Mad Hedge Technology Letter
January 9, 2023
Fiat Lux
Featured Trade:
(TECH PRICE ACTION BLAZES)
(ZM), (SQ)
The interest rate that impacts tech stocks the most is the federal funds rate, and that’s important to know for readers.
The Federal Reserve is the body of an unelected group of so-called economic experts who mostly have never had a real job or never have had experienced running a company in their life.
Outsized control is given to these decision makers to decide at what interest rate banks and other similar institutions can lend money.
The biggest news nugget not chatted about lately is how the expectations for future Fed Funds interest rates has collapsed from 5% to 4.75%.
Only 2 more quarter-point increases from here and then we are done and dusted and ready for a reverse in policy.
This is why tech stocks have bolted out the back of the stable to start the year.
The setup is incredibly dovish and the price action so far this year has been overwhelmingly positive.
Many traders believe that inflation is decelerating and are taking advantage of this theme by buying tech stocks in the short term.
The outsized beneficiaries in the short term are the tech stocks that went down the most on the way down like video-conferencing technology firm Zoom Video Communications (ZM).
The Friday snapback meant that ZM rose 6% and other similar growth stocks felt the same wicked price action to the upside.
Fintech company Square (SQ) also rose 6.6% representing a nice reprieve from the constant onslaught of weakness in share price since November 2021.
The bright start to tech in January has a lot to do about positioning with many traders previously stationed for a sharp fall in equity prices.
However, the 800-pound gorilla in the room now is China which has reversed policy and is now open for business.
The shuttering of the failed lockdown policy in China is highly bullish for tech stocks and general equity sentiment.
Chinese consumers who go abroad are big spenders and an open China will translate into meaningful demand for tech software, hardware, products, and raw materials.
Get ready for all the large metropolitan areas around the Western World and Asia to be flooded with cash-rich Chinese who have had 3 years to dream about where and how to spend their cash.
This will easily translate into increased purchases of not only second homes on the French Riviera and Zermatt, Switzerland, but shiny new iPhones, new Teslas, new software for their social media businesses, and the ancillary software needed to manage their businesses like Mailchimp, Wix, Slack, Wave Accounting, Trello, and so on.
These larger macro trends can feed into big tech even if some of them have no direct input.
Luckily, traders are chomping at the bit for the Fund Funds rate to flatten then reverse lower and that will equate to a monster rally into battered tech stocks.
The first week of tech strength is just a preview of what will happen later this year as tech goes from ice cold to the hottest asset in the equity markets.
As positioning goes, traders and investors should be skewed towards a quick upwards burst in price action.
There will be a time to sell this rally and take the other side as well.
Positioning from the short and long side is essential to securing alpha in 2023.
Don’t believe anyone who says you can just buy and hold or permanently sell to buy lower as a legitimate investment strategy, because that ship has sailed. The death of straight line investing is upon us.
New investors should start small and build up positions instead of betting the yurt during a massive deleveraging moment in tech stocks.
Consensus is moving towards a “soft landing.”
Mad Hedge Technology Letter
January 6, 2023
Fiat Lux
Featured Trade:
(JOBS REPORT A TAILWIND FOR TECH SHARES)
($COMPQ)
Don’t forget that we are still in the middle of a good-news-is-bad-news paradigm.
This paradigm could be positive for tech stocks in 2023.
Why is that?
Tech shares and the investors that participate in the trading of these shares are betting that the Fed doesn’t have the gall to lower inflation to the mandated 2%.
The incessant desire for the Fed pivot would result in the Fed changing directions and reversing its quantitative tightening.
The Fed will delay the much-awaited easing of monetary policy if there is too much good news.
Sure, this all seems counterintuitive, and that isn’t your fault.
The Fed isn’t too interested in killing inflation because it could instigate a stock market crash or an economic depression.
The verbiage the Fed uses is a “soft landing.” That’s what they want opposed to a “hard landing.”
Why did tech shares skyrocket on the latest jobs report?
The headlines were fantastic therefore based on the above description, tech shares must have sold off, but the inverse happened and tech markets went gangbusters this morning.
The economy added 223,000 jobs in December, beating expectations, but most of these jobs weren’t white-collar or full-time jobs.
