Global Market Comments
January 16, 2025
Fiat Lux
Featured Trades:
(WHY TECHNICAL ANALYSIS IS A DISASTER)
(SPY), (QQQ), (IWM), (VIX)
(TESTIMONIAL)
Tag Archive for: ($VIX)
At my Mad Hedge Miami Beach Luncheon, I heard an amazing piece of information from a guest.
Fidelity recently conducted a study to identify their best-performing clients.
They neatly fell into two groups: people who forgot they had an account at Fidelity and dead people.
It all underlines the futility of trading the markets without true professional guidance, something many aspire to but few actually accomplish.
Of the many thousands of online newsletters and trade mentoring services, I only know of three that actually make money for clients.
Those would be mine and two others, and I’m not talking about who the other two are.
It is an industry filled with professional marketers, charlatans, and conmen.
Let me point out a few harsh lessons learned from this most recent meltdown and the rip-your-face-off rally that followed.
The next five months are ones of historical seasonal market strength.
The big lesson learned this summer was the utter uselessness of technical analyses. Usually, these guys are right only 50% of the time. This year, they missed the boat entirely.
The biggest losers?
Algorithms, which used the decisive breakdown of the (SPY) in August to go heavily short.
If you did, you lost your shirt. The market just shed a couple more points, reversed, and then kept going, and going, and going.
This is why technical analysis is utterly useless as an investment strategy. How many hedge funds use a pure technical strategy and a stand-alone basis?
Absolutely none, as it doesn’t make any money.
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.
Leave it for the kids.
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 available 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 buzz kill, but that is my take on technical analysis.
I have a much better solution than forgetting you have a trading account, or dying.
Take Cunard’s round-the-world cruise.
I have been sailing with Cunard since the 1970s when the original Queen Elizabeth was still afloat.
I’ve lost count of how many Transatlantic voyages I have taken across the pond.
For a mere $16,669 you can spend 117 days circumnavigating the globe with Cunard from Southampton, England in their cheapest inside cabin (click here for the link.)
That includes all the food you can eat for four months.
On the way, you can visit such exotic destinations as Bora Bora, The Seychelles, Reunion, and Moorea.
Not a bad deal.
By the time you get home, you will probably earn enough in your investment account to pay for the entire trip.
Hope you enjoyed your cruise.
Correction? What Correction?
Global Market Comments
December 3, 2024
Fiat Lux
Featured Trade:
(THE MAD HEDGE DECEMBER TRADERS & INVESTORS SUMMIT IS ON!)
(IT’S GROUNDHOG DAY)
(LAUNCHING "TRADING OPTIONS FOR BEGINNERS”
(SPY), (TLT), (TBT), (VIX), (VXX), (GLD), (SLV)
It is always the sign of a great hedge fund manager when he makes money while he is wrong.
I have seen this throughout my life, trading with clients and friends like George Soros, Julian Robertson, Paul Tudor Jones, and David Tepper.
And wrong I certainly was in 2024.
I thought Trump would lose the election.
Then, I thought that markets would rocket no matter who won. Only the sector leadership would change.
How about one out of two?
The big question is: “Is a stock market crash now in front of us?” The answer is absolutely yes. It’s only a question of how soon.
At this point, we only know what Trump said. And as we all know, what Trump says and does, or can do are totally different things. It all adds a new and constant source of unknowns for the market.
Of course, it helps to have a half-century of trading experience, too. I like to tell my beginning subscribers, “Don’t worry, after the first 50 years, this gets easy.”
Except easy it is not, going into the next several couple of years.
In a few months, it will be Ground Hog Day, and Punxsutawney Phil will call the weather for the next six weeks from his hilltop in Gobbler’s Knob, Pennsylvania.
For the financial markets, it could mean six more MONTHS of winter.
Nobody wants to sell because they believe in a longer-term bull case going into yearend.
In the meantime, they are buying deregulation plays (JPM), (GS), (BLK), and Tesla (TSLA) as a hedge against the next Tweet.
We could see a repeat of the first half of 2017 when markets rocketed and then died.
This is what a Volatility Index (VIX), (VXX) is screaming right in your face, kissing the $13 handle.
The never-ending tweets are eroding the bull case by the day.
So, we’re at war with Canada now? Wait! I thought it was Mexico? No, it’s France. If it’s Tuesday, this must be Belgium.
And our new ally? Russia!
Even the Federal Reserve is hinting in yesterday’s statement that it is going into “RISK OFF” mode, possibly postponing a December interest rate cut indefinitely.
