($VIX) Archives

2014 Trade Alert Review

When is the Mad Hedge Fund Trader a genius, and when is he a complete moron?

That is the question readers have to ask themselves whenever their smart phones ping, and a new Trade Alert appears on their screens.

I have to confess that I wonder myself sometimes.

So I thought I would run my 2014 numbers to find out when I was a hero, and when I was a goat.

The good news is that I was a hero most of the time, and a goat only occasionally. Here is the cumulative profit and loss for the 75 Trade Alerts that I closed during calendar 2014, listed by asset class.

Profit by Asset Class

Foreign Exchange 15.12%
Equities 12.52%
Fixed Income 7.28%
Energy 1.4%
Volatility -1.68%

Total 37.64%

Foreign exchange trading was my big winner for 2014, accounting for nearly half of my profits. My most successful trade of the year was in my short position in the Euro (FXE), (EUO).

I piled on a double position at the end of July, just as it became apparent that the beleaguered European currency was about to break out of a multi month sideway move into a pronounced new downtrend.

I then kept rolling the strikes down every month. Those who bought the short Euro 2X ETF (EUO) made even more.

The fundamentals for the Euro were bad and steadily worsening. It helped that I was there for two months during the summer and could clearly see how grotesquely overvalued the currency was. $20 for a cappuccino? Mama mia!

Nothing beats on the ground, first hand research.

Stocks generated another third of my profits last year and also accounted for my largest number of Trade Alerts.

I correctly identified technology and biotech as the lead sectors for the year, weaving in and out of Apple (AAPL) and Gilead Sciences (GILD) on many occasions. I also nailed the recovery of the US auto industry (GM), (F).

I safely stayed away from the energy sector until the very end of the year, when oil hit the $50 handle. I also prudently avoided commodities like the plague.

Unfortunately, I was wrong on the bond market for the entire year. That didn?t stop me from making money on the short side on price spikes, with fixed income chipping a healthy 7.28% into the kitty.

It was only at the end of the year, when the prices accelerated their northward trend that they started to cost me money. My saving grace was that I kept positions small throughout, doubling up on a single occasion and then coming right back out.

My one trade in the energy sector for the year was on the short side, in natural gas (UNG), selling the simple molecule at the $5.50 level. With gas now plumbing the depths at $2.90, I should have followed up with more Trade Alerts. But hey, a 1.4% gain is better than a poke in the eye with a sharp stick.

In which asset class was I wrong every single time? Both of the volatility (VIX) trades I did in 2014 lost money, for a total of -1.68%. I got caught in one of many downdrafts that saw volatility hugging the floor for most of the year, giving it to me in the shorts with the (VXX).

All in all, it was a pretty good year.

What was my best trade of 2014? I made 2.75% with a short position in the S&P 500 in July, during one of the market?s periodic 5% corrections.

And my worst trade of 2014? I got hit with a 6.63% speeding ticket with a long position in the same index. But I lived to fight another day.

After a rocky start, 2015 promises to be another great year. That is, provided you ignore my advice on volatility.

Here is a complete list of every trade I closed last year, sorted by asset class, from best to worse.

