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May 26 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the May 26 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.

Q: Do you expect a longer pullback for the (SPY) through the summer and into the last quarter?

A: No, this market is chomping at the bit and go up and won’t do any more than a 5% correction. We’ve already tested this pullback twice. We could stay in this 5% range for a few more weeks or months, but no longer. If we make it to August before we take off to the upside, that would be a miracle. It seems to want to break out right now and if you look at the tech stocks charts you can see what I'm talking about.

Q: Why do day orders with spreads not good ‘til canceled (GTC)?

A: Actually, you can do good ‘til canceled on these spreads, it just depends on how your platform is set up. Good ‘til canceled won't hurt you—only if we get a sudden reversal on a stop out which has only happened four times this year.

Q: Disney (DIS) seems to be struggling to get back over $180; am I still safe with my January 2023 $250 LEAPS?

A: Yes, out to 2023 we’ll have two summers until those expire, so those look pretty good—that's a pretty aggressive trade, and I’m betting you’re looking at a 500% profit on those LEAPS. And by the way, I always urge people to go out long on these LEAPS, because the second year is almost free when you check the pricing. So, take the gift and that will also greatly reduce your risk. We could have a whole recession and recovery, and still have those LEAPS make it to $250 in Disney.

Q: Should I add to Freeport McMoRan (FCX)?

A: (FCX) I would not add—in fact, I would have a stop loss if we closed below $40 on (FCX) if you’re a short-term trader. There is a slowdown in the Chinese economy going on as well as a clampdown on commodity speculation. This has affected the whole base metal space, including steel and palladium. If you have the long-term LEAPS, keep them, because I think (FCX) doubles from here. The whole “green revolution story” is still good.

Q: Do you think the United States Treasury Bond Fund (TLT) is going up?

A: No, I think the (TLT) has been going down. I've been buying puts spreads like crazy, and I have a huge chunk of my own retirement fund in long-dated (TLT) LEAPS, so I am praying it will go down. We’ll talk about that when we get to the bond section.

Q: Prospects for U.S. Steel (X)?

A: It’s tied in with the whole rest of the base commodity complex—I think it is due for a rest after a terrific run, which is why I have such tight stop losses on Freeport McMoRan (FCX).

Q: Do you buy the “transitory” explanation for the hot inflation read two weeks ago that the Fed is handing out, or do you think inflation is bad and here to stay?

A: I go with the transitory argument because you’re getting a lot of one-time-only price rises off of the bottom a year ago when the economy completely shut down. Once those price rises work through the system, the inflation rate should go from 4.2% back down to 2% or so. So, I don't see inflation as a risk, which is why I think the stock markets can reach my 30% up target this year. You may get another hot month as the year-on-year comparisons are enormous. But betting on inflation is betting on the reversal of a 40-year trend, which usually doesn’t work out so well.

Q: On your spread trade alerts can we buy less than 25 contracts?

A: You can buy one contract. In fact, I recommend people start with one contract and test out where the real market is. Put a bid for one contract in the middle of the market, and if it doesn’t get done, raise your bid 5 cents, and eventually, your order gets done. Then you can add more if you want to. I always recommend this even for people who buy thousands of contracts, that they test the market with one contract order just to make sure the market is actually there.

Q: Can you recommend a LEAPS for Amazon (AMZN)?

A: The Amazon LEAPS spread is the January 2022 $3150-3300 vertical call debit spread going out 8 months.

Q: When you short the (TLT), how do you do it?

A: I do vertical bear put debit spreads. I buy a near-money put and sell short and an out-of-the-money put so I can reduce the cost, and therefore triple my size. This strategy triples the leverage on the most likely part of the stock move to take place, which is the at the money. For example, a great one to buy here would be a January 2021 (TLT) $135/140 vertical bear put debit spread where you’re buying the $140 and selling short the $135. The potential 8-month profit on this is around 100%. You’ll make far more money on that kind of trade than you ever would just buying puts outright. Some 80% of the time the single option trades expire worthless. You don’t want to become one of those worthless people.

Q: What’s your best idea for avoiding a U.S. Dollar drop?

A: Buy the Invesco Currency Shares Euro Trust (FXE) or buy the Invesco Currency Shares Australian Dollar Trust Trust (FXA), the Australian Dollar to hedge some of your US Dollar risk. The Australian dollar is basically a call option on a global economic recovery.

Q: I’m a new subscriber, but I don’t get all the recommendations that you mention.

A: Please email customer support at support@madhedgefundtrader.com , tell them you’re not getting trade alerts, and she'll set you up. We have to get you into a different app in order for you to get all those alerts.

