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Mad Hedge Fund Trader

Rebalancing Before the Next Move

Tech Letter

In quite an unprecedented maneuver; the people who run the Nasdaq have chosen to water down the biggest tech components because a few companies are exerting too much power over the index.

In other words, the big fish have gotten so big that the index is adjusting their formula.

This speaks volumes about how great the top 7 tech stocks have performed in 2023.

They have taken off like a runaway train and haven’t looked back.

If this turns out to be a less-than-blockbuster earnings season and the market offers a pullback, it may be the last opportunity of the year to get into high quality tech stocks at a discount.

Selloffs from blue chip tech firms like Netflix (NFLX) signal that a short-term technical cooldown could be in the cards for tech stocks.

NFLX came back to earth, but I want to reiterate that it is more than healthy price action for this stock which started out the year at $300 per share.

The stock exploded to $480 per share and the post-earnings cooldown has found the stock in the $420 per share range.

There are a handful of blue chip tech stocks that I would regard this sort of price action as a mind-blowing opportunity.  

Another reason for a short-term cooldown is the aforementioned reformulation of the Nasdaq index.

The tech-based index - Nasdaq 100 gets tracked by a slew of funds.

They include the Invesco QQQ Trust (QQQ), the world’s fifth-largest exchange-traded fund (ETF), according to Morningstar.

Nasdaq announced that the Nasdaq 100 index will undergo a "special rebalance" that will come into effect today.

The index is typically rebalanced each quarter, but outside of that, it can employ a special rebalance to address overconcentration in the index by redistributing the weights.

While the organizers have been mum on the technical about the rebalancing, the index's methodology says that it can be adjusted if companies with weightings that exceed 4.5% of the index together make up more than 48% of the index.

This technical maneuver underscores the attractiveness of these tech businesses and compelling investment opportunities relative to other areas.

The result has been increased investor attention and enthusiasm for tech stocks now — at the expense of other sectors, he says.

Investors of funds tracking the Nasdaq 100 Index woke up today with a different portfolio.

Most investors in U.S. stocks will be at least indirectly affected by the rebalance.

That's because "billions of dollars of stock" will be traded as funds tracking the Nasdaq 100 buy and sell in response to the rebalancing.

During this short-term rebalancing phase, I can easily visualize a convenient time for investors to reload their ammunition. Load up the bullets before we are off to the races again.

Heading into the last 4 months of the year, the US consumer is strong as steel and I would beg any black swan to show their ugly face and try to topple this kryptonite tech market.

An orderly dip in tech stocks this earnings season would represent nothing more than a massive victory and if it’s sideways then watch up to the upside.

I would even say there is a higher risk that dip buyers get a little impatient and pull the trigger a little early just to make sure they get some skin in the game for the next elevator up.

That’s how hot tech has been.

 

 

nasdaq index

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-07-24 16:02:102023-07-31 21:42:29Rebalancing Before the Next Move
Mad Hedge Fund Trader

July 21, 2023

Tech Letter

Mad Hedge Technology Letter
July 21, 2023
Fiat Lux

Featured Trade:

(WHAT TO DO ABOUT NETFLIX SHARES?)
(NFLX), (APPL), (MSFT)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-07-21 16:04:232023-07-22 21:41:59July 21, 2023
Mad Hedge Fund Trader

What To Do About Netflix Shares?

Tech Letter

It’s quite the irony that Netflix’s earnings report came smack dab in the middle of Hollywood’s meltdown as the contract standoff between writers and studios threaten to implode a Southern Californian industry that has been on life support for quite some time.

One’s famine is another’s fortune.

NFLX had a mixed earnings report so it’s not like it has been gangbusters for streaming platforms either.

They used to be a perennial tech growth company and now they are down to just 3% revenue growth which won’t cut it.

NFLX has been saved by the macro picture as traders scurried into tech stocks from early 2023 while investors bet on a Fed pivot and a reversion to the mean after a horrible 2022.

The business itself isn’t doing anything special like it used to, and they are also way too woke, but when they don’t have to be spectacular, it’s easier for the stock to elevate.

The brightest number of all was the addition of 5.9 million subs.

Netflix, which now boasts 238 million global subscribers, will keep benefiting from this password-sharing clampdown.

Some expected it to backfire, but viewers have flashed their wallets and signed up for the service.

The streamer boasted that “sign-ups are already exceeding cancellations” and that it is implementing the password policy across the world now.

Profitability is starting to become an issue for NFLX as they missed on revenue.

Streaming has become a worse business lately because the world is too saturated with content.

Another positive is that NFLX upped its free cash flow from $1.5 billion to approximately $5 billion for the year.