Date	Position	Asset Class	Long/short	?	?	?	?	?	?
7/25/14	(SPY) 8/$202.50 - $202.50 put spread	equities	long	?	?	?	?	?	2.75%
10/16/14	(GILD) 11/$80-$85 call spread	equities	long	?	?	?	?	?	2.57%
5/19/14	(TLT) 7/$116-$119 put spread	fixed income	long	?	?	?	?	?	2.48%
4/4/14	(IWM) 8/$113 puts	equities	long	?	?	?	?	?	2.38%
7/10/14	(AAPL) 8/$85-$90 call spread	equities	long	?	?	?	?	?	2.30%
2/3/14	(TLT) 6/$106 puts	equities	long	?	?	?	?	?	2.27%
9/19/14	(IWM) 11/$117-$120 put spread	equities	long	?	?	?	?	?	2.26%
10/7/14	(FXE) 11/$127-$129 put spread	foreign exchange	long	?	?	?	?	?	2.22%
9/26/14	(IWM) 11/$116-$119 put spread	equities	long	?	?	?	?	?	2.21%
4/17/14	(TLT) 5/$114-$117 put spread	fixed income	long	?	?	?	?	?	2.10%
8/7/14	(FXE) 9/$133-$135 put spread	foreign exchange	long	?	?	?	?	?	2.07%
10/2/14	(BAC) 11/$15-$16 call spread	equities	long	?	?	?	?	?	2.04%
4/9/14	(SPY) 5/$191-$194 put spread	equities	long	?	?	?	?	?	2.02%
10/15/14	(DAL) 11/$25-$27 call spread	equities	long	?	?	?	?	?	1.89%
9/25/14	(FXE) 11/$128-$130 put spread	foreign exchange	long	?	?	?	?	?	1.86%
6/6/14	(JPM) 7/$52.50-$55.00 call spread	equities	long	?	?	?	?	?	1.81%
4/4/14	(SPY) 5/$193-$196 put spread	equities	long	?	?	?	?	?	1.81%
3/14/14	(TLT) 4/$111-$114 put spread	fixed income	long	?	?	?	?	?	1.68%
10/17/14	(AAPL) 11/$87.50-$92.50 call spread	equities	long	?	?	?	?	?	1.56%
10/15/14	(SPY) 11/$168-$173 call spread	equities	long	?	?	?	?	?	1.51%
7/3/14	(FXE) 8/$138 put spread	foreign exchange	long	?	?	?	?	?	1.51%
10/9/14	(FXE) 11/$128-$130 put spread	foreign exchange	long	?	?	?	?	?	1.48%
9/19/14	(FXE) 10/$128-$130 put spread	foreign exchange	long	?	?	?	?	?	1.45%
10/22/14	(SPY) 11/$179-$183 call spread	equities	long	?	?	?	?	?	1.44%
5/29/14	(TLT) 7/$118-$121 put spread	fixed income	long	?	?	?	?	?	1.44%
2/24/14	(UNG) 7/$26 puts	energy	long	?	?	?	?	?	1.40%
2/24/14	(BAC) 3/$15-$16 call spread	equities	long	?	?	?	?	?	1.39%
6/23/14	(SPY) 7/$202 put spread	equities	long	?	?	?	?	?	1.37%
9/29/14	(SPY) 10/$202-$205 Put spread	equities	long	?	?	?	?	?	1.29%
5/20/14	(AAPL) 7/$540 $570 call spread	equities	long	?	?	?	?	?	1.22%
9/26/14	(SPY) 10/$202-$205 Put spread	equities	long	?	?	?	?	?	1.22%
5/22/14	(GOOGL) 7/$480-$520 call spread	equities	long	?	?	?	?	?	1.16%
5/19/14	(FXY) 7/$98-$101 put spread	foreign exchange	long	?	?	?	?	?	1.14%
1/15/14	(T) 2/$35-$37 put spread	equities	long	?	?	?	?	?	1.08%
3/3/14	(TLT) 3/$111-$114 put spread	fixed income	long	?	?	?	?	?	1.07%
1/28/14	(AAPL) 2/$460-$490 call spread	equities	long	?	?	?	?	?	1.06%
4/24/14	(SPY) 5/$192-$195 put spread	equities	long	?	?	?	?	?	1.05%
6/6/14	(CAT) 7/$97.50-$100 call spread	equities	long	?	?	?	?	?	1.04%
7/23/14	(FXE) 8/$134-$136 put spread	foreign exchange	long	?	?	?	?	?	0.99%
8/18/14	(FXE) 9/$133-$135 put spread	foreign exchange	long	?	?	?	?	?	0.94%
11/4/14	(BAC) 12/$15-$16 call spread	equities	long	?	?	?	?	?	0.88%
4/9/14	(SPY) 6/$193-$196 put spread	equities	long	?	?	?	?	?	0.88%
7/25/14	(SPY) 8/$202.50 -205 put spread	equities	long	?	?	?	?	?	0.88%
6/6/14	(MSFT) 7/$38-$40 call spread	equities	long	?	?	?	?	?	0.87%
10/23/14	(FXY) 11/$92-$95 puts spread	foreign exchange	long	?	?	?	?	?	0.86%
7/23/14	(TLT) 8/$117-$120 put spread	fixed income	long	?	?	?	?	?	0.81%
3/5/14	(DAL) 4/$30-$32 Call spread	equities	long	?	?	?	?	?	0.76%
4/10/14	(VXX) long volatility ETN	equities	long	?	?	?	?	?	0.76%
1/30/14	(UNG) 7/$23 puts	equities	long	?	?	?	?	?	0.66%
4/1/14	(FXY) 5/$96-$99 put spread	foreign currency	long	?	?	?	?	?	0.60%
1/15/14	(TLT) 2/$108-$111 put spread	equities	long	?	?	?	?	?	0.47%
3/6/14	(EBAY) 4/$52.50- $55 call spread	equities	long	?	?	?	?	?	0.24%
10/14/14	(TBT) short Treasury Bond ETF	fixed income	long	?	?	?	?	?	0.22%
3/28/14	(VXX) long volatility ETN	equities	long	?	?	?	?	?	0.20%
7/17/14	(TBT) short Treasury Bond ETF	fixed income	long	?	?	?	?	?	0.08%
3/26/14	(VXX) long volatility ETN	equities	long	?	?	?	?	?	0.06%
7/8/14	(TLT) 8/$115-$118 put spread	fixed income	long	?	?	?	?	?	-0.18%
4/28/14	(SPY) 5/$189-$192 put spread	equities	long	?	?	?	?	?	-0.45%
3/5/14	(GE) 4/$24-$25 call spread	equities	long	?	?	?	?	?	-0.73%
4/28/14	(VXX) long volatility ETN	volatility	long	?	?	?	?	?	-0.81%
4/24/14	(TLT) 5/$113-$116 put spread	fixed income	long	?	?	?	?	?	-0.87%
4/28/14	(VXX) long volatility ETN	volatility	long	?	?	?	?	?	-0.87%
6/6/14	(IBM) 7/$180-$185 call spread	equities	long	?	?	?	?	?	-1.27%
9/30/14	(SPY) 11/$185-$190 call spread	equities	long	?	?	?	?	?	-1.51%
10/9/14	(TLT) 11/$122-$125 put spread	fixed income	long	?	?	?	?	?	-1.55%
9/24/14	(TSLA) 11/$200 call spread	equities	long	?	?	?	?	?	-1.62%
2/27/14	(SPY) 3/$189-$192 put spread	equities	long	?	?	?	?	?	-1.67%
3/6/14	(BAC) 4/$16 calls	equities	long	?	?	?	?	?	-2.01%
10/14/14	(SPY) 10/$180-$184 call spread	equities	short	?	?	?	?	?	-2.13%
11/14/14	(BABA) 12/$100-$105 call spread	equities	short	?	?	?	?	?	-2.38%
10/20/14	(SPY) 11/$197-$202 call spread	equities	short	?	?	?	?	?	-2.72%
7/3/14	(GM) 8/$33-$35 call spread	equities	long	?	?	?	?	?	-2.91%
3/7/14	(GM) 4/$34-$36 call spread	equities	long	?	?	?	?	?	-2.96%
11/25/14	(SCTY) 12/47.50-$52.50 call spread	equities	long	?	?	?	?	?	-3.63%
10/20/14	(SPY) 11/$197-$202 call spread	equities	short	?	?	?	?	?	-4.22%
4/14/14	(SPY) 5/$188-$191 put spread	equities	long	?	?	?	?	?	-6.63%

