Global Market Comments
August 12, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or
(CYB), (FXE), (TLT), (FXY), (COPX), (USO),
(GLD), (VIX), (FXB), (IWM0, (DIS), (CRB), (FB)
(A COW BASED ECONOMICS LESSON)
Posts
So, this is what the best trading week looks like.
Investors panicked. The hot money fled in droves. Predictions of escalating trade wars, recessions, and depressions abounded.
The bottom line for followers of the Mad Hedge Fund Trader? We picked up 4.4% on the week, as may make as much next week.
A number of trading nostrums were re-proven once again. That which can’t continue, won’t. When too many people gather on one side of the canoe, it will capsize. If you execute a trade and then throw up on your shoes, you know it will be a good one. I could go on and on.
The week also highlighted another trend. That is the market has become a one-trick pony. The focus of the market is overwhelmingly on technology, the only sector that can promise double digit growth for years to come. And it’s not just technology, but a handful of large cap companies. Investing has become a matter of technology on, or technology off.
This is always how bull markets end, be it the Nifty 50 of the early 1970s, Japanese stocks of the late 1980s, or the Dotcom Bubble of the 1990s.
It was a week that ran off fast forward every day.
China retaliated against the US in the trade war and stocks dove 900 points intraday. The Middle Kingdom imposed a total ban on all US agricultural imports and took the Yuan (CYB) down to a decade low to offset tariffs.
All financial markets and asset classes are now flashing recession and bear market warnings. The Mad Hedge Market Timing Index fell from 70 to 22, the steepest drop in recent memory. The US dollar dropped sharply against the Euro (FXE) and the Japanese yen (FXY). Oil (USO) went into free fall. Copper (COPX) collapsed to a new low for the year.
The New York Fed lowered its Q3 GDP growth to a lowly 1.56%, with the Atlanta Fed pegging 1.9%. Payrolls, orders, import/export prices, and trade are shrinking across the board, all accelerated by the ramp up in the trade war. Manufacturing and retailing are going down the toilet. Sow the wind, reap the whirlwind.
The German economy (EWG) is in free fall, as most analysts expect a negative -0.1% GDP figure for Q2. The fatherland is on the brink of a recession which will certainly spill into the US. That Mercedes Benz AMG S class you’ve been eyeing is about to go on sale. Great Britain (FXB) is already there, with a Brexit-induced negative -0.2% for the quarter.
Some 50% of S&P 500 dividends now yield more than US Treasury bonds. At some point, that makes equities a screaming “BUY” in this yield-starved world, but not quite yet. Is TINA (there is no alternative to stocks) dead, or is she just on vacation?
Ten-year US Treasury bonds (TLT) hit 1.61%, down an incredible 50 basis point in three weeks. Zero rates are within range by next year. The problem is that if the US goes into the next recession at zero interest rates, there is no way to get out. A decades-long Japanese style Great Depression could ensue.
Bond giant PIMCO too says zero interest rates are coming to the US. Too bad they are six months late from my call. It’s all a matter of the US coming into line with the rest of the world. The global cash and profit glut has nowhere else to go but the US. Much of the buying is coming from abroad.
Gold (GLD) hit a six-year high, as a rolling stock market panics drive investors into “RISK OFF” trades and downside hedges. While high interest rates are the enemy of the barbarous relic, low rates are its best friend and negative rates are even better. We are rapidly approaching century lows on a global basis.
Do your Christmas shopping early this year, except do it at the jewelry store and for your portfolio. Above $1,500 an ounce gold is beating stocks this year and the old all-time high of $1,927 is in the cards.
As I expected, August is proving to be the best short selling opportunity of the year. Not only can we make money in falling markets, elevated volatility means we can get into long side plays at spectacularly low levels as well.
With the Volatility Index (VIX) over $20, it is almost impossible to lose money on option spreads. The trick was to get positions off while markets were falling so fast.
The week started out with a rude awakening, my short in the US Treasury Bond Fund rising 1 ½ points at the opening. I covered that for a tear-jerking 3.26% loss, my biggest of the year. But I also knew that making money had suddenly become like falling off a log.