Unfortunately, that completely sucks the life out of our short Treasury bond trade (TLT), (TBT) for the time being, a big earner for us earlier this year.
Flat to rising interest rates also demolish small caps and other big borrowers (homebuilders, real estate, REITs, cruise lines).
The market is priced for perfection, and if perfection doesn’t show, we have a BIG problem.
All of this leads up to the good news that followers of the Mad Hedge Fund Trader enjoyed almost a perfect month in November.
Trade Alert Service in November
(DHI) 11/$135-$145 call spread
(GLD) 12/$435-$340 call spread
(TSLA) 12/$3.90-$400 put spread
(JPM) 11/$195-$205 call spread
(CCJ) 12/$41-44 call spread
(JPM) 12/$210-$220 call spread
(NVDA) 12/$117-$120 call spread
(TSLA) 12/$230-$240 call spread
(TSLA) 12/$250-$260 call spread
(TSLA) 12/$270-$275 call spread
(MS) 12/$110-$115 call spread
(C) 12/$60-$65 calls spread
(BAC) 12/$41-$44 call spreads
(VST) 12/$115-$120 call spread
(BLK) 12/$950-$960 call spread
The net of all of this is that 2024 is looking like a gangbuster year for the Mad Hedge Fund Trader, up 18.96% in November and 72.00% YTD, compared to only 26.62% for the S&P 500.
It seems that the harder I work, the luckier I get.
Hanging With David Tepper
Global Market Comments
November 21, 2024
Fiat Lux
Featured Trade:
(THURSDAY, JANUARY 16, 2025 SARASOTA FLORIDA STRATEGY LUNCHEON)
(TEN REASONS WHY I ONLY EXECUTE VERTICAL CALL DEBIT SPREADS)
(AAPL), ($VIX), (SPY)
There’s nothing like a swift kick in the shins, a slap in the face, and a good boxing of the ears to give you a healthy dose of humility.
That’s holders of the ProShares Ultra VIX Short-Term Futures ETF (UVXY) right about now. This is the popular ETF that rises when the S&P 500 (SPY) falls.
“Markets can remain irrational longer than you can remain liquid,” as my late mentor, the legendary economist and early hedge fund trader John Maynard Keynes, used to say.
I know this because it is inscribed on a post-it note taped to my screen.
This was only made possible by the Volatility Index falling to $14 in the past week, a multi-month low.
To see this happening with stocks at an all-time high is nothing less than amazing. The ($VIX) seems to be telling us that stocks are going sideways to up for the rest of the year.
The reason this fund can only fall over the long term is because of the contango that permanently haunts it.
While the front-month Volatility Index (VIX) was trading at a lowly $14, three-month volatility was at a lofty $19.9.
The (UVXY) buys three-month volatility and runs it into expiration. It then exacerbates this negative impact with 2X leverage. The guaranteed loss on this trade is, therefore, $2.80/$14 X 2, or 40%.
It is a perfect money-destruction machine.
Do this every month, and eventually, you use up all your capital. You see this most clearly on the long-term split-adjusted (UVXY) chart below, which has it going from $30,000 to $10.88 in only three years, a loss of 99.9%.
This is why you should only hold the position for a few days or weeks at the most and, even then, to hedge long positions in other stock or indexes.
The bulk of the trading in this instrument is, in fact, carried out by day traders.
You only want to own (UVXY) and the (VIUX) during the brief, frenzied volatility spikes that occur, as we did with the last trade.
You might want to ask the question, “Why aren’t we shorting this thing?”
The ($VIX) is prone to sudden, extreme moves to the upside whenever an unforeseen geopolitical or economic event takes place, such as a terrorist attack or a bad monthly nonfarm payroll number.
It can double in days as traditional long-side investors who are unable to sell short stocks or futures rush to buy some downside protection.
It has done this a few times in the past year. During the 2009 crash, the ($VIX) ratcheted all the way up to $90 and $65 during the pandemic.
Often, you get large moves of 20% or more right at the opening, as professional traders who are almost always short volatility, rush to cover short positions all at the same time.
As a result, many of the people who try this strategy often go bust.
On top of this, your broker is unlikely to extend the margin you need to put on a decent-sized position, especially to beginners.
The concern is that when the customer wipes himself out, they will take a piece of the broker’s capital with it. Customers who lose money in this way often end up suing their broker, another turn-off.
The people who do make money at this tend to be large teams of very experienced traders with massive computer and programming support executing complex, state-of-the-art risk control algorithms.