What a Year!

Mad Day Trader Jim Parker?s Q1, 2015 Views

Diary, Newsletter, Research

Mad Day Trader Jim Parker is expecting the first quarter of 2015 to offer plenty of volatility and loads of great trading opportunities. He thinks the scariest moves may already be behind us.

After a ferocious week of decidedly ?RISK OFF? markets, the sweet spots going forward will be of the ?RISK ON? variety. Sector leadership could change daily, with a brutal rotation, depending on whether the price of oil is up, down, or sideways.

The market is paying the price of having pulled forward too much performance from 2015 back into the final month of 2014, when we all watched the December melt up slack jawed.

Jim is a 40-year veteran of the financial markets and has long made a living as an independent trader in the pits at the Chicago Mercantile Exchange. He worked his way up from a junior floor runner to advisor to some of the world?s largest hedge funds. We are lucky to have him on our team and gain access to his experience, knowledge and expertise.

Jim uses a dozen proprietary short-term technical and momentum indicators to generate buy and sell signals. Below are his specific views for the new quarter according to each asset class.

Stocks

The S&P 500 (SPY) and NASDAQ have met all of Jim?s short-term downside targets, and a sustainable move up from here is in the cards. But if NASDAQ breaks 4,100 to the downside, all bets are off.

His favorite sector is health care (XLV), which seems immune to all troubles, and may have already seen its low for the year. Jim is also enamored with technology stocks (XLK).

The coming year will be a great one for single stock pickers. Priceline (PCLN) is a great short, dragged down by the weak Euro, where they get much of their business. Ford Motors (F) probably bottomed yesterday, and is a good offsetting long.

Bonds

Jim is not inclined to stand in front of a moving train, so he likes the Treasury bond market (TLT), (TBT). He thinks the 30-year yield could reach an eye popping 2.25%. A break there is worth another 10 basis points. Bonds are getting a strong push from a flight to safety, huge US capital inflows, and an endlessly strong dollar.

Foreign Currencies

A short position in the Euro (FXE), (EUO) is the no brainer here. The problem is one of good new entry points. Real traders always have trouble selling into a free fall. But you might see profit taking as we approach $1.16 in the cash market.

The Aussie (FXA) is being dragged down by the commodity collapse and an indifferent government. The British pound (FXB) is has yet to recover from the erosion of confidence ignited by the Scotland independence vote and has further mud splattered upon it by the weak Euro.

