Featured Trade: (FRIDAY APRIL 4 INCLINE VILLAGE, NEVADA STRATEGY LUNCHEON), (ALL ASSET CLASS RISK REVERSAL AT HAND), (SPY), (EEM), (TLT), (VXX), (FXY), (YCS), (FXE), (UUP), (WHY WATER WILL SOON BE WORTH MORE THAN OIL), (CGW), (PHO), (FIW), (VE), (TTEK), (PNR), (TESTIMONIAL)
SPDR S&P 500 (SPY)
iShares MSCI Emerging Markets (EEM)
iShares 20+ Year Treasury Bond (TLT)
iPath S&P 500 VIX ST Futures ETN (VXX)
CurrencyShares Japanese Yen Trust (FXY)
ProShares UltraShort Yen (YCS)
CurrencyShares Euro Trust (FXE)
PowerShares DB US Dollar Index Bullish (UUP)
Guggenheim S&P Global Water Index (CGW)
PowerShares Water Resources (PHO)
First Trust ISE Water Idx (FIW)
Veolia Environnement S.A. (VE)
Tetra Tech Inc. (TTEK)
Pentair Ltd. (PNR)
Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in Incline Village, Nevada on Friday, April 4, 2014. An excellent meal will be followed by a wide-ranging discussion and an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, currencies, commodities, precious metals, and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too. Tickets are available for $198.
I?ll be arriving at 11:30 and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at the premier restaurant in Incline Village, Nevada on the sparkling shores of Lake Tahoe. The precise location will be emailed with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/02/Lake-Tahoe-View-e1410283987626.jpg241400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-03-03 01:06:042014-03-03 01:06:04Friday, April 4 Incline Village, Nevada Global Strategy Luncheon
I believe that we are on the verge of seeing major reversals across all asset classes. Get this one right, and you will make a fortune. Screw it up, and you will soon be looking for your next job on Craig?s List.
I understand that there is a desperate need for code writers in the cloud.
As always, I am taking my cue from the bond market. The great anomaly in the financial markets during February was the big divergence between the stock and bond markets.
While it was off to the races for stocks, the S&P 500 rocketing an impressive 7%, bonds didn?t believe it for a nanosecond.
If you had asked any global strategist a month ago where the ten year Treasury yield would be if the (SPX) posted a new all time high at 1,865, to a man they would have said 3.05%. Instead, bonds closed the week at a parsimonious 2.65%.
Something is desperately wrong with this picture.
If it were just bonds blowing a raspberry at this stock rally, I wouldn?t be so concerned. However, both the Euro (FXE) and the Japanese yen (FXY), (YCS) moved from strength to strength. They should be falling in a real bull market for stocks.
Precious metals have also been calling foul. If shares were the new risk free investment, why did gold pop by 9% last month? Better yet, why is silver up a sparkling 18%?
The gold producers have done even better. When Barrick Gold (ABX) soars by 26% in s single month, you?ve got to be worried about the stock market.
So here?s what happens next. With an assist from the Russian takeover of the Ukraine (wasn?t it so polite of them to wait a full week after the Sochi Olympics ended?), bonds take a run at the highs for prices and the low for yields, in the mid 2.50%?s.
This is why Mad Day Trader, Jim Parker, shot out a quick, opportunistic long play in the (TLT) last week. There, they will fail once again, as we are now in the early stages of a multi decade bear market.
This will prompt stocks (SPX) to give up a third to a half of the recent rally, taking it to the bottom of an ascending channel at 1,800 (see below). Volatility (VXX) will spike from the current $12 handle back up to $20. This is why I bought the (SPY) $189 - $192 bear put spread on Thursday, which expires on March 21.
When the bond rally gives up the ghost, shares will resume their 2014 surge. Avoid emerging markets (EEM), because another dump in the bond market knocks the stuffing out of them one more time.
What will the currencies do? This will be the starting gun for great short plays on the yen, which returns to a ten-year bear market, and the Euro, which is just tweaking a three-year high.
In the meantime, the dollar basket ETF (UUP) launches into a multi month rally after putting in a double bottom. I shouldn?t need to draw lurid drawings for you on how to trade this.
As for gold? Sorry in advance to the hard money crowd, the inflationistas, and conspiracy theorists (who cares if Germany wants its gold reserves back from the Federal Reserve?). I think the 2014 rally in the barbarous relic dies a sudden, horrible death, and goes back to retest the $1,200 low one more time, possibly breaking it.
This scenario opens up great entry points across virtually all of the many asset classes that I track. When it?s time to strap on a position, I?ll shoot out Trade Alerts as fast as the speed of electricity permits (186,000 miles per second, or 300 meters per second in Europe).
