($VIX) Archives

Market Outlook for the Week Ahead, or The Good News is Out

After a China trade deal, UK election and a NAFTA 2.0 are announced, what is left to drive the stock market?

That is a very good question and explains why the Dow Average was up only a microscopic 3.33 points on Friday. It had spent much of the day down.

It’s not a pretty picture.

Not only is the market running out of drivers, the economic data is still decelerating, with the GDP running a 1.5% rate, inflation rising, and corporate earnings growth at zero, with earnings multiples at 17-year high.

A Wiley Coyote moment comes to mind.

And while we are finishing a great 27% year (56% for the Mad Hedge Fund Trader), we are in effect getting three years of performance packed into one. Not only did we pull forward a good chunk of 2020’s performance, we borrowed heavily from 2018 as well, coming in at such a low start as we did.

Thus 2019 might well get bookended by an 8% gain in 2018 and another 8% year in 2020, with dividends. Blame it all on the massive liquidity burst we got from the Fed that started last December and continues unabated.

Stocks have been floated by a tidal wave of new money creation worldwide. Globally, new money creation is running at a $1 trillion a month rate and much of that is ending up in the US stock market, especially in technology shares.

The rush was enough to drive Apple (AAPL) to a new all-time high at $275, pushing its market capitalization up to a staggering $1.2 trillion. It could surpass Saudi ARAMCO’s $2 trillion valuation in a year or two.

Steve Jobs’ creation now accounts for a mind-blowing 6% of the S&P 500 and 4% of total US stock market capitalization. It’s the best argument I’ve ever heard for becoming a hippy and dropping out of college after one quarter.

Which leads us to paint a picture for the 2020 stock market. Even the most optimistic outlook for next year, that of Ed Yardeni, is calling for only a 10% gain. Many prognostications are calling for negative numbers next year.

You might be better off parking your money in a 2% CD and taking a cruise around the world. I’ve done that before, and it works fantastically well.

You’re only going to have one shot at making money in 2020. Wait for a 10%-20% nosedive to go long. My guess is that happens when it becomes clear that the Democrats are dominating in the polls (Joe Biden is currently 14 points ahead in swing state Pennsylvania). No matter who wins, less borrowing, less spending, and higher taxes will prevail.

Then stocks will rally 10% AFTER the election because the uncertainty is gone. That will get you a 20%-30% profit in 2020, but only of you are a trader and follow the Mad Hedge Fund Trader. After basking in their own brilliance in 2019, 2020 might be a year when indexers wish they never heard of the term.

In the end, corporate earnings growth always wins, especially in tech, which is still growing at 20% a year. Remember, my 2030 forecast for the Dow Average is 125,000.

China (FXI) won big in mini trade deal. We rolled back a tariff increase that was never going to happen and the Chinese buy $50 billion worth of soybeans they were going to buy anyway, except at half the price that prevailed two years ago. All of it will come out of stockpiles built up during the trade war. Only the ag sector is affected, which is 2% of the US economy. The ag markets aren’t buying it. If this were a real trade deal, stocks would be up 1,000 points, not 89.

Conservatives won big in UK election. The British pound (FXB) is up 2% and stocks are soaring. A hard Brexit is coming, so look for Scotland to secede and Northern Ireland to join the Republic. The UK will be gone as we know it. Britain’s standard of living will plummet. Great Britain will no longer be great, and the Russians financed the whole thing.

Volatility crashed, as complacency rules supreme. Don’t buy (VIX) until we see the $11 handle again.

Chinese copper purchases hit a 13-month high, up 12.1% in November, to 483,000 metric tonnes. It explains the 78% move up in Freeport McMoRan (FCX) since October, the world’s largest producer. Obviously, someone believes a trade deal is coming. My long LEAP players love it.

US Consumer inflation expectations rebounded, up 0.1% to 2.5%, accounting to the New York Fed. That’s crawling up from a five-year low, a slightly positive economic note.