This is what mature tech companies are supposed to do.

Eventually, they will increase deliverables back to the shareholder in the form of buybacks and dividends like Apple (AAPL) and Microsoft (MSFT).

The company cited “lower cash content spend” amid the writers’ and actors’ strikes that have brought content production to an absolute standstill.

No more $9.99 ad-free plan.

Netflix axed its cheapest ad-free option in the US and the UK. The plan, offered at $9.99, is no longer available to new customers.

The decision to cut the skeleton plan appears aimed at pushing subscribers in that price tier toward the ad-supported model, which is priced at $6.99. The company has previously said the ad-supported model performed better on the “economics” than the $9.99 ad-free model.

NFLX shares have had a great year so far with shares up 44%.

The 44% upswing is also after an 8% drop yesterday on this earnings report.

Clearly, traders used this opportunity to take profits.

NFLX’s performance is part of my wider thesis that earnings won’t be anything special, but good enough to deliver a better entry point into these stocks.

Buy the dip strategy will perpetuate for most brand-name tech companies.

It’s not exactly simple to get into a stock that has gone up 44% in 7 months because most of the time the stock needs to be chased.

Chasing tech stocks is an underlying theme of 2023 with fear of missing out (FOMO) engulfing most fund manager’s plans of attack.  

So yes, I do believe many investors will use these tepid earnings reports to take profits and these dips are incredibly healthy for the tech sector.

Thus, traders should reload because tech stocks like NFLX will be on discount before the next leg higher.

 

nflx stock

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-07-21 16:02:222023-07-31 22:44:27What To Do About Netflix Shares?
Mad Hedge Fund Trader

Quote of the Day - July 21, 2023

Tech Letter

“Life is too short for long-term grudges.” – Said Owner of Twitter Elon Musk

 

https://www.madhedgefundtrader.com/wp-content/uploads/2023/07/julius-caesar.png 440 400 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-07-21 16:00:182023-07-22 21:40:07Quote of the Day - July 21, 2023
Mad Hedge Fund Trader

July 19, 2023

Tech Letter

Mad Hedge Technology Letter
July 19, 2023
Fiat Lux

Featured Trade:

(CODERS ARE NEXT TO GO)
(GOOGL), (MSFT)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-07-19 16:04:472023-07-19 17:50:56July 19, 2023
Mad Hedge Fund Trader

Coders Are Next To Go

Tech Letter

The future is here, and for some, the news isn’t good.  

The big picture suggests that generative artificial intelligence stocks will benefit handsomely from this groundbreaking technology, but the losers aren’t as obvious as one might think.

If one might believe this is the cue to jumping head first into becoming an artificial intelligence programmer then think again.

Ironically enough, many of these jobs will, yes, be taken by the very technology itself, and we have received confirmation that this trend is likely to occur from management that makes the decisions of which staff to pay.

Why pay humans when an algorithm can do the same job?

Recently, a prominent generative AI executive stated that coders are at risk of losing jobs in the next 2-4 years.

This executive originates from one of the leading companies in the space, so it’s not like some fake expert offering his two cents either.

During an interview, this executive suggested that countries like India, where many IT jobs get outsourced, might be in trouble in the next few years because firms can just adopt AI tools to write, read, and review codes.

Even labor laws can’t prevent this giant replacement of human labor.

Tech giants like Google and Microsoft have shared similar concerns, though they argue that AI will create new jobs and humans need to co-exist with the technology.

Here is a quick summary of what I learned.

Outsourced coders up to level three programmers will be gone in the next year or two.

That's because new generative AI models "are like really talented grads" and will replace those who sit "in front of a computer" and never get noticed.

So it affects different models in different countries in different ways in different sectors.

In the United States, the two-week notice is real, and coders and engineers at international IT firms are at risk once Silicon Valley figures out they are expendable.

I must say that this might be the job apocalypse that many have been predicting.

The belt-tightening going on in Silicon Valley is just the beginning.

Next, we will see AI get rid of even more lucrative positions.

Google (GOOGL) CEO Sundar Pichai and Microsoft (MSFT) CEO Satya Nadella have also previously shared concerns about potential job loss due to AI.

Pichai and Nadella have repeatedly said that AI will eliminate grunt work.

In large corporations, many workers do just that – grunt work.

Not everyone is making strategic decisions that affect the direct fortunes of the company like Nadella and Pichai. Not everyone is Elon Musk.

AI will replace humans and CEOs like Pichai and Nadella are just being polite because they preside over a massive workforce.