I fortuitously covered all of my short positions in the S&P 500 (SPY) and the Russell 2000 (IWM) right when the Dow average was plumbing depths 2,000-2,200 points lower than the highs of only two weeks ago. Then I went aggressively long technology with very short dated August plays in Walt Disney (DIS), Salesforce (CRM), and Facebook (FB).
My Global Trading Dispatch has hit a new all-time high of 324.78% and my year-to-date shot up to +24.68%. My ten-year average annualized profit bobbed up to +33.60%.
I coined a blockbuster 6.31% so far in August. In a mere three weeks I shot out 12 Trade Alerts, 11 of which made money, bringing in a 10% profit net of the one-bond loss. All of you people who just subscribed in June and July are looking like geniuses.
The coming week will be a snore on the data front. Believe it or not, it could be quiet.
On Monday, August 12 at 11:00 AM EST, the Consumer Inflation Expectations for July are released.
On Tuesday, August 13 at 8:30 AM US Core Inflation for July is published.
On Wednesday, August 14, at 10:30 the IEA Crude Oil Stocks are announced for the previous week.
On Thursday, August 15 at 8:30 AM EST, the Weekly Jobless Claims are printed. At 9:15 we learn July Industrial Production.
On Friday, August 16 at 8:30 AM, the July Housing Starts are out.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I’ll be headed to the Land’s End Music Festival in San Francisco this weekend and listen to many of the local rock groups. Hopefully, I will be able to unwind from the stress and volatility of the week.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
You Need Special Glasses to Understand This Market
The stock markets are on the verge of a small correction, perhaps less than 5%, which should unfold over the next six weeks.
There is just not enough juice in a mini crisis triggered by one lousy Portuguese bank, the Banco Espiritu Santo, to take us any further. Bonds globally should put in their highs for the year during this period.
After that, it will be off to the races with a major year-end rally that could take us up another 10%. Both old tech and new tech, plus biotech and social media will be the front runners in this next leg of the bull market. Fixed income products will suffer across the board.
These were the results of the exhaustive research Jim undertakes every quarter using his proprietary analytical system. His goal is to define the best long and short opportunities across all asset classes.
Ignore him at your peril. Last year Jim?s system delivered a gob smacking trading return of over 300%.
Jim, a 40-year veteran of the trading pits in Chicago, would tell you all this himself. But as he is a product of the Windy City?s lamentable school district, the task of translating his pivot points, swing counts, and support and resistance levels into simple ?BUYS? and ?SELLS? falls to me.
What else can I say?
By the way, a pivot point is a number Jim?s system serves up once a quarter dictating the tone of the market for individual securities. Trade above the pivot, and we are in ?RISK ON? mode. Trade below it, and we need to take a decidedly ?RISK OFF? posture.
Swing counts then project the distance a security should travel once the directional call has been determined. Think of it as your own private inertial navigation system for your trading approach.
Equities
With that said, Jim?s pivot for the S&P 500 for Q3 is 1,970. As we are well below that now, you can expect some further work to be done on the downside, possibly as low at the 1,875-1,895 range over the next six weeks.?That would then be a sweet spot to initiate new longs.
The NASDAQ 100 has a pivot of 3,811 for Q3, a few percent above here. Jump back into the technology arena with a tight stop in the 3,700-3,725 neighborhood, or down some 5%, which works out to around $90 for ETF (QQQ) players.
Among foreign markets, Jim likes Japan?s Nikkei (DXJ), is wary of the German DAX, and is neutral on Australia (EWA).
Point a gun to his head, and Jim will opt for the Wisdom Tree Europe Hedged Equity Fund (HEDJ), a customized long European equity/short Euro ETF that effectively prices these stocks in US dollars. Think of it as a (DXJ) with a French accent.
?Bonds
Jim sees a rare, generational opportunity, to sell bonds setting up for August. They could grind up until then off the back of today?s news from Europe, but not by much. Use $137.00 as the pivot point for the 30-year bonds futures.
The market?s Focus will remain on the SPX/Bond spread, as it has all year. When the Equity Indices go into profit taking mode, bonds are the only place to park money, taking prices northward.
Long term, he favors the short side of the bond market, when conditions allow.?His game plan remains to sell bonds at these levels, with tight stops, until proven wrong.
My own strategy of buying out of the money (TLT) put spreads on a monthly basis also works perfectly in this scenario. Use every three-point rally as an opportunity to get in.