It costs millions of dollars to put all this together.
Needless to say, you should not try this at home.
Maybe the market is trying to tell me something. Like, quit looking for a seat after the music stops playing. Don’t trade if there is nothing there.
Nobody pays you to hold cash.
It looks like it is going to be a long winter. A long cruise is looking better by the minute.
Global Market Comments
November 6, 2024
Fiat Lux
Featured Trade:
(WHY TECHNICAL ANALYSIS DOESN’T WORK)
(SPY), (QQQ), (IWM), (VIX),
(TESTIMONIAL)
I recently heard an amazing piece of information from a subscriber.
Fidelity recently conducted a study to identify their best-performing clients.
They neatly fell into two groups: people who forgot they had an account at Fidelity and dead people.
It all underlines the futility of trading the markets without true professional guidance such as you get here at Mad Hedge Fund Trader, something many aspire to, but few actually accomplish.
Of the many thousands of online newsletters and trade mentoring services, I only know of three that actually make money for clients.
Those would be mine and two others, and I’m not taking about who the other two are.
It is an industry filled with professional marketers, charlatans, and conmen. I recently figured out that industries that employ a lot of specific jargon attract conmen because it is so easy to convince people of your expertise. Those are the health supplement and financial industries.
Let me point out a few harsh lessons learned from this most recent meltdown.
We are now transitioning from a “Sell in May” to a “Buy in November” posture.
The next six months are ones of historical seasonal market strength (click here for the misty origins of this trend at “If You Sell in May, What To Do in April?”).
The big lesson learned this summer was the utter uselessness of technical analyses. Usually, these guys are right only 50% of the time. This year, they missed the boat entirely.
When the S&P 500 (SPY) was meandering in a narrow nine-point range, and the Volatility Index (VIX) hugged the $12 neighborhood, they said this would continue for the rest of the year.
It didn’t.
This is why technical analysis is utterly useless as an investment strategy. How many hedge funds use a pure technical strategy on a stand-alone basis?
Absolutely none, as it doesn’t make any money.
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 few of you engage in this hopeless persuasion. Most senior investors would rather spend their time on a golf course than be glued to a screen.
Leave it for the kids.
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. That’s why so much volume bunches up at the opening and the close every day, to get a nice average.
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 buzz kill, but that is my take on technical analysis.
I have a much better solution than forgetting you have a trading account or dying.
Take Cunard’s round-the-world cruise (click here for the link).
I have been sailing with Cunard since the 1970’s when the original Queen Elizabeth was still afloat.
I’ve lost count of how many Transatlantic voyages I have taken across the pond.
For a mere $19,999 you can spend 122 days circumnavigating the globe with Cunard from Southampton, England in their cheapest inside cabin.
That includes all the food you can eat for four months.
On the way you can visit such exotic destinations as Bora Bora, The Seychelles, Reunion, and Moorea.
Not a bad deal.
By the time you get home, you will probably earn enough in your investment account to pay for the entire trip.
Hope you enjoyed your cruise.
Correction? What Correction?
Global Market Comments
October 11, 2024
Fiat Lux
Featured Trade:
(THE MAD HEDGE SEPTEMBER 17-19 SUMMIT REPLAYS ARE UP),
(OCTOBER 9 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (IWM), ($VIX), (DUK), (NEE), (GLD), (FCX), (BHP), (USO)
Below please find subscribers’ Q&A for the October 9 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, Nevada.
Q: Is the iShares 20+ Year Treasury Bond ETF (TLT) a buy here?
A: I think we are testing the 200-day moving average, which is at 92.75. Let’s see if that holds, and if it does, we want to do at-the-money LEAPS one year out because the Fed has basically said it’s going to keep lowering interest rates until June, and bonds can’t lose on that. That would also be a nine-point pullback from the recent high.
Q: I found a YouTube video about your Uncle Mitchell Paige, who won the first Medal of Honor in WWII.
A: Yes, there’s a ton of stuff on the internet about Uncle Mitch, even though he passed away 22 years ago. There’s even a Mattel G.I Joe version of Uncle Mitch that you can buy, which he gave me. I also inherited his samurai swords.
Q: When will small caps turn around?
A: That’s the iShares Russell 2000 (IWM). Small caps are joined at the hips with interest rates, so when interest rates go up, and bond prices go down, small caps also go down. That is because small caps are much more dependent on borrowed money than any other section of the market, 60% lose money, 40% are regional banks, and they have much weaker credit ratings. They are a leverage play on everything going great—when interest rates are rising, they aren’t great. I would hold off on the (IWM). Even when interest rates start going back down again, which I expect they will do going into the next Fed meeting, (IWM) will be about number ten on the list of interesting things to do.