They cannot come out in public and say that everyone will get fired. If they did that, workers would protest, revolt, and unionize as fast as possible. At the bare minimum, they will lay down flat and barely move a finger, resulting in company morale tanking.

At the stock level, this will boost revenue, margins, and profitability to a new golden era of tech stocks.

Workforces are about to get even leaner, and I am not talking about just firing the chief diversity officer or the chief climate change officer. The chief vegan foods officer for the office cafeteria was fired in the last round of cuts. The next round of cuts will start migrating up the value chain and it will be oh so painful.

 

coders

 

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-07-19 16:02:502023-08-01 13:22:21Coders Are Next To Go
Mad Hedge Fund Trader

July 17, 2023

Tech Letter

Mad Hedge Technology Letter
July 17, 2023
Fiat Lux

Featured Trade:

(IS LUCID THE NEXT TESLA?)
(LCID), (OTCPK:BYDDF), (TSLA)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-07-17 14:04:582023-07-17 14:42:21July 17, 2023
Mad Hedge Fund Trader

Is Lucid The Next Tesla?

Tech Letter

Is it worth it to invest in the “next Tesla” or is it way too optimistic there could even be a next Tesla?

This upstart challenger to Tesla, Lucid (LCID) is more or less what I thought about Tesla a few years ago – buy the car and not the stock.

Like many businesses in the world – it comes down to time and place.

Tesla benefited from generous federal subsidies, first mover advantage and LCID is just a little late to the action.

Why does that matter?

Tesla had its knife and fork at the table by itself when nobody else wanted to join them.

The problem with legacy automakers is that it took them too long to realize that EVs were a tsunami instead of a splash in a pond.

I know with conviction that EV makers like LCID are slogging through because of the numbers that materialize in their earnings reports.

The numbers are a manifestation of the time and place phenomenon that I just mentioned.

LCID continues to face major cash flow issues and will be lucky to exist in a few years.

A high burn rate is a hallmark of smaller EV companies and even Tesla had to be saved at the last second it its early days.

LCID simply doesn’t have the expertise and economies of scale to bring down the unit economics where it delivers a profit.

This achievement is also pushed out far into the future.  

We are also seeing a widening gap in its production and deliveries, with approximately 4.76K units undelivered, with a growing inventory value of $1.01B.

LCID's resale value appears to be drastically impacted, with one recently auctioned for $85K, compared to the base model of $110,000.

The intense capital burn has forced LCID management to issue more common stock which dilutes current shareholders and suppresses the stock price.

While LCID may have won the battery competition through its longest driving range and market-leading design, the management's choice to go premium has clearly undermined the mass market.

This is a segment that fellow automakers such as Tesla (TSLA) and BYD (OTCPK:BYDDF) have invested great efforts while improving their supply chain and pricing strategies.

This alone suggests LCID's highly niche market segment based on the hefty price tag of $150K per unit, compared to TSLA at $40K and BYD between $20K to $30K (in China), effectively will stoke higher cash burn levels.

For now, LCID has not achieved break-even, selling every EV at a loss.

This signals weak consumer demand for LCID.

This automaker's expanded annualized production capacity of up to 90K vehicles in the AMP-1 facility and up to 155K in the Saudi Arabia facility.

Production is still miles behind Tesla at a time when supply chains and material costs are squeezing EV makers even more.

When we consider that the stock was trading at $20 per share just 1 year ago, the stock languishing at $7.50 today represents quite a pitiful performance.

I do acknowledge they make quite a nice EV.

However, it’s still highly debatable whether its business model is sustainable.

I do believe that around $4 per share is a good entry point for this EV maker.

Any pop from $4 should be sold.

There is no reason to overpay for LCID right now in a market that values accelerating and positive free cash flow.

Better the stock come to you than to go fishing for it.

 

lcid

 

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-07-17 14:02:562023-08-01 14:43:13Is Lucid The Next Tesla?
Mad Hedge Fund Trader

Quote of the Day - July 17, 2023

Tech Letter

“I am not trying to chase what other people are doing.” – Said Softbank Founder and CEO Masayoshi Son

 

https://www.madhedgefundtrader.com/wp-content/uploads/2021/02/masayoshi.png 236 320 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-07-17 14:00:532023-07-17 14:40:54Quote of the Day - July 17, 2023
Mad Hedge Fund Trader

July 14, 2023

Tech Letter

Mad Hedge Technology Letter
July 14, 2023
Fiat Lux

Featured Trade:

(BAD TECH EARNINGS ARE PRICED IN)
(AAPL), (TSLA), (AMZN), (FB)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-07-14 16:04:092023-07-14 17:09:22July 14, 2023
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