Precious Metals

GOLD (GLD) could be in a good range pivoting off of the recent $1,140 bottom. The gold miners (GDX) present the best opportunity at catching some volatility. The barbarous relic is pulling up the price of silver (SLV) as well. Buy the hard breaks, and then take quick profits. In a deflationary world, there is no long-term trade here. It is a real field of broken dreams.

Energy

Jim is not willing to catch a falling knife in the oil space (USO). He has too few fingers as it is. It has become too difficult to trade, as the algorithms are now in charge, and a lot of gap moves take place in the overnight markets. Don?t bother with fundamentals as they are irrelevant. No one really knows where the bottom in oil is.

Agriculturals

Jim is friendly to the ags (CORN), (SOYB), (DBA), but only on sudden pullbacks. However, there are no new immediate signals here. So he is just going to wait. The next directional guidance will come with the big USDA report at the end of January. The ags are further clouded by a murky international picture, with the collapse of the Russian ruble allowing the rogue nation to undercut prices on the international market.

Volatility

Volatility (VIX), (VXX) is probably going to peak out her soon in the $23-$25 range. The next week or so will tell for sure. A lot hangs on Friday?s December nonfarm payroll report. Every trader out there remembers that the last three visits to this level were all great shorts. However, the next bottom will be higher, probably around the $16 handle.

If you are not already getting Jim?s dynamite Mad Day Trader service, please get yourself the unfair advantage you deserve. Just email Nancy in customer support at support@madhedgefundtrader.com and ask for the $1,500 a year upgrade to your existing Global Trading Dispatch service.

Volatility Weekly

Volatility Monthly

Euro to the Dollar

Trade Alert Drought Explanation and My Market Take

Diary, Newsletter, Research

Those of you who recently purchased the Mad Hedge Fund Trader?s mentoring service may have noticed a sudden drop off in Trade Alerts.

During October, I sent out a record 44 Alerts and Updates. As a result, that month was my best of the year, bringing in a gain of 6.69%. This month, only 5 Trade Alerts have gone out.

What gives?

I assure you, I have not been basking in the sun on a yacht in the Caribbean. Nor have I been catching the end of the ski season on New Zealand?s South Island. I have not even taken off on a hundred mile snowshoe across the High Sierras (that is not scheduled until Thanksgiving week).

No, I?m afraid that I have to tell you that the problem has been the market. I like to focus on sending out Trade Alerts that have an overwhelming chance of success. The fundamentals, the technical?s, the sun, moon, and stars all have to line up perfectly.

When they don?t, I don?t trade. It?s called maintaining discipline. The same is true for my friend, Mad Day Trader, Jim Parker. Sometimes, the best trades are the ones you think about, but never do, because your models say ?Stay away!?

When I ran my big hedge fund during the 1990?s I developed a perfect leading indicator. It was based my own clients? cash flows. When money poured in, it reliably signaled a market top. When it flowed out, it presciently indicated a market bottom.

It made absolutely no difference what my own performance was. If I was up 40% on the year, and the stock market dove 10%, investors wanted their money back?and now! No excuses, no explanations.

When investors wanted to redeem, I bought them out with my own money. Eventually, over the years, I ended up owning the entire hedge fund, which I then sold at a big premium at the market top to a group of foreign investors.

The closing date was January 1, 2000, four months before the beginning of the Great Dotcom crash. People told me I was stupid for four months?then I never heard from them again, except to occasionally see their resumes put in front of me by hopeful headhunters.

I am seeing the same sort of behavior in the newsletter business. Market surges bring in large numbers of new subscribers, who then expect immediate gratification in the form of a ton of Trade Alerts. At market bottoms the PayPal account goes completely dormant.

If I met new subscriber expectations, I would create a perfect money destruction machine, one that mechanically buys tops and sells bottoms. That is a great way to buy a spanking brand new mega yacht for your broker, but not for yourself.

So what should you expect from the Mad Hedge Fund Trader? To get buried in Trade Alerts when conditions are ideal, and sit on your hands when they aren?t.

That is when you?re supposed to be reading those deep, insightful research pieces that I send you every day, and drawing up short lists of things to do when the call to action arises. Chance rewards the prepared.

Keeping you out of a high risk/low return market is a far more valuable service that I can provide than tying you to a low risk/high return one.

Hint: Just because you bought a new subscription to the Global Trading Dispatch doesn?t mean that trading conditions have suddenly become ideal.

If you have to wait for an entire market cycle for the sweet spots to start appearing in large numbers, that is the best way to protect and expand your wealth. Market discipline is the most valuable thing I can teach you.

With all that said, let?s talk about the markets.

This is a particularly tricky place for traders. The lowest risk day of the year to buy stocks was October 15. Since then, the risks have increased daily. We are now at the top of one of the extended runs in market history. Should we throw caution to the wind and buy with reckless abandon?

Hell no!

So maybe we should consider flipping to the short side?

