 0% interest rates, I think the real range is 50-95 basis points in a 10-year treasury yield. That is your trading range.
Q: Do you think big oil (USO) will transform into a low carbon energy industry if Biden wins?
A: I’ve been telling big oil that that’s what they’re going to have to do for 20 years. They all read Mad Hedge Fund Trader. And, they always laugh, saying oil will be dominant at least until 2050. Since then, they have become the worst-performing sector of the S&P 500 on a 20-year view, and my thought is that eventually, big oil takes over and buys the entire alternative energy industry, and slowly pulls out of oil. They have the engineering talent to pull it off and they have the cash to make the acquisitions. They will have to reinvent themselves or go out of business, just like everybody else.
Q: What could trigger the stock market pullback you mention in your slides? Because the bullish Fed quantitative easing trade is hard to stop.
A: It’s like the 2000 top, there was no one thing or even a couple things, that could trigger the top. It’s just the sheer weight of prices and exhaustion of new buyers, and that is impossible to see in advance, so all you can do is watch your charts. One down out of the blue the Dow Average ($INDU) will suddenly drop 1,000 points for no reason.
Q: When you say Europe is recovering, which data indicates this?
A: Well, when you look at Q2 GDP growth in Europe, they were only down 10% while the US was down 26%. That is purely a result of Europe having a much more aggressive COVID-19 response than the United States. There is no mask debate in Europe, it’s like 100% compliance. Here you have blue states wearing masks and red states not. The result of that, of course, is that the death rate in the red states is about five times higher than it is in blue states, on a per capita basis. That is why the US has the highest infection rate in the world, the highest death rate, and is why we lost an extra 16% of GDP growth in Q2.
Q: Will you trade a short Tesla again?
A: No, I’ve been hit twice on Tesla shorts in the last six months and we are now in La La land—it’s essentially untradable. I got a lot of people out of Tesla earlier this week, and then they announced their share new $5 billion issue, which they should have done a while ago
Q: Is there any way to play the home mortgage refi boom in the stock market with the 30-year mortgages at a record low 2.88%?
A: You buy the banks. If you call your bank and ask for a refi quote, it might be a week before they get back to you, they are so busy. Banks are also getting enormous subsidies from all these various lending and stimulus type programs, so money is raining down on them right now. Banks are now the cheapest sector in the market, selling at 6x earnings. It is probably the single greatest sector in the stock market right now to buy.
Q: I’ve been holding the ProShares UltraShort 20 year Plus Treasury fund (TBT) and it is moving up and down in the short-range. Should I sell?
A: No, I think we have more room to go on the (TBT), I think we could get to $18, which is about a 0.90% yield in the US Treasury bond market.
Q: Do you have a target on Tesla?
A: Well, my downside target would be its old breakout level. So, divide by five and you get $300. That equates to $1450 in the pre-split price. So, we could have a real monster selloff, like 40%, once this market loses momentum. It’s safe to say don’t buy Tesla up here.
Q: Is the ProShares UltraShort S&P 500 ETF (SDS) offering a good entry point here?
A: It is as soon as we rollover. In these momentum-driven markets, it’s best to wait for proof of a top before you start getting fancy with short plays. You can see how I got hammered several times in the last month by being too early on my shorts; and fortunately, I was able to hedge out most of those losses. You might not be able to do so.
Q: Are you planning on keeping your Fortinet spread?
A: Yes, to expiration, which is only 11 days off, unless we get an out-of-the-blue meltdown.
Q: Do you like Ali Baba (BABA)?
A: Yes; that is essentially a play on a Biden win in the election. If he wins, our war with China will cease and all of the China plays will go ballistic as we return to international trade, which has been powering our economy for the last 70 years.
Q: What about cruise lines like Carnival (CCL)?
A: I know they’re cheap. They’re selling out their 2021 summer cruises with customers betting that there will be a corona vaccine by then, or simply not caring whether there is a pandemic or not. The dedicated cruisers are desperate to cruise. That’s one reason why these stocks are holding up, but I don’t want to touch them. I think the recovery will take much longer than people realize.