Yes, I think we will finally get a real 10% correction in stocks going into the summer. But you better be nimble to trade it. My experience tells me that too many of you are selling at market bottoms, not buying.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/03/John-Thomas-Snorkel.jpg340447Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-03-03 01:05:232014-03-03 01:05:23All Asset Class Risk Reversal at Hand
Let me give you my thinking here. I am a long-term bull, expecting the S&P 500 to be up 10% or more to over 2,000 by yearend, and possibly 20,000 by 2030. But yearend is a long time off (even though every year seems to go by faster). We have just had a massive 11 point pop in the (SPY) during my two week trip to Australia. So a period of digestion is called for.
My (BAC) $15-$16 bull call spread is now naked long, so a little bit of downside protection is justified. Keep in mind that this is only a partial hedge, not a full one. But the additional potential profit from this SPDR S&P 500 March, 2014 $189-$192 bear put spread does lower the breakeven price of the (BAC) position by a respectable 46 cents.
The present dynamics of the market favor this trade. All of the action is now in speculative, momentum driven names like Tesla (TSLA), Netflix (NFLX), Facebook (FB), Priceline (PCLN), and Yelp (YELP), which are not even in the (SPY) index. The big leadership names, like financials (XLF) and energy (XLE) are pretty much dead in the water. As long as this is the case, don?t expect any big moves in the (SPY).
And with a short dated March 21 expiration, we only have 15 trading days where we need to be right on this.
As a rule of thumb, don?t chase this spread trade if the price has already moved more than 2% by the time you get the Trade Alert. Just put in a limit order and if it gets done, great. If not, wait for the next Trade Alert. There will be plenty of fish in the sea.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the trade to come to you. The middle market is the halfway point between the bid and the offered prices that you see on your screen with your online broker.
The difference between the bid and the offer on these deep in-the-money spread trades can be enormous. Don?t execute the legs individually or you will end up losing much of your profit. Keep in mind that these are ballpark prices only. Spread pricing can be very volatile especially on expiration months farther out.
https://www.madhedgefundtrader.com/wp-content/uploads/2012/07/monks.jpg186183Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-02-28 01:04:312014-02-28 01:04:31Why I?m Selling Short the Market
Featured Trade: (DIVIDEND HIKE COULD SEND BANK OF AMERICA FLYING), (BAC), (XLF), (SPY), (PLEASE USE MY FREE DATA BASE SEARCH), (TESTIMONIAL), (IS USA, INC. A ?SELL?)
Bank of America Corporation (BAC)
Financial Select Sector SPDR?? (XLF)
SPDR S&P 500 (SPY)
Bank of America (BAC) certainly was the chief whipping boy of the financial crisis. Since 2008, it has paid out more than $50 billion in fines and lawsuit settlements for every transgression under the sun.
After getting a bail out from the US Treasury, it was forced to cut its dividend payment to a token one cent. Do any Google search on the company and you are inundated with a flood of bad news.
All that is now ancient history. The entire banking industry is now moving into the sweet spot in the economic cycle. This is because rising interest rates mean that they will be able to charge more for leans, while their cost of funds (deposits and equity) remains low. This rising spread falls straight to the bottom line.
With the 30 year bull market in bonds now at an end, substantially higher rates in the near future are now included in virtually every economic forecast out there. Since the beginning of 2014 the ten-year Treasury yield has rocketed from 3.05% to as high as 2.58%, pummeling bank shares.
What happens next? They go from 2.58% back up to 3.05%, then a lot more. Bank shares will ride on the back of this bull.
The jungle telegraph is now ringing with the prospect of a dividend hike by the company, from a penny to five cents. The implications of such a move are broad.
For a start, the company would have to get the permission of the Federal Reserve to do so. If it pulls this off, it is only because of renewed confidence by the government in the improved financial condition of the country. After several capital raises and the liquidation of the wreckage of the 2008 crash, US banks are now the healthiest in history, with balance sheets of bedrock stability.
If (BAC) can get this first dividend hike through, more will follow. To get the dividend yield on the shares up to industry standard of 2.5%, the company really needs to raise its dividend to 40 cents. If certainly has the cash flow to do this. In 2013, (BAC) reported net income of $11.4 billion, more than four times to amount needed to cover such a payout.
Needless to say, this is all great news for the share price. The prospective return of increasing amounts of capital to shareholders should suck in new and wider classes of shareholders. It won?t be just about hedge fund punters anymore.
Take a look at the charts below, and it is clear that such a move is setting up. (BAC) is reaching the end of a classic triangle formation, which traditionally resolves itself to the upside. You can find more dry powder in the chart for the Financials Select Sector SPDR ETF (XLF), which clearly rejected a complete breakdown at long term trend support in early February.
Finally, take a gander at the chart for the S&P 500. New life from the financials will be the adrenaline shot this market needs to break it out of its current low volume sideways consolidation, taking it to new highs.