We have just entered the six-month period when stocks are traditionally the strongest. You can add to this big upward influence the end of the year run up.

In fact, I think we will close 2014 at the high of the year. Looking at the way the Volatility Index (VIX) is trading, it could be another three years before we see another full 10% correction.

So I don?t think that selling short any risk asset is a good idea here either.

That leaves us the small weekly 1%-2% mini corrections we have been getting to get involved with on the long side. But since we are running into the annual book closing, you have to use tight stop losses to protect your investment.

The high frequency traders all know this, and will program their algorithms to trigger as many stop losses as possible before reversing markets. That?s how I lost my long vertical call spread in Alibaba (BABA) this year, for a -2.38% hickey.

This is why I wrote in the Trade Alert that short term traders should sell, but long-term investors should hold. I think the stock is going to $140 next year.

Long-term investors have no problem. My fundamental economic call remains unchanged. Analysts and investors alike are underestimating the strength of the US economy.

Almost every data point confirms my convictions. Everyone else is shocked, befuddled, and bemused. Not me.

So, this bull market could continue for three or more years, and all they need to do is take an extended cruise when the markets suffer their periodic corrections.

This is why those owning the deepest discount Vanguard index funds have outperformed both active and hedge fund mangers for the third year running.

Sometimes it pays to be lazy.

Sometimes It Pays to be Lazy

The Best Stop Loss of the Year

Diary, Newsletter

Traders throughout the industry have been left with their jaws hanging open in the wake of the complete collapse of volatility for the S&P 500 (SPY). When the volatility hit the $10 handle a few days ago, it was the lowest level in nearly a decade.

Especially hard hit has been the iPath S&P 500 VIX Short Term Futures ETN (VXX), which has cratered from $56 to $30, some 46%, just since February. I had a bet on last month that this note would hold its multiyear lows around $40.

Think again.

When it broke my 5% rule for non-leveraged instruments, I pulled the ripcord and stopped out at $37.80, paring 1.68% off of my 2014 performance. The (VXX) then went into free fall, breaking $30.

If I was stubborn, insisted that I was right and the market wrong, and shouted at the sea not to rise, like King Canute, this position would have cost me a heart breaking 8.66%. To quote the legendary economist and early hedge fund trader, John Maynard Keynes, ?Markets can remain irrational longer than you can stay solvent.?

What has been killing the (VXX) has been the contango in the futures market. The managers buy three-month (VIX) futures at higher implied volatilities, and ride them into expiration, when much lower implied volatilities prevail. For example, today, you can buy September volatility for $16, while June is only $11.

The (VXX) managers then roll their cash into the next batch of three-month futures and repeat the process. It is, in effect, a perfect money destruction machine. This is why the (VXX) has plummeted from an all time high of $8,000 to $30 in just five years. S&P 500 volatility has declined from $90 to $11 during the same time.

Why did I recommend purchase of such a suicidal instrument? Because during periods of market weakness, like you normally get in May, you can see dramatic pops in the price of the (VXX) as long only institutions rush to buy downside protection, sometimes on the order of 25%-50%.

Except, this time it was different. It really has been one of those abnormal, mean diverging kind of years, from day one.

It is all a lesson on the value of stop losses. I tell people I practice this discipline because I am too old to go back to Morgan Stanley broke, and start all over again. They probably wouldn?t have me anyway, I am so prone to farting in church.

You may have other reasons.

So it Wasn?t Such a Great Time to Trade Volatility

Cashing in on My Shorts

Newsletter

Take the easy money and run. No one every got fired for taking a profit. That?s the mood I was in when I came in and saw my long volatility ETF (VXX) spiking and my short in the S&P 500 (SPY) cratering. I sent out Trade Alerts immediately that took my model-trading portfolio into a rare 100% cash position.

The Volatility Index (VIX) is up a breakneck 35% in a week, while the ETF (VXX) has tacked on 11%. You don?t get such heart palpitating moves like this very often, especially when they are all going in your favor.

It helped that Mad Day Trader Jim Parker, rushed the chart below to me right after the opening showing that the NASDAQ 100, the chief whipping boy in this selloff, is becoming severely oversold and fast approaching a major area of support (the lime green line). Bonds (TLT) are stalling at $110.60, and the ?RISK OFF? move in the Japanese yen (FXY) is approaching the upper limit of its 2014 range.

This all adds up to the possibility that another one of those ?rip your face off? short covering rallies could be near.

The rule in this type of market is to take the quick profits. You especially want to date, and not marry, the (VXX), since the contango over time can cost you your shirt.

Trading on the short side is a totally different animal than traditional long side plays. It is much harder work, as shorts behave totally differently than longs. The movie is on fast forward and you must act quickly.