Q: When do you buy gold?
A: Wait for a bigger dip.
Q: Should I be holding gold for the long term?
A: Yes; if you don’t want to trade it, just sitting on your position is fine. I think gold eventually goes to 3,000 after hitting an initial target of 2,200.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 14, 2020
Fiat Lux
Featured Trade:
(AUGUST 12 BIWEEKLY STRATEGY WEBINAR Q&A),
(GLD), (TLT), (TSLA), (AAPL), (FB), (AMZN), (VXX), (VIX), (JPM), (BAC), (GDX), (NUGT), (MRNA), (BRK/B), (SLV), (FCX)
Below please find subscribers’ Q&A for the August 12 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: I just joined your service. Can you explain the logic to your current model trading portfolio?
I always try to balance long positions with short position. That greatly mitigates the risk of an out-of-the-blue crash, like we saw in February. Also, every individual position has a long and short, further reducing volatility. And you never can lose more money than you put up, so your risk is defined. That’s another classic risk control measure.
There is a further four hedge in that the portfolio is spread across all asset classes. So, I am long banks (JPM), (BAC), short US Treasury bonds (TLT), short a basket of big tech stocks (AAPL), (AMZN), (FB) and long gold (GLD). Something is always working where you can take profits. Our proprietary Mad Hedge Market Timing Index is always a big help in judging the best time to enter and exit these asset classes.
That is the short course on hedge fund risk management 101.
Q: Is it a good time to add in gold (GLD) here?
A: Yes, my long-term target for gold is $3,000/oz, possibly higher—it’s very common once you get a breakout from a 7-year bottoming process to get a big move like that. You always go back and retest that breakout level, that’s what’s happening now. I would use this dip to buy gold. You can look at (GLD) itself, the (GDX) gold miners which will give you 4:1 leverage over gold, or any of the 2x or 3x gold leveraged ETFs like (NUGT). There are lots of ways to play gold this time left from over the last bull market in gold ten years ago. So yes, bullish on gold with a temporary pullback in store. This recovery trade, which is buying banks, casinos, hotels, restaurants, weak dollar, weak buy market, weak gold—this is all temporary, this is just a trade. Those will all reverse themselves, probably by September if not sooner. So, if you missed the first round in the gold bull market, there’s certainly another chance to get back in.
Q: Do you think Biden and Harris will crash the stock market if elected?
A: No, since Biden started to run away in the polls, the stock market basically went straight up every day, and I prefer the stock market’s judgment on these things to opinion polls or talking heads. As far as Harris is concerned, she was the most middle of the road conservative pick of the 12 or so people they were looking at for vice president. Certainly, she’s a favorite with Wall Street, and isn’t it interesting they’re looking for the talents of a prosecutor in the White House? Who do you think they have in mind? So yes, that’s a net positive for the market. If anything, a new administration will bring a whole new round of Quantitative Easing and deficit spending, except it will be focused on bailing out Main Street, not Wall Street.
Q: Is the vaccine drug maker Moderna (MRNA) overbought here at 70?
A: Yes, I think to get any more appreciation you need to get an actual result on the many vaccines that are out there.
Q: Will Tesla (TSLA) pass 2,000 by year end?
A: I tend not to think so; Tesla had a once-in-a-lifetime 10-fold increase over a year. That is a very big move to digest, and while I’m saying people should keep their Tesla longs for the long term, short term you want to be selling calls against your long positions to hedge any downside and to take in some extra income.
Q: What caused ten-year US Treasury yields (TLT) to jump 14% yesterday? What will yields do from here?
A: Yields will go up and retest the 95-basis point level we saw a couple of months ago. That means we’re going to have a clear shot at adding shorts, probably for the next several weeks or months.
Q: I got the first TLT trade, but when I added the second one, I had to automatically close out my 175 short position to add the long 175 put position.
