Global Market Comments
January 25, 2019
Fiat Lux
Featured Trade:
(JANUARY 9 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (EDIT), (NTLA), (CRSP), (SJB), (TLT), (FXB), (GLD),
(THE PRICE OF STARDOM AT DAVOS)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader January 23 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Would you buy Tesla (TSLA) right now?
A: It’s tempting; I’m waiting to see if we take a run at the $250-$260 level that we saw at last October’s low. If so, it’s a screaming buy. Tesla is one of a handful of stocks that have a shot at rising tenfold in the next ten years.
Q: CRISPR stocks are getting killed. I know you like the science—do you have a bottom call?
A: What impacted CRISPR stocks was the genetic engineering done on unborn twins in China that completely freaked out the entire industry and killed all the stocks. That being said, CRISPR has a great long-term future. They will either become ten-baggers or get taken over by major drug companies. The first major CRISPR generated cure will take place for childhood blindness later this year. The ones you want to own are Editas (EDIT), Intellia Therapeutics (NTLA), and CRISPR Therapeutics (CRSP).
Q: Do you ever reposition a trade and add contracts?
A: I very rarely double up. I’d rather go on to a new trade with different strike prices. A bad double up can turn a small loss into a big one. Sometimes I will do a “roll down,” or buy back one spread for a loss to earn back that loss with a spread farther in-the-money.
Q: For us newbies, can you please explain your trading philosophy regarding purchasing deep in the money call spreads and how that translates to risk management?
A: I did a research piece in Global Trading Dispatch yesterday on deep in-the-money call spreads, and today on deep-in-the-money put spreads. The idea is to have a position where you make money whether the market goes up, down, or sideways. Your risk is defined, and you always have time decay working for you, writing you a check every day. Here are the links: Vertical Bull Call Spread and Vertical Bear Put Spread.
Q: What’s the risk reward of floating rate corporate debts?
A: Number one: interest rates go down—if we go into recession, rates will fall. That wipes out the principal value of the security. Number two: with corporate debts, you run the risk of the corporation going bankrupt or having their business severely impacted in the next recession and their credit rating cut. It’s far safer to invest in a bank deposits yielding 2-2.5% right now. Some smaller banks are offering certificates of deposit with 4% yields.
Q: What are your thoughts on the British pound (FXB)?
A: I think Brexit will fail eventually and the pound will increase 25%; so play from the long side on the (FXB). It would be economic suicide for Britain to leave the EC and eventually people there will figure this out. If the Brexit vote were held today, it would lose and that may be how they eventually get out of this.
Q: Is it a bear market for bonds (TLT)?
A: Yes, it’s back on again. I expect we will visit $112 in the (TLT) sometime this year, down from the current $121. That brings us back up to the 3.25% yield on the ten-year US Treasury bond. That is down nine points from here, so it’s certainly worth taking a bite out of.
Q: What’s the best time to buy the ProShares Short High Yield (SJB)?
A: At the top of the next equity market run. It rose a whopping 10% during the December stock market meltdown so that gives you a taste of what can happen. Junk bonds are called “junk” for a reason.
Q: How do you see gold (GLD)?
A: Take profits now and buy back on the next dip. If we dip 5%-10% in gold, that would be a good entry point for a larger move later on in the year. To get a real move in gold, we need to see real inflation and that will eventually come. Another stock market crash will also gain you another 10% in gold.
Q: When will the government shutdown end?
A: I think it will go a lot longer than anyone realizes because Trump needs a deal worse than the Democrats do. Trump is basically saying pay for my wall or I’ll keep shooting another of MY supporters in the head every day. The Democrats can wait a really long time in that circumstance. Trump’s standing in the polls has also collapsed to new lows. By the way, the Chinese are using the same approach in the trade talks so that could be a long wait as well.
Q: There’s been a big shift in the MHFT Profit Predictor in the last 30 days—does this mean we should not be adding any positions?
A: Absolutely; this is a terrible place to be adding any new positions. The index went from 2 to 57 which shows you how valuable it is at calling market bottoms. Now we are at the top end of the middle of the range. All markets are now dead in the middle of very wide trading ranges which means the best thing you can do is take profits on existing positions, which I have been doing. Or watch Duck Dynasty and Pawn Stars replays. As for me, I am an Antiques Roadshow guy.
Q: What percentage should you be invested in the market now?
A: I’ve gone from 60% to 30% and have only 3 weeks left on my remaining position. I’m looking to go 100% cash as long as we’re stuck in the middle of this range. Better to sit on your hands than chase a high risk/low return trade.
Did I mention that we have had the best start to a New Year in a decade?
It’s that time of year again when finance ministers, central bank governors, hedge fund managers, and assorted rock stars hold their annual confab high in the Alps at Davos, Switzerland.
When I was a director of one of the largest banks in Switzerland, I found myself a frequent visitor to the Alpine village of Davos. The conference is one of those things that you only want to do once. It’s too boring.