To be up 15.45% so far in 2014, a down year when most investors are tearing their hair out, and up a meteoric 7.89% in April, is nothing less than heroic. Eight out of my last ten Trade Alerts have been profitable. The email plaudits have already started pouring in. Now all your friends at the country club can hate you, but only if you followed my advice.

Let me tell you what I did right this week, so you can take a page from the playbook of the master.

1) I kept the positions small, so I could sleep at night
2) I did the hard trade, selling when everyone else loved this market
3) I took trading profits quickly
4) I ignored the talking heads on TV so I wouldn?t puke out at the bottom
5) I didn?t take the Princess cruise from San Francisco to Los Angeles, where 50 passengers and 25 crew came down with norovirus. Imagine getting sick before your get to Mexico.

Is it possible that I am improving with age? That I?m becoming a better trader as I get older? That the payoff for a 45-year accumulation of market experience keeps increasing? What a concept!

I don?t think this correction is over. Vladimir Putin can drop a bombshell on the markets at any time. We are going into the traditional May-October ?RISK OFF? seasonal with markets still very near all time highs. The midterm elections in November are introducing a new level of uncertainty. The IPO bubble continues unabated (there are seven today!), and will only end in tears.

And who knows when another cruise ship is going to come down with norovirus?

But nothing moves in a straight line. It?s time to move to the sidelines so I can reload on the short side after the next short covering rally exhausts itself.

As for me, I am going to spend the rest of the day writing checks to the US Treasury to pay taxes for myself, the numerous entities I control, and a gaggle of impoverished relatives. All American tax returns are due on Tuesday.

Then I?m going down to Union Square in San Francisco and buy myself a new Brioni pin stripe suit, another pair of Bruno Magli alligator skin shoes, and have a kir royal at the top of the Mark Hopkins Hotel, thankful for my good fortune that I can pay all these bills.

Mad Day Trader Jim Parker?s Q2 Views

Newsletter

Mad Day Trader Jim Parker is expecting the second quarter of 2014 to be an uneventful, low volume, range trading affair. There is insufficient momentum in the major indexes to substantially break out of the ranges established in Q1.

He does see a modest upward bias to the market. But it is going to have to fight for every point. Sector leadership will change daily, with a brutal rotation. The market is still paying the price of having pulled forward too much performance into 2013.

Jim is a 40-year veteran of the financial markets and has long made a living as an independent trader in the pits at the Chicago Mercantile Exchange. He has worked his way up from a junior floor runner to advisor to some of the world?s largest hedge funds. We are lucky to have him on our team and gain access to his experience, knowledge, and expertise.

Jim uses a dozen proprietary short-term technical and momentum indicators to generate buy and sell signals. Below are his specific views for the new quarter according to each asset class with specific pivot points.

Stocks ? It will be a ?RISK ON? quarter for equities, but not by much. Stocks are still digesting the meteoric gains of 2013. A solid close in the S&P 500 (SPX) over 1,895 will take us right to 1,950. A failure brings us back to 1,800 quickly. Far more important is the NASDAQ, which has been the lead index for some time now. A convincing break of 3,700 will take us to the old high at 4,800. Old, big tech (XLK) will provide the leadership.

Bonds ? Are not going anywhere and Jim is a better seller of rallies. The 30-year futures contract is providing the guidance here, and it has been acting particularly poorly. The flattening of the yield curve has been one of the most dramatic in recent memory. If the (TLT) breaks the 50-day moving average at $107, the next stop will be $105. Demolish that, and we plunge to $101, which equates to a 3.05% yield on the ten year Treasury bond.

Foreign Currencies - The big focus of the currency markets now is to be long the British pound (FXB) and short the Japanese yen (FXY). It would be best to buy the cross, but the individual legs should work as well, as I have done in my The Mad Hedge Fund Trader?s model trading portfolio with a short yen position. The Australian dollar (FXA) decisively broke $91.50 to the upside and is now targeting $93. You should buy any pullbacks to $91.50, as long as central bank governor George Stevens keeps his mouth shut. The Euro (FXE) will be a safer sell after this week?s ECB meeting in order to avoid an ambush from president Mario Draghi.

Precious Metals - Gold (GLD) looks terrible and should be avoided at all costs. Gold bugs would be better off finding a long dark cave and hiding. We are dead in the middle of a six-month range and are likely to test the bottom at $1,200 next. Only a major rally would negate this view. As for silver (SLV), it is dead in the water, so don?t bother.

Energy - Oil (USO) looks sickly as well, now that the boost we got from the Crimean crisis is fading. The $92-$107 range continues. Get a good break of $98.50 and it will target $92. Jim is a better seller of Texas tea than a buyer. Jim also wants to sell the next decent rally in natural gas (UNG) going into the summer, looking for surging fracking supplies to swamp the market by then.