Saudi ARAMCO went public, with a 10% pop in the shares on the first two days, providing a $24 billion fund raise. This is one of the top three largest IPOs in history after Alibaba (BABA) and Softbank. It values the company at $1.88 trillion. Oil (USO) is down a dollar on the news, no longer needing artificial support to get the deal done. This could be one of the seminal shorts of our generation.

NAFTA 2.0 was signed, removing a potential negative from the market. It is 90% of the original NAFTA, not the “greatest trade deal in history” as claimed. Buy the main North/South railroad, Norfolk Southern (NSC) on the news.

Weekly Jobless Claims soared to a two-year high, by 49,000 to 252,000. Are stores laying people off from Christmas early this year, or did they never hire in the first place because the retail businesses are gone? Peak jobs are in. US job growth is now far slower than in the Obama era, as is GDP growth.

Most US companies will have fewer staff in 2020, except Mad Hedge Fund Trader. More automation and algos mean fewer humans. Only a capital spending freeze caused by the trade war kept a low of low-skilled people in their jobs.

This was a week for the Mad Hedge Trader Alert Service to catapult to new all-time highs.

My long positions have shrunk to my core (MSFT) and (GOOGL), which expire with the coming December 20 option expiration.

My Global Trading Dispatch performance ballooned to +356.00% for the past ten years, a new all-time high. My 2019 year-to-date catapulted back up to +55.86%. December stands at an outstanding +4.85% profit. My ten-year average annualized profit rebounded to +35.59%.

The coming week will be a noneventful one on the data front, with some housing data and the Q3 GDP on the menu. Anyway, everyone else will be out Christmas shopping or attending parties.

On Monday, December 16 at 9:30 AM, New York Empire State Manufacturing Index for December is out.

On Tuesday, December 17 at 9:30 AM, Housing Starts for November are released.

On Wednesday, December 18 at 11:30 AM, US EIA Crude Stocks for the previous week are announced.

On Thursday, December 19 at 8:00 AM Existing Home Sales are published. At 8:30 AM, we get Weekly Jobless Claims.

On Friday, December 20 at 9:30 AM, the final read on US Q3 GDP is printed. The Baker Hughes Rig Count follows at 2:00 PM.

As for me, after blowing out 1,200 Christmas trees, the Boy Scouts will be taking down the tree lot for the year. And who do they turn to when it comes to wielding a chain saw or sledge hammer?

Good luck and good trading.

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

December 9, 2019

Diary, Newsletter, Summary

Global Market Comments
December 9, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE MELT-UP CONTINUES),
(SPY), (TLT), (VIX), (FXI)

The Market Outlook for the Week Ahead, or the Melt-Up Continues

Diary, Newsletter

I can tell you that the way to NOT start writing a newsletter is to first swing a 20-pound sledgehammer for three hours. That's what I did this morning helping the Boy Scouts mount 700 trees on rebar stands as part of the annual Christmas tree fundraiser.

Nor is it advisable to start writing a newsletter by hauling 50-pound trees on to car rooftops and tying them down.

However, I am a man of my commitments, so here I am with the aid of a long hot bath and some Epsom salts.

With that said, I have only one number to announce: 55.61%. That is the profit that followers of the Mad Hedge Fund Trader have earned so far in 2019, and I know many of you are up a lot more than that.

All it took for me to achieve a new all-time high was to turn aggressive at the bottom of last week’s 900 selloff in the Dow Average.

With super liquidity flooding the financial system and ultra-low interest rates fanning the flames, I didn’t believe my Mad Hedge Market Timing Index would not fall below 60, where it held.

I also thought that, with so many buyers clamoring to get into the market, no pullbacks would go beyond 3%, which also turned out to be true.

This prompted me to increase my “RISK ON” positions from 20% to 50%, the timing of which turned out to be perfect. That enabled me to coin a breathtaking +4.81% in performance last week, quite a big bite for this normally sedentary time of the year.

A sledgehammer of a different sort was taking to the shorts last week as a robust November Nonfarm Payroll Report sent share flying, up 266,000, a ten-month high. The Headline Unemployment rate dropped to 3.5%.