The US gained 4.5 million jobs in 2022, making it one of the best years of job growth ever, but the tech market doesn’t care about that one because the stock market trades on forward-looking valuations.
In fact, the US tech sector has been leading the charge in layoffs with many tech executives saying they overhired during the arbitrary lockdowns.
The tech market clung to one number and naturally the one that has a direct influence on the high inflation rate - wage growth at 3.4% year over year.
This was also the smallest job gains in the past 2 years.
Today's jobs report is a stark reminder that wage growth is being smothered by Bidenflation.
More folks have to take on a second job just to make ends meet.
Sometimes even a darn third job if time allows.
Lately, wage growth has come in incredibly high, because for quite some time, those high-paying full-time jobs were still on the table.
Ultimately, broad-based job losses are what will lead to a Fed pivot and not just tech jobs losses.
Tech is way ahead of the game executing broad-based layoffs and they will be rewarded for it. These are also great entry points to buy the dip.
It’s natural to observe many tech firms tightening up operations. Money isn’t free anymore and earnings are falling apart as we speak.
Tesla is cutting the price of Tesla EVs in China.
Amazon is cutting a more-than-expected 18,000 workers.
Many tech firms are slimming down their model to prepare for a recession.
The endpoint here is low rates and a lot of pain will occur to get to that end.
Tech in early 2023 will merely be a high-volatility trader’s dream until we get the green light for easy money again.
Buy big dips and sell large rallies – rinse and repeat. There is no way that tech stocks will go up in a straight line because earnings simply aren’t accelerating – they will be lucky to just pass the sniff test at this point so position accordingly.
“Your time is limited, so don't waste it living someone else's life.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Technology Letter
January 4, 2023
Fiat Lux
Featured Trade:
(CREATIVE CLOUD SEEKS AN EDGE)
(ADBE)
Tech stocks have been in a world of pain lately.
We never got the Santa Clause Rally of 2022 and I correctly predicted that.
There is still a boatload of uncertainty as we gaze into the 2023 crystal ball.
I am not sitting here telling everyone to bet the ranch on tech stocks right now because that would be irresponsible.
I will say that highly tactical investors will win out in the race to not get slammed by heightened volatility.
Remember some of the most epic moves take place in a bear market rally in the midst of a big correction.
What does that mean in simple terms?
Discovering great entry points to sell big rallies and buy the capitulating dips.
It’s not as easy as buying the dip and taking a nap anymore, and anybody who got body slammed by 2022 performance understands that.
The good news is that many tech firms are firing staff like it’s going out of fashion.
Wages are the most expensive part of running a tech company and Twitter’s Elon Musk firing 75% of the staff has offered a blueprint for firing everyone but the most essential workers.
The cheerleaders must find work elsewhere.
One cloud stock that does pretty well in not hiring the cheerleaders is Adobe (ADBE).
Adobe's array of applications is a tech mainstay for everyone from global enterprises to freelance designers.
It’s true that last year Adobe's share price suffered amid a larger tech stock sell-off, but there was nobody left unscathed as the macro factors brought the whole sector down.
First, it’s not ideal that Adobe spent $20 billion to buy the software design company Figma.
It’s damn expensive.
ADBE clearly didn’t get much bang for the buck and will need a quarter or two to digest the higher expenses and lack of bottom-line follow-through.
Additionally, Adobe's annual sales growth has been slowing over the past few years, and hawks point to this as a key reason to avoid the stock right now.
Adobe must still be looked at because it expanded revenue at 15% year over year in 2022 which is relatively positive for such a mature tech stock.
It shows that ADBE’s software is incredibly sticky for the end consumer.
ADBE’s 2022 earnings also expanded by 10% year over year in 2022, which I would call a victory as loss-making tech companies went out of business.
ADBE has also issued a sales forecast of 13% in 2023 highlighting its uncanny steady performance no matter how bad inflation is.
Many companies and artists simply cannot forego the usage of ADBE and that will keep ADBE in the mix for tech stocks to buy on the way up.
It’s hard to believe that wider macro factors will be worse in 2023 than in 2022.
Many of the strong balance sheet tech firms are hoping for a reversion to the mean type of share price bump.