In years gone by, we provided the loans to the Canton of Graubünden needed to build the lifts and gondolas in Davos to develop it into a world-class ski resort and watering hole for the wealthy.
Without that money, Davos would have remained a small mountain hamlet on the way to long established St. Moritz, possibly not even warranting its own train station.
Instead of renting out hotel suites for $10,000 a day, the residents would be filling their days cutting hay, milking cows, and making goat cheese. Generous government subsidies would keep the village in the green.
Thanks to our largess, I received a lifetime ski lift ticket there which I still use on occasion.
My friend, the intrepid New York Times reporter Andrew Ross Sorkin tells me that the minimum cost to attend the exclusive World Economic Forum for membership and a single ticket is $71,000.
That just gets you general admission. If you hail from an up and coming emerging market like China, you get a break on the price.
To join some of the private discussion groups, you need to upgrade to a $156,000 package. More exclusive access can be had for “Strategic Partners” for prices ranging up to $696,000 after the latest price increase and Swiss franc revaluation.
That does not include the cost of travel, meals, and accommodation which are stratospheric now that the Swiss franc is more valuable than a US dollar (I remember when it was 3:1). $75 for a hamburger? No problem!
All of this just to rub shoulders with hedge fund manager George Soros, European Central Bank governor Mario Draghi, George Soros, Julian Robertson, rock star Bono, and others of their ilk.
Certainly, you can gain many of the insights found in Davos by simply reading this newsletter at a much lower price. I can get more information from the high and the mighty by chatting over the phone for five minutes than engage in a media scrum in the mountains.
Do you suppose they still have a Youth Hostel in Davos?
Global Market Comments
January 24, 2019
Fiat Lux
Featured Trade:
(FROM THE FRONT LINES OF THE TRADE WAR),
(AAPL), (AVGO), (QCOM), (TLT),
(HOW THE MAD HEDGE MARKET TIMING ALGORITHM TRIPLED MY PERFORMANCE),
“First you get the exam, then you get the lesson. You learn after the mistakes you make,” said technical analyst Carter worth about options trading.
Global Market Comments
January 23, 2018
Fiat Lux
Featured Trade:
(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS), (TLT)
(WHY TECHNICAL ANALYSIS DOESN’T WORK)
(FB), (AAPL), (AMZN), (GOOG), (MSFT), (VIX)
Global Market Comments
January 22, 2019
Fiat Lux
Featured Trade:
(THE MARKET FOR THE WEEK AHEAD, or WHY I LOVE THE STOCK MARKET),
(SPY), (TLT), (MSFT), (CRM), (AMZN), (FXE)
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD),
(AAPL)
I love working in the stock market.
Not only can it be entertaining, it can be downright hilarious. All of the talking heads on TV who were ultra bearish on the December 24 Christmas Eve Massacre are now hyper bullish, stumbling over each other trying to buy back the shares they sold 20%-30% lower.
January is turning into a mirror image of December. Last month you never got the rally to sell into. This month you can’t get a decent dip to buy into. The worst December in history was followed by the best January in 30 years with the mere turning of a page of the calendar.
I suspected as much was coming. That’s why I lurched from 10% to 60% invested during the first few days of 2019. All that’s left now is to take profits.
We got a particularly nice 336-point gap up in the Dow Average ($INDU) on Friday with rumors of progress on the China trade talks. However, those who bought on such speculations over the past nine months have all been badly burned.
A few weeks ago, the biggest threat to the market was failure of the China trade talks and a new government shutdown. Now, with prices 3,250 points, or 15% higher, the biggest threat to the market is SUCCESS of the China trade talks and the END of the government shutdown. They could trigger a huge “buy the rumor, sell the news” market move.
And what if stocks rise virtually every day this month as they did during January a year ago? It could get followed by the February we saw last year which served up a horrific selloff.
Like a hot water heater with a corroded safety valve, pressure is building up in the stock market and it is just a matter of time before it explodes. The Volatility Index (VIX) has just halved from $36 to $17. The only question is whether the next big move will be to the upside or the downside.
Don’t get too bullish now. A ton of bad economic news will hit the market in February. China slowdown, European crash, Brexit, what’s not to hate?
Don’t forget that the deadline for the completion of the trade talks is March 1.
Special persecutor Robert Mueller could also drop his report on the market at any time. Just when you think that things can’t get any worse, they do so, in spades.
If nothing gets done, you can expect another Christmas Eve Massacre, except this time it will come nine months early. It could set up the double bottom for the entire correction.
On the other hand, if everything gets resolved all at once, you can count on share prices taking off to the upside and challenge the old highs. And it might all happen on the same day.
We started out the week discovering that Newmont Mining bought Goldcorp for $10 billion to create the world’s largest gold miner. That’s important because another classic sign of a long-term bottom for the barbarous relic is when the miners start taking over each other. I’ve seen it all before.
