Global Market Comments
May 30, 2014
Fiat Lux
Featured Trade:
(JUNE 4 GLOBAL STRATEGY WEBINAR),
(JULY 18 BARCELONA, SPAIN STRATEGY LUNCHEON)
(WHY I?M SELLING SHORT TREASURY BONDS),
(TLT), (TBT), (SPY), (VIX), (VXX)
iShares 20+ Year Treasury Bond (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
SPDR S&P 500 (SPY)
VOLATILITY S&P 500 (^VIX)
iPath S&P 500 VIX ST Futures ETN (VXX)
This has really been one of those incredible, jaw dropping, knock your socks off kind of years. It seems like every asset class is doing exactly the opposite of what it should do.
A slowing economy delivered a huge move up in bonds, which is fine. The extent of the damage the harsh winter wrought on the economy was confirmed this morning, with a full one-point drop in Q1 GDP. But does this mean that stocks should go to all time highs as well?
Look at the volatility index, (VIX) (VXX), which is also sitting at multiyear lows. You would expect it to rise as we go into a traditional ?RISK OFF? season. It does truly seem that this time it?s different.
That is, until they are not different anymore. I believe that after five months of markets that are unpredictable, extraordinary, and difficult to trade, they are about to become predictable, ordinary, and easier to trade.
What does that mean for you and me? Buy stocks and sell bonds. We are about to shift from a reach for yield world to one where investors are reaching for capital gains. There isn?t much yield to reach for anyway.
We?ve just had a four point run in the latest leg up in the incredible bull market in bonds. So I am strapping on here the iShares Barclay 20+ Year Treasury Bond Fund (TLT) July, 2014 $118-$121 in-the-money bear put spread (see yesterday?s Trade Alert).
We could be in for some month end profit taking. The upper $118 strike works out to a ten year Treasury bond yield of 2.27%. The breakeven point in yield terms goes all the way down to 2.24%.
As long as yields stay above that by the July 18 expiration, we will keep the entire profit on this trade, a gain of some 1.76% for your total portfolio. Better yet, get a three point dip anywhere along the way, and we will immediately reap 75% of the potential profit, as we did with our last (TLT) bear put spread.
Sounds like a no brainer to me.
I think this week flushed out a lot of the hotter short-term money from the market in the humongous short squeeze that I warned you was coming. Positioning is now flatter. It is now time to digest.
Mad Day Trader Jim Parker also thinks we could be in for a major trend reversal with next week?s Friday nonfarm payroll report. Bonds rallied on the last six consecutive reports. This time they may disappoint, as bond prices are at such nosebleed levels. We could be setting up for a big ?buy the rumor, sell the news? move here in bonds.
In the meantime, the (TLT) could rise as much as a point higher to $116. That still gives me plenty of breathing room with this new position, which has a breakeven point at $118.45. That sounds like a pretty good bet, now that we are headed into the slower summer months.
For us to lose money on this trade, the world would have to end first, at which point we won?t care about our trading books.
For those who don?t have options coursing through their veins, please buy the ProShares UltraShort 20+ Year Treasury ETF (TBT), a 2X short Treasury bond fund.
As for stocks, it is looking like we are just completing a five month long ?time? correction. The ?price? correction never extended beyond 6%. We are about to enter nine months of increasingly positive economic data, as most of the growth lost in Q1 gets rolled forward to Q2, Q3, and Q4. That should take the S&P 500 (SPX) up to 2,100 by year-end.
In the meantime, the Mad Hedge Fund Trader?s Trade Alert service is now up 15.3% on the year, and is inches from a new all time high. Watch this space.
It?s Really Been One of Those Kinds of YearsGlobal Market Comments
May 29, 2014
Fiat Lux
Featured Trade:
(JUNE 23 LONDON STRATEGY LUNCHEON)
(JOHN THOMAS AND ALAN PATCHING ON HEDGE FUND RADIO),
(UUP), (FXI), (FXA), (EWA), (AAPL), (GOOG),
(GLD), (SLV), (MON), (POT), (MOS),
(AND MY PREDICTION IS?.),
(TESTIMONIAL)
PowerShares DB US Dollar Index Bullish (UUP)
iShares China Large-Cap (FXI)
CurrencyShares Australian Dollar Trust (FXA)
iShares MSCI Australia (EWA)
Apple Inc. (AAPL)
Google Inc. (GOOG)
SPDR Gold Shares (GLD)
iShares Silver Trust (SLV)
Monsanto Company (MON)
Potash Corp. of Saskatchewan, Inc. (POT)
The Mosaic Company (MOS)
During my recent trip to Australia, I had the privilege to be interviewed by Alan Patching, one of the leaders of the country?s vibrant business community, on his show, Transforming Business Minds.
Alan was the chief organizer of the 2000 Sydney Olympics. He is the author of several business books. He is also a professor at Bond University on Queensland?s Gold Coast in Australia. Patching is one of the top entrepreneurs in Australia, arranging tens of billions of dollars worth of transactions over the past decade.
During the interview, we covered about every asset class under the sun, looking for long and short opportunities. I discussed the ongoing global synchronized economic recovery and the implications for the market. I also covered the global geopolitical scene in depth.