A: That is the correct way to do this. And what you end up with is a wider spread with a much larger size. So, you take all three positions we currently have, and you now have a (TLT) August $170-177.5 bear put spread in triple the original size and triple the profit, which expires in 5 trading days. It’s a trade with a very high return over a very short time frame. It’s the kind of trade that’s only available with very high volatilities in the market—at $25 in the (VIX), and you get very high accelerated time decay going into the close. So, it really was a two-week expiration play on the (TLT).
Q: Apple (AAPL) has been able to avoid any major damage in its share price in this trade war. How long can it last?
A: It can last 3 more months, until the election. It’s really quite amazing that the Chinese have not retaliated against Apple in all of these trade wars, and the reason for this is that Apple employs a million people in China, and they make a ton of money out of it. Apple has also managed their relationship with the communist government perfectly. So, that’s why they haven’t been hit. General Motors, other US companies—they could get expropriated. If the US can expropriate TikTok, what’s to stop China from expropriating General Motors, Starbucks, or even Apple for that matter?
Q: How do we know who has a real vaccine and who has a fake one? There’s so much information out there, I have a hard time filtering through what is real.
A: Wait for 100,000 people to try it out first—that’s what my plan is. That will be the safe way to do it. And if that means quarantining another couple of months to make sure you get the real deal, it’s worth the investment. Most industry safety standards, like animal trials, have been ditched by the FDA in order to get Trump a vaccine before the election. Putin is doing the same in Russia.
Q: Why is Warren Buffet buying back shares of Berkshire Hathaway (BRK/B) in record amounts? Is it because he sees no good investments?
A: He’d rather buy his own shares at parity or at a small premium than pay record PE multiples for essentially anything else in the market. Because the government rushed in so quickly to support the stock market, there never were any real deals in stocks, they never really got cheap. Yes, it sounds like down 40% in 2 months is cheap, but stocks weren’t, not even close to cheap, on a PE multiple basis. We never got close to the 9 ½X we saw in 2009. Also, if you believe in a recovery play, the ultimate recovery play is Berkshire Hathaway because they own predominantly old-line industrial cash flow stocks, which will lead any real recovery in the economy. So, at this point, Berkshire Hathaway will probably get you a higher return on a 12-month view than say Apple, Facebook or Amazon.
Q: Gold (GLD) vs Silver (SLV)? Which is better? And what about Copper (FCX)?
A: Silver always outperforms gold by at least 2 to 1 in any real economic recovery. Copper prices have risen 30% in 4 months; that is discounting a real economic recovery someday, so I would be buying copper on dips also.
Q: How do we learn more about options?
A: I suggest you go to the “How to Trade” section on our website, and that has links. Every trade alert we send out also has a link to a video that tells you exactly how to do the options part of that trade. And if you don’t want to do options, we also propose ETF and single stocks.
Q: What year end effect on the market do you see from a Biden tax plan on long term capital gains and qualified dividends at the ordinary income rate?
A: Well, if he actually proposes that, there will be a rush to sell assets by the end of the current year so people can take advantage of the very favorable capital gains tax that exist now. However, it’s not known whether that is actually the tax increase he’s proposing; it’s more likely he’ll simply return to the pre-Trump tax rates. However, I do expect him to come up with highly punitive tax rates on any real estate-related investment as a way of getting back at Trump. And that’s like loss carry forwards, steps up in the cost basis, 1031 exchanges—things specific to the real estate industry.
Q: If you think markets are going to come off, why aren’t you more aggressive buying the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX)?
A: (VXX) has become such a professional market it really has become a day trading vehicle. It’s hard to get customers in and out of this thing fast enough to make them money, as most of my followers are not set up to be day traders. It’s a market where 90% of the professionals are playing from the short side, so when you get moves up, they essentially happen over 1 or 2 days, and then they spend weeks or months bleeding off. It really is a tough trade for a retail trader to do; and it is an area where the insiders in Chicago trade this thing and really do have an in-house advantage that I would rather not try to bet against.
Q: I sold the top on all precious metals positions and started buying back today. Was that the right thing to do?
A: Yes, I have a feeling it is. Start scaling in—if you’re nervous about buying gold here, buy a third of a position now, a third if it’s higher or lower, and a third if it’s higher or lower again. That’s what any pro would do.