This is why I popped out the trade alert to buy the (BAC) March $15-$16 call spread on Monday. Thanks to the denial of service attack on our email provider, AWeber Communications, it has taken me until now to get this update out.
It is all another reason to sign up for the Mad Hedge Fund Trader?s text alert service, which readers around the world received within an incredible ten seconds of the original issue of the Trade Alert. I saw it work its magic when I was in Australia, and it is a sight to behold.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/02/Bank-of-America.jpg287521Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-02-27 09:30:472014-02-27 09:30:47Dividend Hike Could Send Bank of America Flying
Featured Trade: (FRIDAY APRIL 4 INCLINE VILLAGE, NEVADA STRATEGY LUNCHEON), (ANOTHER HOME RUN WITH NATURAL GAS), (UNG), (DGAZ), (UNL), (GET READY FOR YOUR NEXT BIG TAX HIT)
United States Natural Gas (UNG)
VelocityShares 3x Inv Natural Gas ETN (DGAZ)
United States 12 Month Natural Gas (UNL)
It looks like I hit the nail on the head once again with a major short position in the United States Natural Gas Fund (UNG).
After my followers bought the July, 2014 $26 puts at $2.16 on Monday, the (UNG) suffered its worst trading day since 2007, the underlying commodity plunging a breathtaking 11%. The puts roared as high as $3.05, a gain of 42% in mere hours. I wish they were all this easy!
If the (UNG) returns to the February low of $22.50 in the near future, you can expect these puts to soar to $5.00. That?s an increase of 130%, and would add 6.53% to our 2014 performance. Please pray for warmer weather, and dance your best weather dance.
It took a perfect storm of technical and fundamental factors to trigger this Armageddon for owners of the troubled CH4 molecule. One of the coldest winters in history produced unprecedented demand for natural gas.
This happened against a backdrop of a long term structural conversion from coal and oil fired electric power plants to gas. Not only is natural gas far cheaper than these traditional carbon based fuels, burning it generates half the carbon dioxide and none of the other toxic pollutants.
The result for traders was one of the boldest short squeezes in history. The incredibly $6.50 Monday opening we saw in natural gas, and the $28 print for the (UNG) was purely the result of distressed margin calls and panic stop loss covering.
At one point, the February natural gas futures, set to expire in just two days, were trading at a 40% premium to the March futures. Extreme anomalies like this are always the father of great trades.
The extent of the industry short position is evident in the cash flows in the underlying exchange traded notes (ETN?s). As prices rose, the long only (UNG) saw $366 million in redemptions, about 36% of its total assets. The Natural Gas Fund (UNL) has lost more than a third of its capital.
On the flip side, the Velocity Shares 3X Inverse Natural Gas Fund (DGAZ) pulled in some $449 million in new investors. Since the rally in natural gas started in November (DGAZ) has cratered from $18 to $2.5. This is why I never recommend 3X leveraged ETF?s.
This all adds currency to my argument that the natural gas revolution is bringing the greatest structural change to the US economy in a century. The industry is evolving so fast that you can expect dislocations and disruptions to continue.
The current infrastructure reflects the state of the market a decade ago and is woefully inadequate, with a severe pipeline shortage evident.? Gas demand is greatest where supplies aren?t. Infrastructure needed to export CH4 abroad is still under construction (see my piece on Chenier Energy (LNG) by clicking here).
The state of North Dakota estimates that it is losing $1 million a day in tax revenue because excess natural gas is being flared at fracking wells for want of transportation precisely when massive short squeezes are occurring in the marketplace. Needless to say, this is all a dream come true for astute and nimble traders, like you.
The question is now what to do about it.
I just called friends around the country, and it appears that a warming trend is in place that could last all the away into March.
It is time to get clever. It would be wise to enter a limit day order to sell your $26 puts right now at the $5.00 price. Since the first visit to these lower numbers usually happens on a big downside spike, the result of stop loss dumping of panic longs accumulated by clueless short term traders this week, you might get lucky and get filled on the first run.
These happen so fast that it will make your head spin, and you won?t be able to type an order in fast enough. If you don?t get filled keep reentering the limit order every day until it does get done, or until we change our strategy.
This has been one of my best trades in years, and it appears that a lot of followers managed to successfully grab the tiger by the tail.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/01/Gas-Fire.jpg346452Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-02-26 01:04:282014-02-26 01:04:28Another Home Run with Natural Gas
Featured Trade: (IM BACK FROM THE LAND DOWN UNDER), (FEBRUARY 26 GLOBAL STRATEGY WEBINAR), (MAD HEDGE FUND TRADER LEAPS AHEAD WITH A 9.31% 2014 RETURN), ?(UNG), (BAC) (BUDGET CUTS HIT THE WILD ANIMAL MAKET)
United States Natural Gas (UNG)
Bank of America Corporation (BAC)
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-02-25 09:22:542014-02-25 09:22:54February 25, 2014
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