I am not touting the beginning of 2023 as the seeds to a golden year of Silicon Valley, but trading nimbly in a strong cloud name like ADBE could represent overperformance if great entry points are located.
To be frank, it’s not as easy to make money in technology stocks as it used to be, but the money is still out there for investors to take.
That’s why it’s my job to guide traders and investors on this fascinating journey in tech stocks, as tech stocks are poised to benefit from fully priced Fed Funds interest rate increases.
Investors need to keep their eye out for ADBE.
Mad Hedge Technology Letter
December 30, 2022
Fiat Lux
Featured Trade:
(BUYER BEWARE)
(TIKTOK)
Sometimes the best way to become successful at investing in technology stocks is to avoid the black swan or the big disaster.
I hate to say it but investment risk has never been higher.
One question that keeps getting rehashed that I thought I might take time to address is the rise of the TikTok influencer-adviser.
According to a brief Google search, TikTok, known in China as Douyin, is a video-sharing social networking service owned by Chinese company ByteDance.
The social media platform is used to make a variety of short-form videos, from genres like dance, comedy, and education, that have a duration from three seconds to one minute.
Unfortunately, for serious retail investors lately, content has migrated into high-stakes themes like financial education and financial advising giving rise to content that is produced by video creators to get a piece of the financial industry.
Naturally, this has brought down the quality of the financial content on the internet to historic lows simply because most of the content is marginal at best.
These promulgators often preach about their status as “trading gurus” and often leverage the hype of digital currencies to claim they are fully invested in “crypto assets” and urge anyone reading to become one of their new “cult followers.”
They are also usually paid to market a “bulletproof” financial app or certain crypto asset to avid followers without properly disclosing that they are being paid for the advertisement.
This behavior is being encouraged by the TikTok algorithms which order this type of misleading content at the top of searches simply because it gets more hits being a click-bait type of content.
The more outlandish the videos become, gloating about get-rich-quick schemes and 1,000% daily returns, the higher up in the search queries they usually populate when filtered through TikTok algorithms.
These accounts are known as financial “influencers” and post 100s of such videos every month featuring fraudulent success or minimizing the difficulty of profiting through trading and a mix or mash of everything in between.
Even some proclaim to have unlocked the holy grail of trading and “guarantee” 100% returns or your money back.
Another speaking point they like to touch on is how video watchers can “also” afford wealthy lifestyles without having to work, at least in the traditional way.
To dumb down the travails of investing and trading to something easier than pouring a glass of water is a lie.
Many of these novice investors are duped into paying for exorbitant services that are nothing more than promotional buzz offering hyped-up marketing language as specific trading advice.
Unfortunately, US regulators have turned a blind eye to what is happening on this nefarious Chinese platform, and imitators are spawned daily and are certainly incentivized to do so.
While I must admit that regulating this type of behavior on TikTok is incredibly messy, to leave this unchecked will result in massive fraud for the little guy that I try to help.
The justification for ignoring these TikTok “influencers” is because there is even worse cybercrime taking place out there and the content these influencers are peddling is straddling the gray areas of the law.
But it’s not enough, and readers need to understand the heightened risks of diving feet first into these TikTok polar vortexes where you just get whipped around unknowingly.
Pre-emptively protect your portfolio by avoiding these TikTok trading gurus is the order of the day.
As we enter 2023, taking tabs of the fallout has been epic.
The TikTok crypto marketers were largely being sponsored by crypto exchange FTX.
They were peddling FTX’s own digital currency that was made out of thin air.
Anyone trading in this FTX in-house digital coin known as FTT lost most of their money as the CEO of FTX Sam Bankman-Fried was extradited back to the United States from the Bahamas for illegally using billions of dollars in customer deposits.
FTX’s FTT coin went from $40 at the beginning of 2022 to 80 cents on December 30, 2022 highlighting the dangers of listening to fake crypto “trading gurus” on TikTok pushing FTT coin like there is no tomorrow.
Stay vigilant and happy trading and remember, there is no free lunch in trading.
It’s hard work earning your crust of bread.
BUYER BEWARE
Mad Hedge Technology Letter
December 28, 2022
Fiat Lux
Featured Trade:
(STICHED UP BY ITS OWN POOR DECISIONS)
(SFIX), (AMZN)