Q: Do you see another big economic crisis in 2021?
A: I don’t think so; I think any continued weakness will be hit with massive liquidity from the Fed and more government spending. Now that they found the model to keep the economy going, they’re going to just keep at it, no matter who is in power. Roosevelt kept at it for 5 years to end the Great Depression, until he was bailed out by WWII, so hopefully we don’t have to bail our economy out the same way with WWIII.
Q: What about Bitcoin here?
A: We don’t trade Bitcoin as we think the whole thing is a giant scam. There’s also no value added by anyone. Insiders have a huge advantage, the people who are creating the bitcoin to sell. So, it’s a security with no fundamentals—thus unanalyzable.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
July 21, 2020
Fiat Lux
Featured Trade:
(A REFRESHER COURSE AT SHORT SELLING SCHOOL),
(SH), (SDS), (PSQ), (DOG), (RWM), (SPXU), (AAPL), (TSLA),
(VIX), (VXX), (IPO), (MTUM), (SPHB), (HDGE)
Mad Hedge Technology Letter
July 7, 2020
Fiat Lux
Featured Trade:
(JULY 1 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (VIX), (TLT), (GLD), (IBB), (QQQ), (SPY), (NEM)
(TESTIMONIAL)
Below please find subscribers’ Q&A for the July 1 Mad Hedge Fund Trader 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: You obviously do well with deep-in-the-money call and put spreads, but I struggle to get your prices.
A: Raise the strike prices or raise the price that you’re bidding for them closer to my limit. It’s really hard to keep current prices in this market with such extreme volatility (VIX), especially when you’re having melt-ups going on in Tesla (TSLA) and so on. Our trade alerts are just a starting point to get you going in the right direction in the right stock. The people who make the most money with the trade alert service are those who use my market timing to buy futures, either at the money risk reversals on stocks (long the call and short the put), or outright futures in gold (GLD), currencies (FXE), and bonds (TLT).
Q: How high can Tesla go?
A: My immediate target is $1200 (which has already been hit), and the rumors I'm hearing is that they will be good if you factor in the two months that the Fremont factory was closed. And after that, it’s $2,500 and then there's Ron Baron’s target of $5,000, who’s been in the stock himself since it was at $100 a share. Ron was a little late in finding my research on the company. I first got in at $16.50 after I toured the Fremont factory.
Q: Is it possible there will be a national mandate to wear masks, which could boost stocks?
A: Not under this president. Do not expect help from this administration on this pandemic. They've figured out they can’t beat it so they are just walking away and leaving the states to figure out what they can. You’ll have to wait for another president to get a national mask mandate if we’re still alive by that time. I am getting a lot of emails from Europe complaining that the United States is extending the pandemic by having so many people refusing to wear masks here or admit that the disease even exists. They are horrified.
Q: What do you think about the biotech ETF (IBB)?
A: I’d be buying it with both hands. Even without the pandemic, a new bull market started last September in biotech because the fundamentals long term were fantastic. But you had to be a scientist to see it back then. They really had the highest earnings growth with the lowest price earnings multiples in the entire stock market. The pandemic just gave it a supercharger. That’s why I started the Mad Hedge Biotech & Healthcare Letter (click here).
Q: Which ETF should I use for biotech?
A: The iShares NASDAQ Biotechnology ETF (IBB). It's a basket of the top 20 global biotech firms but will underperform single biotech stock picks by half, as any basket does.
Q: What about the long-term portfolio?
A: I will get to it. It seems like our long-term portfolio is changing every week, so it’s difficult to really look at anything in the long term. These days, long term is a week with all the volatility we’re getting. I imagine I’d be getting rid of any energy stocks on this rally though. I see oil going back to zero.
Q: You say stay long NASDAQ (QQQ) and short S&P 500 (SPY) for the rest of the year, but you project new highs for the S&P 500?