Q: How about the ProShares UltraShort 20 Year Treasury ETF (TBT)—is that a bet on declining (TLT)?

A: Absolutely yes, that is a great bet and we’re at a great entry point right now on the (TBT) so that is something I would start scaling into today.

Q: Do you still like Palantir (PLTR)?

A: Yes, but the reason I haven't been pushing it is because the CEO says he could care less about the stock market, and when the CEO says that it tends to be a drag on the stock. Palantir has an easy double or triple on it on a three-year view though. However, small tech has been out of favor since February as it is overpriced.

Q: How far down can the (TLT) go in the next 30 days?

A: It could go down to $135 and maybe $132 on an extreme move, especially if we get another hot CPI read on June 10. However, if you hear the word “taper” from a Fed official, then you’re looking at high $120’s in days.

Q: With the TLT going up, why have you not sent out an alert to double up on put spreads?

A: I tend to be a bit of a perfectionist since I’m a scientist and an engineer, so I’m hanging on for an absolute top to prove itself and start on the way down. On the shorts, I like selling them on the way down, and buying my longs on the way up, because there are always surprises, there’s always the unknown, and heaven forbid, I might actually be wrong sometimes! So, I’m still waiting on this one. And we do already have one position that is fairly close to the money now, the June 2021 $141-144 vertical bear put debit spread, so I don't want to double up on that until we have a reversal in the intermediate term trend.

Q: I see GameStop (GME) is spiking again now up to $230—should I get in for a short-term profit?

A: No. With these meme stocks, the trading is totally random. If anything, I would be selling short, but I would do it in a limited risk way by buying a put spread. However, the implied volatility in the options on these meme stocks are so high that it's almost impossible to make any money on options; you’re paying enormous amounts of money up front, so that's my opinion on GameStop and on AMC Entertainment Holdings (AMC), the other big meme stock.

Q: Will business travel come back after the world is vaccinated?

A: Absolutely. Companies don't want to send people on the road, but customers will demand it. All you need is one competitor to land an order because they visited the customer instead of doing a Zoom (ZM) meeting, and all of a sudden business travel will come roaring back. So that's why I was dabbling in Delta Airlines (DAL) and that's why I like American Express (AXP), where 8% of transactions are for first class airline tickets.

Q: As the work-from-home economy stops and workers go back to the office, do you see a 10% correction in the housing market?

A: Actually, in the housing market with real houses, I don't see prices dropping for years, because 30% of the people who went home to work are staying there for good—that the trend out of the cities into the hinterlands is a long-term trend that will continue for decades, now that Zoom has freed us of the obligations to commute and be near big cities. And of course, I’m a classic example of that; I've been working either in my basement in San Francisco or at Lake Tahoe for the last 14 years. Housing stocks on the other hand like Lennar (LEN), Toll Brothers (TOL) and KB Home (KBH) have had a tremendous run and are basically out of homes. Could they have a 10% correction at any time? Absolutely, yes.

Q: Should I avoid buying dips in last year's work-from-home stocks?

A: Yes I would. DocuSign (DOCO) and Zoom (ZM) are the two best ones because they were both up 12X from their lows, and I tend not to chase things that are up 12X unless they are a Tesla (TSLA) or an Nvidia (NVDA) or something like that. In the end, Tesla went up 295 times.

Q: Are you looking at the carbon credits market?

A: No, but I probably should. That market shut down last year. It’s alive again, and it looks like it's growing like crazy.

Q: What’s the ideal volatility for individual options? What do you use to compare?

A: Always look at the implied volatility of the option compared to the realized volatility of the underlying stock; and when the difference gets too big, you get ideal conditions for putting on call and put spreads, which take advantage of this. These are almost volatility neutral because you’re long on one batch of volatility and short on the other.

Q: Is it too late to get involved in the ProShares Ultra Technology ETF (ROM), the 2X long ETF in a spread?

A: The November 2021 $121-125 vertical bull call spread, the farthest expiration you can get for the (ROM), was kind of aggressive—I would go closer to the money. We’re right around mid $80s right now, so maybe do a January 2022 $95-100, and even that will get you something like a 400% gain by November.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH (or Tech Letter as the case may be), then WEBINARS, and all the webinars from the last ten years are there in all their glory.

Good Luck and Stay Healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Summit of Mount Rose at 10,778 feet with Lake Tahoe on the Right

February 24, 2021

Diary, Newsletter, Summary

Global Market Comments
February 24, 2021
Fiat Lux

Featured Trade:

(LONG TERM ECONOMIC EFFECTS OF THE CORONA VIRUS),
(ZM), (LOGM), (AMZN), (PYPL), (SQ), CNK), (AMC), (IMAX), (CCL), (RCL), (NCLH), (CVS), (RAD), (WMT)

Long-Term Economic Effects of the Coronavirus

Diary, Newsletter

The world will never be the same again.