This was the week when economic data ceased to exist unless it comes from private sources. Entering the fifth week of the government shutdown, we are all now flying blind.
US Core Inflation rose only 2.2% YOY, after a miniscule 0.2% gain in December. Don’t count on that pay rise anytime soon. All your company’s money is going to share buybacks instead.
Apple’s Asian suppliers reported terrible numbers. iPhone prices in China were cut. Apple is also cutting back on hiring. Fewer iPhone sales mean fewer people are needed to make them. I think I’ll keep my Apple short position.
PG&E went Bankrupt in order to keep the lights on in the face of $30 billion in potential wildfire liabilities. It’s the second time in 20 years. Thank goodness for my solar panels. Power prices are about to spike up big time and I’m a net supplier to the grid.
Netflix raised prices and the stock soared. Their monthly take is jumping by 13%-18%. (NFLX) shares are now up by 50% since Christmas Eve. The Walking Dead and House of Cards just got more expensive.
Brexit went down in flames with a crushing 432 to 202 loss in the UK parliament, the worst in 100 years. The opposition tabled a vote of no confidence which failed by only ten votes, barely heading off a general election. Next to come is a new referendum on Brexit itself which will go down in flames. Buy the British pound (FXB).
What does the end of Brexit mean for the Global economy? It strengthens Europe, prevents Italy, Greece, Portugal, and France from leaving the European Community, preserves NATO, and stops the Russian hordes from overrunning Western Europe. Croissants will be cheaper in London too. That’s all.
The December Fed Beige Book came in moderate. “Trade war” was mentioned 20 times but “government shutdown" comes out only once. Inflation is low but companies can’t pass price increases on to consumers. Labor shortages are showing up everywhere, but with few wage increases. The auto industry is flatlining.
My January and 2019 year to date return exploded to +5.29%, boosting my trailing one-year return back up to +31.68%.
My nine-year return climbed up to +306.19%, just short of a new all-time high. The average annualized return revived to +34.00%.
I took profits on one of my big tech longs in Salesforce (CRM) which maxed out the gains in my options position. I love this stock and will be back in there again on the next dip.
I am keeping my option positions in Microsoft (MSFT) and Amazon (AMZN) to take advantage of the time decay over the four day weekend. I cashed in half of my short position in the bond market (TLT), taking advantage of the recent 4 ½ point decline there.
My long position in the Euro (FXE) survived the failure of Brexit and a no-confidence vote in Britain. It continues to bounce along the bottom.
I also kept my short positions in Apple (AAPL) and the S&P 500 (SPY). Happy days are definitely NOT here again, with a government shut down and a continuing trade war with China. I am now nearly neutral, with “RISK ON” positions “RISK OFF” ones.
We have recently seen a surge of new subscribers and for you I urge patience. In this kind of market the money is made on the “BUY”, so timing is everything. The goal is to make as much money you can, not to see how fast or how often you trade.
The upcoming week is very iffy on the data front because of the government shutdown. Some government data may be delayed and other completely missing. Private sources will continue reporting on schedule. All of the data will be completely skewed for at least the next three months. You can count on the shutdown to dominate all media until it is over.
Housing data will be the big events over the coming four days.
On Monday, January 21, markets are closed for Martin Luther King Day.
On Tuesday, January 22, 10:00 AM EST, the December Existing Home Sales are out. IBM (IBM) and Johnson & Johnson (JNJ) announce earnings.
On Wednesday, January 23 at 10:30 AM EST the Energy Information Administration announces oil inventory figures with its Petroleum Status Report. Lam Research (LRCX) and Procter & Gamble (PG) report.
Thursday, January 24 at 8:30 AM EST, we get Weekly Jobless Claims. At 10:00 AM, we learn December Leading Economic Indicators. Intel (INTC) and American Airlines (AA) report.
On Friday, January 25, at 10:00 AM EST, the latest read of December New Home Sales is released. The Baker-Hughes Rig Count follows at 1:00 PM. Schlumberger (SLB) announces earnings. Home Sales is released. AbbVie Inc (ABBV) and DR Horton (DHI) report.
As for me, I will be battling my way home from Lake Tahoe which received seven feet of snow last week. It was a real “snowmageddon.”
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 18, 2019
Fiat Lux
Featured Trade:
(WHAT EVER HAPPENED TO THE GREAT DEPRESSION DEBT?),
($TNX), (TLT), (TBT),
(TESTIMONIAL)
Global Market Comments
January 17, 2019
Fiat Lux
Featured Trade:
(WHAT HAPPENED TO THE DOW?)
($INDU), (EK), (S), (BS), (CVX), (DD), (MMM),
(FBHS), (MGDDY), (FL), (GE), (TSLA), (GM)
(WHY YOUR OTHER INVESTMENT NEWSLETTER IS SO DANGEROUS)
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