It was not entirely a rosy report, with 50% of the gains by those 55 and overtaking second jobs at paltry minimum $8-$12 an hour minimum wages to put food on the table during the Christmas season. On the other hand, only 25% of the gains were accounted for my Millennials who now make up 50% of the population.

The other sobering fact is that 100% of America’s economic growth is currently debt-driven. If the government were running a balanced budget as it should at this point in the economic cycle, the country’s GDP growth rate would be zero, and stocks would be in free fall.

As a result, risk in the market is at century highs. The second the government starts to reduce its gargantuan deficit, the stock market will crash.

Trump said the China (FXI) Trade Deal may have to wait until the 2020 election. I told you so. The Volatility Index (VIX) jumped 40% providing a great entry point for one more bite of the apple (AAPL).

Bonds (TLT) soared, opening up one of the best short-selling opportunities of 2019, which I took. The Chinese aren’t going to lift a finger to help Trump get reelected. Farmers are going to have to endure a third year of depression.

The November Nonfarm Payroll blew it away with a 266,000 report, a ten-month high. I’m hiring, that’s for sure. Maybe trade doesn’t matter after all.

China banned US warship visits in response to the US human rights stand on Hong Kong. It’s not exactly a step towards a trade deal, which is why the Dow is diving. The very long overdue correction in the US stock market is starting. Is the marketing finally starting to notice the still weak economic data?

Cyber Monday sales soared by 19% to an all-time record of $9.4 billion. Some 49% of sales were on smartphones, which to me who can bare read one is amazing. The internet was barely functioning on Monday, slowed to a snail’s pace by a glut of business. Now, if I can only get the Victoria’s Secret website to open….

A bigger oil glut looms as OPEC+ went into the Vienna meeting last week. If they don’t cut production substantially, oil prices will crash….again. High prices now are artificially high in front of the Saudi ARAMCO IPO. Avoid all energy plays on pain of death. The end of carbon-based energy forms has begun.

This was a week for the Mad Hedge Trader Alert Service to catapult to new all-time highs.

My long positions have shrunk to my core (MSFT) and (GOOGL).

My Global Trading Dispatch performance held steady at +352.76% for the past ten years, pennies short of an all-time high. My 2019 year-to-date catapulted back up to +52.62%. We closed out November with a respectable +3.07% profit. My ten-year average annualized profit ground back up to +35.28%.

The coming week will be a noneventful one on the data front.

On Monday, December 9 at 9:00 AM, Consumer Inflation Expectations for November are out.

On Tuesday, December 10 at 2:30 PM, the NFIB Business Optimism Index is released.

On Wednesday, December 11, at 6:15 AM, US Core Inflation is announced.

On Thursday, December 12 at 8:30 AM, Weekly Jobless Claims come out.

On Friday, December 13 at 9:30 AM, November US Retails Sales are printed.

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

As for me, I’ll be wrapping presents and doing some last-minute Christmas shopping. Only 200 Christmas trees left to sell.

Good luck and good trading.

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

December 6, 2019

Diary, Newsletter, Summary

Global Market Comments
December 6, 2019
Fiat Lux

Featured Trade:

(DECEMBER 4 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (TSLA), (TLT), (BABA), (CCI), (VIX)

November 25, 2019

Diary, Newsletter, Summary

Global Market Comments
November 25, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or CATCHING OUR BREATH),
(MSFT), (GOOGL), (TLT), (VIX), (TSLA)

October 31, 2019

Diary, Newsletter, Summary

Global Market Comments
October 31, 2019
Fiat Lux

Featured Trade:

(WELCOME TO THE LAND OF ZEROS),
(TLT), (VIX), (GLD), (SLV), (FXY),
(A NOTE ON OPTIONS CALLED AWAY), (BA)
(TESTIMONIAL)

Welcome to the Land of Zeros

Diary, Free Research, Newsletter

Jay Powell really showed his hand today with the press conference following his 25-basis point interest rate cut.