A: Yes, both can go up, but NASDAQ will go up faster, and that’s what hedge funds are doing. That gives you a market neutral position, sucks a lot of the risk out of that position, and it’s even crash-proof as we saw in the winter when the markets were melting down. And like hedge funds, you can leverage that up 5 or 10 times. So yes, that trade will work all day long, even if both indexes go to new highs. I imagine NASDAQ will outperform on the upside relative to SPY by a factor of two or three to one.
Q: Is there a good substitute to use versus your deep-in-the-money alerts if you have a smaller account?
A: You can just buy the stocks. Or, you can just buy the stocks on margin, which is 2 to 1—50% margin requirement there. There are many ways to skin a cat. The call spreads actually give you the most bang per buck because you get a lot of leverage with a small dollar amount upfront and limited risk.
Q: I heard that hedge funds have huge shorts. Is this setting up another short squeeze? Will they eventually be right?
A: Yes, that may have been what happened on Monday and Tuesday, a squeeze on the shorts driving prices much higher. They will eventually be right a little bit, but you’re certainly not going to get the major declines we saw in February/March because of all the QE and government support. The pandemic is no longer a surprise.
Q: Will COVID-19 fears keep volatility elevated until there is a vaccine?
A: Absolutely, yes. That’s great news for our options strategy, which is why we’re 100% invested almost all the time these days because higher volatility doubles the premiums you get for options. My current strategy is that once a position hits 90% of its maximum profit, I dump it and put on another position to take in an extra $1,500-$2,000. I did that with Tesla and gold (GLD) last week. This is the golden age of the in-the-money put and call spread strategy and we are better at executing it than anyone else.
Q: What do you have to say about the jobs report?
A: The entire US economic data system is breaking down because we’re seeing such immense swings month to month. Reporting lags are getting amplified one hundredfold. The June Nonfarm Payroll Report showed an increase of 4.8 million jobs and an unemployment rate of only 11.1% (I never thought I’d ever say “only 11.1%”). However, the state jobless claims are indicating an unemployment rate of at least 22%. Go walk down the Main Street of any town and you’ll see that the state figures are right. All the forecasting is relatively pointless. How can we get a fall in unemployment when nothing is open?
Q: Are you recording this webinar?
A: Yes, we usually post the recorded webinar on the site 2 hours after we finish so our many international subscribers don’t have to stay up until the middle of the night to watch it. That’s how long it takes to convert the webinar into a video format we can post online.
Q: When setting up LEAPS (Long Term Equity Participation Securities), do you buy straight calls at-the-money or in-the-money?
A: You buy deep, out-of-the-money spreads. Let's say you bought a (TSLA) $1,500/$1,550 deep-in-the-money call spread, and it expires at the maximum profit point with the stock over $1,550. You’ll make about a 500% return on that because it’s so far out of the money; the leverage is enormous. Will Tesla close over $1,550 in two years? Probably.
Q: How do I get into Tesla?
A: Close your eyes and buy at market, and hope we get $1,200 tomorrow on great Q2 sales numbers. Or, wait for another one of these huge selloffs—Tesla does have a history of selling off 50% at any given time, and then you go into a LEAPS there and get a 500% return. Most investors prefer the latter if they know about LEAPS. Remember, our last “BUY” into Tesla was a year ago when the stock was at $180. By the way, a lot of the shorts in Tesla stock were financed by big oil money and when oil crashed, they lost the ability to post more margin. So, they were forced to cover their shorts at gigantic losses, creating this super spike in the share price. Elon Musk, who owns 20% of the company, is laughing all the way to the bank.
Q: How do we pick the best strike prices for long-term LEAPS?
A: Go 30% out-of-the-money. There you get your 500% return. If you really want to be aggressive and you think the stock has 50% of upside, then go 50% out-of-the-money. There your return will be about a 1,000% profit over 2 years.
Q: How long are these trades for? I haven’t received any trade alerts.
A: Please contact customer support and we’ll find out if they are being filtered out by your spam folder. Global Trading Dispatch is sending out trade alerts virtually every day for all asset classes, so you should have received several of them by now. The Mad Hedge Technology Letter sends out fewer because they are confined to a narrow part of the market.