Not only is the old world rapidly disappearing before our eyes, the new one is breaking down the front door with alarming speed. In short: the future is happening fast, very fast.

To a large extent, long-term economic trends already in place have been given a turbocharger. Quite simply, you just take out the people. Human contact of any kind will be minimized. I’ll tick off some of the more obvious changes.

All San Francisco Bay Area counties are still living under a “shelter in place” order. All schools have now been closed for a year. In March 2020 the local high school managed to get the first weekend of their annual musical “Titanic” done, but not the second.

All travel is banned except to gain essential necessities. Most bars and restaurants have been closed indefinitely, except for takeout. Some cities are issuing $1,000 fines for failure to wear a mask. The kids have turned into white, pasty zombies after staring at laptops for 12 months.

To say that we are merely fatigued from a yearlong quarantine would be a vast understatement. Climbing the walls is more like it.

As I write this, US Covid-19 deaths have topped a half million and cases have surpassed 28 million. China peaked at 4,000 deaths with four times our population. The difference was leadership issue. China welded the doors of Covid carriers shut. Here said it was a big nothing and would “magically” go away.

The magic didn’t work.

In the meantime, you better get used to your new life. You know that home office of yours you’ve been living in? It is now a permanent affair, as your employer figured out that they can make more money and earn a high stock multiple with you at home.

Besides, they didn’t like you anyway.

Many employees are never coming back, preferring to avoid horrendous commutes, lower costs, and yes, future pandemic viruses. GoToMeeting (LOGM) and Zoom (ZM) are now a permanent aspect of your life.

Commerce will change beyond all recognition. Did you do a lot of shopping on Amazon (AMZN) like I do? Now, you’re really going to pour it on.

Amazon hired a staggering 500,000 new distribution and delivery people in 2020 to handle the surge in business, the most by any organization since WWII. I can’t believe the stock is only at $3,200. It is worth double that, especially if they break up the company.

The epidemic really hammered the mall, where a fatal disease is only a sneeze away. Mall REITs are only just starting to crawl off the floor and may never again reach their old highs, no matter how much they promise to pay you in yield.

And how are you going to pay for that transaction? Guess what one of the most efficient transmitters of disease is? That would be US dollar bills. Something like 50% of all US paper money already tests positive for drugs, according to one Fed study.

Take paper money in change and you are not only getting contact from the salesclerk, but the last dozen people who handled the money. You are crazy now to take change and then not go swimming in Purell afterwards. Personally, I leave it all as a tip.

Contactless payments deal with this nicely (PYPL), (SQ), two of the top-performing stocks since April. People pay by swiping their iPhone wallet, or are simply scanned when they walk in the store, as with some Whole Foods shops owned by Amazon.

Conferences? A thing of the past. All of my public speaking events around the world have been cancelled. Webinars now rule. They offer lower conversion rates but include vastly cheaper costs as well. I can reach more viewers for $1,000 on Zoom than the Money Show could ever attract to the Las Vegas Mandalay Bay for $1 million.

At least I won’t have 18 hours of jet lag to deal with anymore. I’m sure Qantas will miss those first-class ticket purchases and I’ll miss the Champaign.

Entertainment is also morphing beyond all recognition. Streaming is now the order of the day. Disney+ (DIS) was probably the best-timed launch in business history, earning enough to cancel out most of the losses from the closure of the theme parks. Again, this has been a long time coming and the other major movie producers will soon follow suit.

Movie theaters, which have been closed for a year, may also never see their peak business again (CNK), (AMC), (IMAX). The theaters that survive will do so by only accumulating so much debt that they won’t be attractive investments for a decade.

The same is true for cruise lines (CCL), (RCL), (NCLH). But that won’t forestall dead cat bounces that are worth a double in the meantime, as they are coming off of such low levels. No vaccination, no cruise.

Exercise is changing overnight. All gyms and health clubs are now closed, so working out will become a solo exercise far away on a high mountain. I have already been doing this for 30 years, so a piece of cake here.

Friends with yoga classes are now doing them in the living room, streaming their instructors online. The economics of online yoga classes are so compelling, with hundreds attending online classes, that the old model may never come back.

If you are having trouble getting your kids to comply with social distancing requirements, have a family movie night and watch Gwyneth Paltrow and Cate Winslet die in Contagion. It has been applauded by scientists as the most accurate presentation of the kind of out-of-control pandemic which we may now be facing.