I go into why the US dollar will remain a reserve currency. I explain how wars of the last 50 years were all about oil, and in the next 50 years they will revolve around food and water supplies. I analyze Apple?s (AAPL) prospects in depth.
Chinese money will continue to pour into Australia. I even reminisce about flying the best Russian fighters in the early nineties. There was that time when the CIA helped get my late wife out of a Russian jail. And, oh yes, I explain why the Dow Average is going to 200,000 by 2030!
I have broken up the extensive hour and a half interview into three 30-minute segments. You can purchase each one for $4.95 on Hedge Fund Radio by clicking: ?http://madhedgefundradio.com/radio-show/.
Global Market Comments
May 28, 2014
Fiat Lux
Featured Trade:
(JULY 25 ZERMATT, SWITZERLAND GLOBAL STRATEGY SEMINAR)
(THE 60-40 CORRECTION),
(SPY), (QQQ), (IWM), (TLT), (FXY), (GLD), (IBB),
(COME TO THE JUNE 13-14 INVEST LIKE A MONSTER LAS VEGAS CONFERENCE)
SPDR S&P 500 (SPY)
PowerShares QQQ (QQQ)
iShares Russell 2000 (IWM)
iShares 20+ Year Treasury Bond (TLT)
CurrencyShares Japanese Yen Trust (FXY)
SPDR Gold Shares (GLD)
iShares Nasdaq Biotechnology (IBB)
Traders have been tearing their hair out this year, if they have any left.
The indecisive, flip flopping, ?RISK ON?/?RISK OFF? state of play has been devoid of any direction clues for the past three months. Gold (GLD), the yen (FXY), and bonds (TLT) have been even worse, flat lining inside of narrow ranges.
Hedge fund P & L?s have been hemorrhaging everywhere. The brokers are doing not much better, with some big ones reporting profits down by 50% or more. For many, it is shaping up to be the worst year of the decade.
I have to confess that I have not seen conditions like this during my own long and varied career. I can make money in up markets, and in down markets. But I am helpless in that go nowhere, with option implied volatilities at all time lows.
Better to go take a long nap.
Bulls hate the market because it won?t go up, and bears despise it because it fails to fall. So, what gives?
A page out of the Investing 101 handbook might explain everything.
For eons now, possibly for entire epochs, investment advisors have recommended that their clients place 60% of their liquid assets in stocks, and the remaining 40% in bonds. When extreme market moves knock portfolios out of this cherished balance, they should buy and sell securities to bring it back in line.
And therein lies the problem.
2013 delivered one of the most spectacular stock performances in history, with the S&P 500 up 26%, and 29% when you include dividends. Bonds fell, the (TLT) plunging from $114 to $101, taking the ten-year Treasury yield up from 1.80% to 3.02%. Those who started last year with a traditional belt and suspenders 60%-40% balance ended up 2013 with a portfolio closer to 70%-30%.
So what have investors been doing since the beginning of 2014? Selling stocks and buying bonds to return their desired 60%-40% balance.
This all sounds nice in theory. How much money are we talking about to achieve this rebalancing? A lot. A whole lot. I?d say about $600 billion.
The markets certainly believe in this theory. Bonds have been the most ardent followers, going up since the first trading day of the year. It has posted this blowout return despite the Fed throttling back its monthly bond buying by a massive $40 billion a month since the end of last year.
Stocks are more skeptical, befuddled by the random noise of earnings reports, geopolitical events, ultra low interest rates, and the residual effects of the Fed?s quantitative easing.
Selling was largely confined to the sectors that had risen the most, technology (QQQ), small caps (IWM) and biotechnology (IBB). So instead of a move down in any appreciable way, stocks have given us monotonous sideways action.
How does all this end?
Get everyone?s portfolio back to 60%-40% and the way then becomes clear to fall out of balance again. How will this be resolved? Stocks will gain and bonds will take a nosedive, until we approach the 70%-30% ratio again.
This paves the way for a blowout fourth quarter in the stock market that I have been predicting all year. That should take the (SPX) to 2,100, or up about 10% on the year. What will take the lead? Technology (QQQ), small caps (IWM), and biotechnology (IBB), the sectors that were hit the hardest earlier in the year.
This is why I started piling on risk positions last week, buying Apple (AAPL) and Google (GOOGL), and selling short Treasury bonds (TLT) and the Japanese yen (FXY).
So Which Balance is the Right One?
Please come to hear me, Mad Hedge Fund Trader John Thomas, as the keynote speaker at the Invest Like a Monster Las Vegas Conference on June 13-14.
I will be joined by many old friends from across the investment spectrum. Jon and Pete Najarian will teach you the tricks of the trade for navigating the ever complex options markets.
Fellow former combat pilot, Chuck Hughes, will go into depth on his own highly successful approach to trading the market. To listen to my in depth interview with him on Hedge Fund Radio, please click here.
Well known market commentator Guy Adami, the Prince of New Jersey, will be there to give his trading insights. So will former hedge fund manager and Yahoo Finance guru Jeff Macke.
The first day will be devoted to three educational sessions that get into the nitty gritty of trading options. The day winds up with a cocktail party with the Najarian Brothers and myself.