Ags - Soybeans (SOYB) are definitely the crop of the year, and the ETF could easily tack on another 10% from here. Corn (CORN) got a boost from yesterday?s bullish USDA report and could follow through. Only wheat (WEAT) is looking poorly from a technical perspective, and lacks the global fundamentals to help it.

Volatility - Buy the dips and sell the rips. The current $13 low is attractive, and Jim expects it to trade as high $22 sometime in Q2 if we break resistance at $15.50. A long VIX position also makes a nice hedge for your other ?RISK ON? positions as well.

If you are not already getting Jim?s dynamite Mad Day Trader service, please get yourself the unfair advantage you deserve. Just email Nancy in customer support at support@madhedgefundtrader.com and ask how to upgrade your existing Global Trading Dispatch service for an additional $1,000 a year.

Charts to Watch For an End to the Crisis

Newsletter

Bad China data?.Russia threatens the Ukraine?.more bad China data?.maneuvers at the Russia-Crimea border. The bull has been punched out with a market that was down every day last week, China and Russia both taking turns thrashing investors, like tag team wrestlers. When will it end?

The canaries in the coal mine will be found in the charts below. This is where you will first hear the all-clear signal, when it is safe to return with an aggressive ?RISK ON? posture.

As always, watch the bond market. If the current rally in the (TLT) fails anywhere short of $110, it?s a sign that traders are fleeing the safety of the Treasury bond market and are happy to return to riskier assets, like equities. That equates to a ten year Treasury bond yield of just over 2.50%. A breakout of prices above this, and yields below suggest that more trouble is coming.

Keep close tabs on the Chinese Yuan (CYB). After an unrelenting five-year appreciation, it started a swan dive two weeks ago. That is when a banking crises in the Middle Kingdom started picking up steam. This prompted currency traders to unload Chinese renminbi for more stable dollars. The collapse of copper mirrors this. New signs of life in the Yuan and copper will hint that trouble there is over for now.

The Japanese yen is another big one to monitor. Most hedge funds borrow yen and sell them to finance long positions around the world. This is why the yen has been perennially week for the past two years. But when they dump these positions and hide under their beds, the reverse happens.

They buy back their yen shorts, pushing it up. That?s why the latest round of jitters has the Japanese currency probing four-month highs. If the yen fails here, it?s because investors are going back into the market for other assets.

Of course, the Russian stock market (RSX) is a no brainer to watch. Thanks to the antics of Vladimir Putin, it is down 28% so far in 2014, making it the world?s worst performing market this year. Invading your neighbors and threatening to incite WWIII is not good for your equities. I doubt he cares, but emerging market investors do.

Gold (GLD) is certainly earning its pay as a flight to safety instrument. It has been flying like a bat out of hell all year and is now testing major resistance. If the barbarous relic suddenly loses its luster, the memo will go out to buy paper assets once more.

Finally, keep the chart for the Volatility Index (VIX) planted on the top of your screen. Recent tops have been around the $21 level, only $3 higher than the current level. When cooler heads prevail, the (VIX) will collapse once again. Puts on the (VXX) are the way to play this move.

The interesting thing about these charts is that they are all moving to the extreme edges of multi month ranges. So we could be one more flush away from the end of this move.

That?s unless Russia really does invade Crimea in force. Then all bets are off.

This a Sell Signal

Three Charts That Will Turn the Markets

Newsletter

I wrote at length yesterday about why this is not a new bear market, but a traditional 7%-10% correction instead. Now, I?ll show you three charts that will call the exact turnaround.

The ten-year Treasury bond (TLT), (TBT) is clearly the lead contract. It has, far and away, been the most accurate in anticipating the future direction of all asset classes. Get this one right, and everything else falls into line.

Take a look at the chart for the (TLT) below, which has clearly broken the 200 day moving average. I think that this is a false breakout, and that we are not trading in a new $108-$112 trading range that prevailed last spring. Note that while the 200-day average is busted, the 200-week is still putting up fierce resistance. This may well be the line in the sand that counts.

Next, take a look at the chart for the Japanese yen (FXY), (YCS). This is crucial because the yen is the world?s funding currency, thanks to its zero interest rates. When traders are in ?RISK OFF? MODE, they dump their positions in all asset classes and buy yen to repay their broker loans. This forces the yen to appreciate against the US dollar, something the Japanese government is loathe to seeing. This occurs on a scale of trillions of dollars.

When investors throw caution to the wind and pile back into ?RISK ON? portfolios, the reverse happens. They borrow yen and sell them to finance new positions, sending the yen down. Weakness in the yen is therefore the first place you will see a recovery in global markets.

The yen chart bellows shows that it is taking a run at its 200 day moving average at $97.91. That is only $1.70 up from here, and in line with ?100 to the dollar in the cash market, another important resistance level.