It is bone-chilling.

As for me, I have my stockpile of food and will be self-quarantining for the foreseeable future. I am at the top of five lists to get vaccinations, but so far all I have received is a ton of special offers from CVS (CVS), Rite Aid (RAD), and Walmart (WMT)

Stay healthy.

July 20, 2020

Diary, Newsletter, Summary

Global Market Comments
July 20, 2020
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE’S YOUR SERVING OF ALPHABET SOUP),
(SPY), (TLT), (GLD), (TSLA), (DRI), (WYNN), (H), (AMC)

The Market Outlook for the Week Ahead, or Here’s You Serving of Alphabet Soup

Diary, Newsletter

Here is your generous helping of alphabet soup. If you look very closely, you can find some bay leaves, oregano, black pepper, and lots of V’s, W’s, U’s, and L’s.

Now, let’s play a game and see who can pick the letter that most accurately portrays the current economic outlook.

Here is a code key:

V – the very sharp collapse we saw in Q1 and Q2 is followed by an equally sharp recovery in Q3 and Q4.

W – The sharp recovery in Q3 and Q4 fails and we see a double-dip extending into 2021.

U – The economy stays at the bottom for a long time before it finally recovers.

L – The economy collapses and never recovers.

The question is, in which of these forecasts should we invest our investment strategy?

For a start, you can throw out the “L”. Every recession flushes out a covey of Cassandras who predicts the economy will never recover. They are always wrong.

I believe what we are seeing play out right now is the “W” scenario. This is the best cash scenario for traders, as it calls for a summer correction in the stock market when we can load the boat a second time. If you missed the March low you will get a second bite of the Apple.

With corona cases soaring nationwide, and deaths skyrocketing, it is safe to write off the “V” recovery scenario.

If I’m wrong, we will get a “U”, a longer recovery. This cannot be dismissed lightly as the unemployment rate is about to take off as the PPP money runs out, state unemployment benefits are exhausted, and mass evictions ensue.

If I limited the outlook to only four possible scenarios, I’d be kidding you. The truth is far more complicated.

Each industry gets its own letter of the alphabet. Technology, some 27% of total stock market capitalization gets no letter at all because it is thriving, thanks to the global rush to move commerce online. That explains the single-minded pursuit of this sector by investors since the market 23 bottom.

Hotel chains like Hyatt Hotels (H) and casinos like Wynn Resorts (WYNN) get a “U” because they will recover after a long period of suffering. As for Movie theaters like AMC Entertainment Holdings (AMC) and restaurant chains such as Darden Restaurants (DRI), they get an “L” because it is hard to see any sustainable recovery before widespread use of a vaccine.

Weekly Jobless Claims remained at Historic Levels, at 1.3 million, reaching a total of 51 million since the pandemic began. We are about to see a huge surge in the unemployment rate as PPP money and state unemployment benefits run out. Without help from the federal government, millions will be thrown out on the street.

Tesla hit $1,800, up $255, on the news they may join the S&P 500 forcing a ton of institutional buying. Its market capitalization is now a staggering $330 billion, more than the entire global car industry combined. They also cut Model Y prices by $3,000, from $53,000 to $50,000, in another effort to keep new entrants at bay. The model Y is expected to be the biggest seller in history, hence the ballistic move in the shares now. Close your eyes and keep buying (TSLA) on dips.

Tesla is dead, long live Tesla, says Morgan Stanley analyst Adam Jonas. The big upside here will not be in (TSLA) itself, but in supplier companies such as ST Microelectronics, NXP Semiconductors (NXPI), Cree (CREE), and China’s CATL. Jonas, an early Tesla bull, still maintains a $3,000 target, but that is now only a double from here, a far cry from the 110X move behind us off the post IPO low.

5G cell phones could offset Corona losses to the global economy, or so says a French economic research institute. Productivity improvement alone could be worth $2.2 trillion a year. The big winner? Apple (AAPL). Is this really why stocks are going up so fast?

California shut down again as hospital emergency rooms approach capacity. All indoor business has ceased for a state that accounts for 21% of US GDP. The Golden State saw 8,357 new cases on Sunday. Unfortunately, it gives more credence to my “W” shaped recovery for the economy. Stocks noticed about three hours into the Monday session, diving 550 points. It’s not me! I tested negative last week.

Homebuilders saw the best June in history, up 55% YOY. Builders and supplies are now in short supply and prices are rising sharply. New homes are being favored over existing ones, which can’t be viewed through standardized virtual presentations. Keep buying (LEN), (KBH), and (PHM) on dips as the gale-force Millennial tailwind continues unabated.