The Fed’s medium-term target rate is now zero. Take a 1.75% inflation rate, subtract a 1.75% overnight rate and you end up with a real interest rate of zero. The fact that we have real economic growth also at zero (1.75% GDP – 1.75% inflation) makes this easier to understand.

That means there will be no more interest rate cuts by the Fed for at least six more months. All interest rate risks are to the downside. There is no chance whatsoever of the Fed raising rates in the foreseeable future with a growth rate of 1.75%. It will also take a substantial fall in the inflation rate to get rates any lower than here.

That may happen if the economy keeps sliding slowly into recession. Net net, this is a positive for all risk assets, but not by much.

I regard every Fed day as a free economics lesson from a renown professor. Over the decades, I have learned to read through the code words, hints, and winks of the eye. It appears that the thickness of the briefcase no longer matters as it did during Greenspan. No one carries around paper anymore during the digital age.

I then have to weed through the hours of commentary that follows by former Fed governors, analysts, and talking heads and figure out who is right or wrong.

In the meantime, the “Curse of the Fed” is not dead yet. The ferocious selloffs that followed the last two Fed rate cuts didn’t start until the day or two after. That’s what the bond market certainly thinks, which rallied hard, a full two points, after the announcement.

All of this provides a road map for traders for the coming months.

The Santa Claus rally will start after the next dip sometime in November. Buy the dip and ride it until yearend. The Mad Hedge Market Timing Index at 75, the bond market (TLT), the Volatility Index (VIX) and the prices of gold (GLD), silver (SLV), and the Japanese yen (FXY) are all shouting this should happen sometime soon.

I hope this helps.

John Thomas

October 29, 2019

Diary, Newsletter, Summary

Global Market Comments
October 29, 2018
Fiat Lux

Featured Trade:

(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS), (TLT)
(WHY TECHNICAL ANALYSIS DOESN’T WORK)
(FB), (AAPL), (AMZN), (GOOG), (MSFT), (VIX)

October 28, 2019

Diary, Newsletter, Summary

Global Market Comments
October 28, 2019
Fiat Lux

Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or DON’T FIGHT THE FED),
(BIIB), (IBB), (TSLA), (VIX), (BA), (AMZN), (AAPL), (MSFT), (GM)

The Market Outlook for the Week Ahead, or Don’t Fight the Fed

Diary, Newsletter

Don’t fight the Fed.

That was the overwhelming message of the market last week as it ground up to a new intraday all-time high. The economy may be going to hell in a handbasket. But as long as the Fed keeps lowering interest rates, stocks will go up, kicking and screaming all the way. It’s that simple.

America’s central bank will get its next chance to cut rates on Wednesday at 2:00 PM from the current overnight rate of 2.00%.

The big question is: Will the curse of the Fed continue? For the last two times the Fed lowered interest rates, substantial stock market selloffs ensued, the last one reaching a 7.5% haircut. We will know shortly.

The Mad Hedge Lake Tahoe Conference held last weekend was a blowout success, with a great time had by all. The weather couldn’t have been more perfect, with the lake waters calm and crystal clear. A day of market insights were delivered by me and Mad Hedge Technology Letter author Arthur Henry.

The only drawback was that several guests were prevented from going home by mandatory evacuations of several Bay Area cities and the closure of Interstate 80 going back to San Francisco. A handful (including me), had no electric power to return to when they got home.

I’ll share with you the most disturbing chart of the entire day showing the S&P 500 (SPY) has been grinding up to new highs, earnings forecasts have been absolutely falling off a cliff. Clearly, with the Volatility Index (VIX) back down to the lowly $12 handle, this is a market that is cruising for a bruising….someday.

Brexit failed again, taking the quagmire into its fourth year. An EC deal is postponed until January 31, but they’re really not interested at all. British pounds collapsing, creating a new “RISK OFF” leg worldwide. Prime minister Johnson has lost 5 consecutive parliamentary votes, an all-time record. When will he get the message?