My expectation is that the yen will fail here and return to its longer-term downtrend, bringing a major 6% rally against the greenback to an end. That will send a great flashing green light to traders that the buyers strike is over and that its time to get back to work.

You see a very similar inverse chart with the S&P 500 (SPX). The bottom here also appears to be the 200 day moving average at 1,708, a mere 32 points below today?s low. That is only one bad day away. Watch for a rally from here to trigger simultaneous sell offs in the Treasury bond and yen markets.

You can play this game all day long. A confirming move of a top in interest rates would be a big rally in bank shares, which need higher interest rates to make more money. So keep a laser focus on Bank of America (BAC) and Citigroup (C). At the same time, gold (GLD) will once again get thrown out with the trash, since higher rates punish holders here with a greater opportunity cost.

This all may happen sooner than you think. The Friday January nonfarm payroll neatly sets up a double top in the volatility index at $21. Get a good number, like over 200,000, and see substantial back month revisions up, and volatility will collapse back to the mid teens. Everything else I described above will come to pass.

However, I won?t find out what transpired until Saturday. When the Department of Labor releases the anxiously awaited report, I should be fast asleep in my first class cabin somewhere over French Polynesia on my way to New Zealand. Send me an email on what happens.

The Nonfarm What?

I was Wrong...But it Didn?t Matter

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Ben Bernanke finally did the deed. He tapered his quantitative easing program, from $85 to $75 billion a month. I thought he would wait until next month for incoming Fed governor Janet Yellen to take the helm, and the responsibility. It was not to be.

The good news for followers of my Trade Alert Service was that it didn?t matter. $85 or $75 billion is really six of one and half dozen of another, almost. As we used to say on the trading desk at Morgan Stanley, just take the difference out of my next paycheck. It is a win-win, which I had expected.

The one certainty today was that the Fed would make a decision. Now that it?s out of the way, stocks can only go up.

Market?s reacted as if there had been no taper at all. Stocks and the dollar rocketed, led by financials, technology, health care, and industrials. Softbank gapped up and is approaching a new high for the year. Bonds, gold, volatility, and the yen collapsed. My model trading portfolio is almost a perfect reflection of what you should be doing with your money.

Big Ben?s incredibly dovish talk we received during the press conference that followed was fantastic news for risk assets everywhere. It means that interest rates will remain lower for longer than most expected. ?Highly accommodative money monetary policy remains appropriate? is still ringing in my ears. This will remain the case until unemployment falls ?well below 6.5%? and inflation returns to 2%. ?The Fed balance sheet will continue to expand.?

What all this does is deliver a ?goldilocks? scenario for the foreseeable future. The potential disasters for January, a Fed taper and a Washington shut down have suddenly gone missing.

Ben?s Christmas present to us all is a printing press to print money in the markets for the next three months.

That?s Ben! That?s Just What I Wanted!

What?s Going on With the VIX?

Diary, Newsletter

After crawling off the mat at the 12% level, and rising all the way back up to 21%, traders are wondering if the Volatility Index (VIX) is finally coming back to life. Or is this just another dead cat bounce?

It wasn?t supposed to work that way. Falling markets should send investors scrambling to buy downside protection in the form of put options, which would automatically send the (VIX) soaring. Except when they don?t.

I spoke to over a dozen market participants yesterday attempting to root out the cause of this seeming anomaly. All I got was shrugs or idle speculation. A (VXX) at this level, the ETF for the (VIX) assumes that the complacency now endemic in the market will continue for several more months. It is betting that the S&P 500 will continue moving sideways or up with no pullbacks greater that 5%. Oh, really?

It is also discounting a rise in the (SPX) to 1,750, based on a multiple expansion from 16 to 17, while corporate earnings are falling. This will see confirmation when Q3, 2013 earnings start to hit in October. Oh, really, again?

I finally got through to some friends in the Chicago pits who explained what was going on. A sizeable portion of the trading community believes that we will see a rise in volatility someday, but not in the near future. So they have been buying October call options in the (VIX). To pay for these and hedge out their risk, they have been selling short calls in the front months of December and March at much higher implied volatilities.

Since the (VXX) focuses on only the front two months of the options calendar, it has taken an inordinate brunt of the selling. This is why the (VXX) has continued a rapid decent even on days when the (VIX) was stable and the Dow was down. Needless to say, it has been a huge moneymaker for the early participants.

How does this end? At some point we do get a serious sell off in the stock market, and the (VIX) rockets back up to 30%, or higher. That means that anyone who initiates this position now will get slaughtered. But the long-term players will simply write those losses off against the substantial short dated premium they have taken in until then.

As long as this dynamic is in place, there really is no limit to how far the (VXX) can fall. As traders roll from one expiring month to the next, they will continue to hammer volatility.

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