I will kick off the Saturday session with and extended presentation on the long-term future of the financial markets, to be followed by an extensive question and answer session. I will be followed by an impressive lineup of market veterans.
The event will be held at the Bellagio Hotel on the Strip, my favorite Las Vegas haunt, best known for its spectacular water fountains out front. You may recognize it in the hit movies The Hangover and Ocean?s Eleven.
General admission costs $499 for the two full days. You can buy a VIP ticket for $699, which includes social events with the high and the mighty. It is all great value for money, given the quality and quantity of the information you will obtain. Just click here at http://www.optionmonster.com/events/?refId=186 to buy tickets.
Trademonster?s proprietary program, called Heat Seeker ?, monitors no less than 180,000 trades a second to give an early warning of large trades that are about to hit the stock, options, and futures markets. To give you an idea of how much data this is, think of downloading the entire contents of the Library of Congress, about 20 terabytes, every 33 minutes.
The firm maintains a 10 gigabyte per second conduit that transfers data at 6,000 times the speed of a T-1 line, the fastest such pipe in the civilian world. The firm then distills this ocean of data into the top movers of the day, which he puts up for free on its website, and offers much more detailed analysis through a premium subscription product.
?As with the NFL,? says Jon, ?you can?t defend against speed.?
The system catches big hedge funds, pension funds, and mutual funds shifting large positions, giving subscribers a peak at the bullish or bearish tilt of the market. It also offers accurate predictions of imminent moves in single stock and index volatility.
Jon started his career as a linebacker for the Chicago Bears, and I can personally attest that he still has a handshake that?s like a steel vice grip. Maybe it was his brute strength that enabled him to work as pit trader on the Chicago Board of Options Exchange for 22 years, where he was known by his floor call letters of ?DRJ.? He formed Mercury Trading in 1989 and then sold it to the mega hedge fund, Citadel, in 2004.
Jon developed his patented algorithms for Heat Seeker? with his brother Pete, another NFL player (Tampa Bay Buccaneers and the Minnesota Vikings), who like Jon, is a regular face in the financial media.
June is a great time to visit Sin City, as the crowds are largely gone and the sun is a wonderfully baking hot. You can ride the neck-breaking roller coaster at the New York New York Hotel, catch one of eight Cirque du Soleil shows, and ride a gondola at the Venetian Hotel.
Or you can try to get a great deal on a luxury item from my buddy, Rick Harrison, at the famous Gold and Silver Pawn, of Pawn Stars fame (good luck with that!).
Just be sure to bring extra sun tan lotion!
Hanging With the Big Dogs in VegasGlobal Market Comments
May 27, 2014
Fiat Lux
Featured Trade:
(JUNE 17 NEW YORK STRATEGY LUNCHEON)
(INTRODUCING ?THE OPENING BELL WITH JIM PARKER?),
(BUY NOW TO BEAT THE PRICE INCREASE),
(ORDER EXECUTION 101)
Come join Mad Day Trader Jim Parker and me for lunch at the Mad Hedge Fund Trader?s Global Strategy Luncheon, which we will be conducting in New York, NY on Tuesday, June 17, 2014. An excellent three course lunch will be provided. A PowerPoint presentation will be followed by an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, foreign currencies, commodities, precious metals, and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $248.
The formal luncheon will run from 12:00 to 2:00 PM. I?ll be arriving an hour early 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 event will be held at a prestigious private club on Central Park South, the details of which will be emailed to you 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.
In 2013, the Mad Hedge Fund Trader Trade Alert Service delivered a blowout return of 68% for followers. As I present my Global Strategy luncheons around the world, I am learning that many made much more.
I am therefore raising the price for our flagship product, Mad Hedge Fund Trader Pro, by $500 to $4,500 a year and Mad Day Trader to $2,500 a year or $859 per quarter. We have not seen a price increase in two years and are overdue, given the red hot numbers that I have been delivering.
The service includes my daily newsletter, the Trade Alert service, biweekly Global Strategy Webinars, invitations to strategy luncheons, and search ability for my 3 million word research data base. It also includes Jim Parker?s Mad Day Trader running market commentary, his Trade Alert service, and brand new The Opening Bell with Jim Parker.
To show how much we appreciate our most loyal and long-term customers, we are going to make a special one time only offer. If you upgrade now, we will honor our old prices until June 1. You can still purchase Mad Hedge Fund Trader Pro for a bargain $4,000 for another year of outstanding service, or Mad Day Trader as a stand alone product for $2,000 or $699 for 3 months.
Place your order online which will add an additional year to your existing subscription.? If you need assistance just email Nancy at customer support at support@madhedgefundtrader.com, or call her directly at 888-716-1115 east coast time.
Because of overwhelming demand, I am taking my hard-earned profits to reinvest in the business to improve the quantity and quality even more. My goal is to advance your education about the markets, raise your level of financial sophistication, and to level the playing field with Wall Street.
This will give you the ability to place your own trades with confidence. In other words, I am teaching you how to fish, instead of relying on the aged product they sell at Safeway.
Your Emails Will Be Answered Promptly