US Capital Investment has ground to a halt, with business fixed investment down 1% YOY. No one knows where to put their money, inside the US or not, so they're doing nothing until it is sorted out. Call me when its over.

Biogen (BIIB) exploded to the upside on its FDA application for its new Alzheimer’s drug. Written off for dead six months ago, the company secretly kept working on Aducanumab until today’s blockbuster announcement. The drug reverses amyloid plaques thought responsible for Alzheimer’s. The stock is up an incredible 38% and has even dragged up the biotech ETF (IBB) 3%. Buy (BIIB) on dips.

Boeing soared on accelerated production timeline for 2020. Good thing I bought it just recently. The stock had been severely oversold on a $45 dive in two days. Buy (BA) on the dips.

The trade war is back in business with the Chinese demanding a total end to tariffs before any big ag buys. The rumors knocked stocks back on their heels. The Middle Kingdom also takes issue with recent Pence comments about basketball. Trump is definitely cornered. The trade war pain has gone global, with Europe taking the biggest hit. Some 40% of Germany’s GDP comes from exports. Growth will be on the skids for the next two years, even if a deal is done tomorrow.

Tesla shocked, bringing in a profit for only the third time in company history, and causing the stock to soar $55. The 100,000-unit production target within yearend looks within reach. Most importantly, they opened up a new supercharger station in Incline Village, Nevada! Tesla is now America’s most valuable car maker, beating (GM). The ideological Exxon-financed shorts have been destroyed once and for all. Buy (TSLA) on dips. There’s a ten bagger in this one.

Amazon put out a gloomy Christmas forecast on the back of a disappointing earnings report, crushing the shares by 7%. Looks like the trade war might cause a recession next year. Q3 revenues were great, up 24% to an eye-popping $70 billion. Good thing I took profits on the last option expiration. Poor Jeff Bezos, the abandoned son of an alcoholic circus clown, dropped $7 billion in net worth on Thursday. Buy (AMZN) on the dips.

The safest stock in the market, Microsoft, says it’s all about the cloud. Azure revenues grew a stunning 59% in Q3. (MSFT) is now up 37% on the year. Keep buying every dip, if we ever get another one.

Apple stock soared to new all-time high, taking the market cap just short of $1.1 trillion. iPhones are now less than 50% of total sales. The company is firing on all cylinders. My target is $200. Buy (AAPL) on dips.

Existing Home Sales dropped, down 2.2% in September to 5.38 million units. It’s shocking given the incredibly low level of interest rates. A shortage of supply?

This was a week for the Mad Hedge Trader Alert Service to stay level at an all-time high. With only one position left in Boeing (BA), not much else was going to happen.

My Global Trading Dispatch reached new pinnacle of +349.47% for the past ten years and my 2019 year-to-date accelerated to +48.42%. The notoriously volatile month of October stands at a blockbuster +11.91%. My ten-year average annualized profit held steady at +35.24%.

With my Mad Hedge Market Timing Index sitting around the neutral 62 level, it is too close to neutral to do anything dramatic.

The coming week is pretty non eventful of the data front. Maybe the stock market will be non-eventful as well.

On Monday, October 28 at 8:30 AM, the September Chicago Fed National Activity Index is published. Alphabet (GOOGL), and AT&T (T) report.

On Tuesday, October 29 at 9:00 AM, we get a new S&P Case Shiller National Home Price Index for August. Amgen (AMGN) and Pfizer (P) report.

On Wednesday, October 30, at 8:30 AM, the first read on US Q3 GDP is announced. At 10:30 AM, EIA Energy Stocks are published. Then at 2:00 PM, we obtain the FOMC interest rate decision. Apple (AAPL) and Facebook (FB) report.

On Thursday, October 31 at 8:30 AM, Weekly Jobless Claims are out. US Steel (X) reports.

On Friday, November 1 at 8:30 AM, the October Nonfarm Payroll Report is released. AbbVie (ABBV) and ExxonMobile (XOM) report.

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

As for me, I’ll be driving back home from Lake Tahoe. I wonder if I’ll make it.

Good luck and good trading.

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