Q: What is your favorite stock in the gold space?
A: Newmont Mining (NEM). They have the strongest balance sheet of the major gold companies because they engage in fewer takeovers than the other big gold companies.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
June 11, 2020
Fiat Lux
Featured Trade:
(WHY TECHNICAL ANALYSIS DOESN’T WORK)
(FB), (AAPL), (AMZN), (GOOG), (MSFT), (VIX)
(TESTIMONIAL)
Santa Claus came early this year.
We have now rocketed all the back from -37% to a feeble 0% return for the Dow Average for 2018. By comparison, the Mad Hedge Fund Trader is up a nosebleed 8.5% during the same period.
If you had taken Cunard’s round-the-world cruise four months ago, as I recommended, you would be landing in New York about now, wondering what the big deal was. Indexes are nearly unchanged since you departed, with the Dow only 5.50% short of an all-time high.
This truly has been the Teflon market. Nothing will stick to it. Not, plague, not depression, not mass bankruptcies, not the worst economic data in history.
Go figure.
It makes you want to throw your hands up in despair and your empty beer can at the TV set. All this work and I’m delivered the perfectly wrong conclusions?
Let me point out a few harsh lessons learned from this most recent meltdown and the rip-your-face-off rally that followed.
Remember all those market gurus claiming stocks would rise every day for the rest of the year? They were wrong.
This is why almost every Trade Alert I shot out for the past two months has been from the “RISK ON” side, but only after cataclysmic market selloffs.
We have just moved from a “Buy in November” to a “Sell in May” posture.
The next six months are ones of historical seasonal market weakness. For the misty origins of this trend, read “If You Sell in May, What to Do in April?” On top of that, we have the uncertainty of the presidential election to deal with.
We go into this with big tech leaders, including Facebook (FB), Apple (AAPL), Amazon (AMZN), Google (GOOG), and Microsoft (MSFT), all at or close to all-time highs.
The other lesson learned this year was the utter uselessness of technical analyses. Usually, these guys are right only 50% of the time. This year, they missed the boat entirely. After perfectly buying the last top, they begged you to dump shares at the bottom.
When the S&P 500 (SPY) was meandering in a narrow nine-point range, and the Volatility Index (VIX) hugged the $11-$15 neighborhood, they said this would continue for the rest of the year.
It didn’t.
When the market finally broke down in February, cutting through imaginary support levels like a hot knife through butter ($26,000? $25,000? $24,500?), they said the market would plunge to $24,000, and possibly as low as $22,000.
It didn’t do that either.
If you believed their hogwash, you lost your shirt. The market just kept going, and going, and going down to $18,000.
This is why technical analysis is utterly useless as an investment strategy. How many hedge funds use a pure technical strategy? Absolutely none, as it doesn’t make any money on a stand-alone basis.
At best, it is just one of 100 tools you need to trade the market effectively. The shorter the time frame, the more accurate it becomes.
On an intraday basis, technical analysis is actually quite useful. But I doubt a few of you engage in this hopeless persuasion.
This is why I advise portfolio managers and financial advisors to use technical analysis as a means of timing order executions, and nothing more.
Most professionals agree with me.
Technical analysis derives from humans’ preference for looking at pictures instead of engaging in abstract mental processes. A picture is worth 1,000 words, and probably a lot more.
This is why technical analysis appeals to so many young people entering the market for the first time. Buy a book for $5 on Amazon and you can become a Master of the Universe.
Who can resist that?
The problem is that high-frequency traders also bought that same book from Amazon a long time ago and have designed algorithms to frustrate every move of the technical analyst.
Sorry to be the buzzkill, but that is my take on technical analysis.
Hope you enjoyed your cruise.
Global Market Comments
June 4, 2020
Fiat Lux
Featured Trade:
(SHORT SELLING SCHOOL 101),
(SH), (SDS), (PSQ), (DOG), (RWM), (SPXU), (AAPL),
(VIX), (VXX), (IPO), (MTUM), (SPHB), (HDGE)