Homebuilder Confidence jumped back to pre-pandemic levels, up a massive 14 points to 72. The golden age for the sector is just beginning as Millennials working in tech move to the burbs where the home office rules. Lumber is in short supply, thanks to Trump's tariffs with Canada, so prices just hit a two-year high. Keep buying.

We may get our fifth stimulus bill next week, as the Senate attempts to protect corporations from Covid-19 liability. Almost all of the $3 trillion in stimulus so far has ended up in the stock market, and another trillion can only be bullish.

Moderna claimed success with a true Covid vaccine, with 100% results in a 45-person human trial. (MRNA) soared by 15% on the news. A late July trial will involve 30,000. The company has never produced a product before using its RNA technology. Keep buying biotechs on dips. I’m long (SGEN), (ILMN), and (REGN). Dow futures up 300 in Asia on the news.

US air travel was down 89% in May, YOY. Whatever recovery you’re seeing in the economy it’s not happening here. I’m 200,000 miles a year guy and I probably won’t go near a plane until 2022. Avoid all airline stocks on pain of death. There are much better fish to fry.

Apple won a European antitrust case big time, ducking a massive 14.4 billion fine. Stock was up $7 on the news and is rapidly approaching my two-year target of $400. It's yet another case of “not invented here.” European regulators jealous of American success constantly assault US big tech. They view it as just another cost of doing business.

US budget deficit soared to $867 billion in June, taking it to an unprecedented $10.4 trillion annual rate. The national debt will rocket by 50% this year. Your grandkids are going to have a monster bill to pay. Keep selling every rally in the US dollar (UUP) and the bond market (TLT) and buy gold (GLD).

When we come out the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade.

My Global Trading Dispatch enjoyed another sizzling week, up a red hot +2.73%. My eleven-year performance rocketed to a new all-time high of 384.54%. A triple weighting in biotech did the heavy lifting. A four-day short position in the bond market (TLT) was the icing on the cake.

That takes my 2020 YTD return up to an enviable +28.63%. This compares to a loss for the Dow Average of -6.2%, up from -37% on March 23. My trailing one-year return popped back up to a record 68.19%, also THE HIGHEST IN THE 13 YEAR HISTORY of the Mad Hedge Fund Trader. My eleven-year average annualized profit recovered to a record +36.32%, another new high.

The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here. It’s jobs week and we should see an onslaught of truly awful numbers.

On Monday, July 20, IBM (IBM) reports Q2 earnings.

On Tuesday, July 21 at 7:30 AM EST, the June Chicago Fed National Activity Index is released. Microsoft (MSFT), Tesla (TSLA), and Lockheed Martin (LMT) report earnings.

On Wednesday, July 22, at 7:30 AM EST, the all-important Existing Home Sales for June are published. Amazon (AMZN) and Thermo Fisher Scientific (TMO) report earnings. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.

On Thursday, July 23 at 8:30 AM EST, the frightful Weekly Jobless Claims are announced. American Airlines (AA) report.

On Friday, June 24, at 7:30 AM EST, the New Home Sales for June are published. The Baker Hughes Rig Count is out at 2:00 PM EST. Verizon (VZ) reports earnings.

As for me, I have been going down memory lane looking at my old travel photos because that’s all I can do in quarantine.

I am now banned in Europe.

So are you for that matter. In fact, there are very few countries in the world that will accept an American visitor. With the world’s highest Covid-19 infection, rates we are just too dangerous to have around. This is tough news for a guy who usually travels around the world once or twice a year.

It’s not the first time I have been banned from a country.

During the 1980s, The Economist magazine of London sent me to investigate the remote country of Nauru, one-half degree south of the equator in the middle of the Pacific Ocean. They had the world’s highest per capita income due to the fact that the island was entirely composed of valuable bird guano.

During an interview with the president, I managed to steal a top-secret copy of the national budget. I discovered that the president’s wife had been commandeering aircraft from Air Nauru to go on lavish shopping expeditions in Sydney, Australia where she was blowing $200,000 a day, all at government expense.

It didn’t take long for missing budget to be found. I was arrested, put on trial, sentenced to death for espionage, and locked up to await my fate.

Then one morning, I was awoken by the rattling of keys. The editor of The Economist in London had made a call. I was placed in handcuffs and placed on the next plane out of the country. When I was seated next to an Australian passenger, he asked “Jees, what did you do mate, kill someone?” On arrival, I sent the story to the Australian papers (click here for the story).

I have not been back to Nauru since.

Stay healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Tag Archive for: (AMC)

Climbing the Matterhorn in 2019