Q: The hiring numbers were great with the nonfarm payroll on Friday, so will the recession be pushed back to 2026?
A: I don’t think we’re going to have a recession. I think we have a growth scare, a growth slowdown, and then we reaccelerate again as more companies start booking AI profits to their bottom lines. Also, the recovery of China would be nice, recovery of Europe would be nice—so there are many other factors at play here. The fact is the United States has the world’s strongest economy, and we are going from strength to strength. That’s why everybody in the world is sending their money over here.
Q: Do you expect heightened volatility going into the year-end?
A: I expect heightened volatility going into the election; after that, it may collapse. Right now, the Volatility Index ($VIX) is in the low $20s, which is the high end of the recent range. I expect that to fall, and then we get a ballistic market after the election once all the uncertainty is gone.
Q: Should I buy utilities and industrials now?
A: Yes, these are two of the most interest-sensitive sectors in the market—especially utilities, which are very heavy borrowers. They’ve already had tremendous runs—things like Duke Energy (DUK) and NextEra (NEE). However, I think I’m going up more if we’re going to get interest rates down to 3%. Even if we get them down to 3.5 or 4%, the rallies in all the interest-sensitive sectors will continue.
Q: If the global economy recovers, would that lead to increased inflation and an increase in interest rates?
A: In an old-fashioned economy—one driven by, for instance, the car industry—yes, that would be happening. Back then, wage settlements with the United Auto Workers had the biggest impact on your portfolio. In the modern economy, technology is dropping prices so fast that even during periods of high growth, prices are still falling. The example I give is: the cheapest PC you could get in 1990 cost $5,000, which was a Compact. Now you could get the same computer for $300. You can bet going forward that eliminating all port workers will also be highly disinflationary; we won’t have to pay those $200,000 salaries for port workers, so that goes to zero. You can cite literally hundreds of examples in the economy where technology is collapsing prices.
Q: Should I go with a safe strategy now or increase my risk?
A: I think if we don’t sell off in the next two weeks, you have to buy the hell out of the market because we have had every excuse to sell off, and the market just won’t do it. Middle Eastern war, uncertainty in the election, gigantic hurricanes which will definitely shrink economic growth this year, the port strike and the Boeing strike, which will take a month out of GDP growth on the coast—and it still won’t go down. So, if you throw bad news on a market and it still won’t go down, you buy the heck out of it. The last chance for this to go down is literally this month. After that, the seasonals turn strongly positive. What’s the opposite of “sell in May, and go away”? It’s “buy in October and ring the cash register.”
Q: Will gold (GLD) go to 3,000/oz soon?
A: Yes. That’ll happen on the next Fed interest rate cuts as we go into the end of the year. We'll probably get two more cuts of 25 basis point cuts. Gold loves that. And guess what? Chinese have nowhere else to save their money except gold. So, yes, I'm looking for $3,000 and then $4,500 after that. You definitely want to own gold.
Q: Should I dump Chinese (FXI) stocks after this short-term spike?
A: Yes, for the short term, but not for the long term. Some kind of recovery will come, because if this Chinese stimulus package fails, they'll bring another one, and you'll get another one of those monster rallies. So, if you're a long-term holder, then I would stay in. The blue-chip stocks are incredibly cheap. But I still believe the best China plays are in the US, in oil (USO), copper (FCX), iron ore (BHP), and gold (GLD).
Q: Is oil headed down after the Israel and Lebanon war?
A: That really isn’t the main factor in the oil market. These people have been fighting for a century, literally, and any geopolitical influence has not had any sustainable impact on the price of oil. Really, the sole driver for oil prices now is China. You get China back in the game, oil goes back to $95 a barrel. If China remains in recession, then oil stays low and goes back to the $60s. It’s purely a China play. The US economy will continue to grow, but most of our oil consumption is domestic now—we are the world’s largest oil producer at 13.5 million barrels a day. We do not need any Middle Eastern oil anymore, really, we’re just running out our existing contracts.
Q: Do you think cryptocurrencies will have a bull market with the stock market?
A: No, I don’t. Cryptocurrencies did well when we had a liquidity surplus and an asset shortage. Now, we have the opposite; we have a liquidity shortage and an asset surplus, and the theft problem is still rampant with the cryptocurrencies keeping most institutional and individual investors out of that market.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