We are on the threshold of a more normalized interest rate environment, with a long awaited reversion to the mean in rates imminent. Jim says that the entire bond world is about to roll over.
Foreign Currencies
Jim isn?t getting too excited about foreign currencies these days, which appear to have fallen into a bottomless volatility trap. He doesn?t see any big moves unless a serious risk off trend develops in the equity markets, which is unlikely.
Use the Australian dollar (FXA) as your lead currency with which to make directional calls for the entire asset class. The pivot there is $94.60 in the cash market. As we are now at $93.68, stand aside.
The Japanese yen (FXY) has done its best impression of a Kansas horizon this year of any financial asset. It will continue to flat line as long as the jury is out on Prime Minister Shinzo Abe?s ?third arrow? economic and reform strategy. The yen will eventually weaken against the greenback, but it could be a long wait. Until then, use 101.33 as a pivot.
If you have to hate a currency in 2014, make it the Euro (FXE), with a pivot of $139.50. Sell every rally against this figure until the cows come home. The fundamentals for a weaker continental currency are building by the day. But we won?t see real fireworks until we close below $135.50. Then we?ll be targeting $127.50.
Commodities
Jim likes the precious metals (GLD), (SLV) and thinks the recent bottom will last for some time. This is further confirmed by the miners (GDX), which appear to have staged a major turnaround.
Bond market rallies have been highly correlated to metals rallies this year, at least for over the short term. So follow the sparkly stuff along with a bond rally into August. Lower rates will be price positive the metals. Use $1,265-$1,275 as your pivot for gold going forward. For silver use $19.70.
Copper (CU) is a bit of a conundrum, as it is stuck, in the middle of one-year range, so don?t chase recent rally. Use $2.95 as the pivot there. It?s not going anywhere until China decides what to do with its economy.
Don?t buy into the upside breakout school of thought for oil (USO) until we close over 104.70-105.30 (last qtr's high). That?s where you can count on the buy stops to kick in. At the current $102, we are firmly in bear territory. Talk to Jim when oil breaks this quarter?s resistance and upside momentum level at 107.50.
Infrastructures plays are still the best way to participate in any move in the natural gas (UNG) market. At the top of the list is Mad Hedge Fund Trader long time favorite, Cheniere Energy (LNG), up from $6 to $74.??(LNG) should be on your shopping list on any big equity index sell-off.?This week may see a low, and then a substantial rally when July futures expire.
The Ags
Agricultural commodities (CORN), (SOYB), (WEAT), (DBA) have been the major disaster area of 2014, thanks to the best growing conditions in history. Not only has the weather been perfect, the US Department of Agriculture keeps ?finding? new stockpiles. Conditions have been improving in major export markets abroad, as well.
Farmers may get a break this week when multiple futures contracts expire. At the very least, we should get a dead cat bounce. After that, it?s up to Mother Nature.
By the way, Jim Parker?s Mad Day Trader service has attracted a substantial following over the past year. If you are not already getting Jim?s dynamite short term ?BUY? and ?SELL? calls, please get yourself the unfair advantage you deserve.
Just email Nancy in customer support at support@madhedgefundtrader.com and ask for the $1,500 a year upgrade from your existing Global Trading Dispatch service to Mad Hedge Fund Trader PRO. The service includes Jim?s timely Trade Alerts, a running daily market commentary, and the daily morning webinar, The Opening Bell with Jim Parker.
The Quarterly Calls Are In
Panic is on deck, to use the baseball terminology that my foreign readers are often attempting to decipher. That is the only conclusion one can reach after getting gob smacked by the price action this morning. Copper got spanked for eight cents, oil burned $2, gold shed another $26, and silver puked 70 cents.
The tantrum like stock behavior in producing and equipment companies, like Freeport McMoRan (FCX) and Caterpillar (CAT) has been atrocious. How many of you out there know that JP Morgan (JPM) is the largest holder of futures contracts in the silver market and just got hit with a massive margin call? Why is all this happening on the 100 year anniversary of the sinking of the HMS Titanic?
Blame it all on Uncle Buck, whose recent steroid treatments has enabled him to unload the pounds, shed the fat, and adopt a new, more virile attitude towards life. Every other currency now looks like a 98 pound weakling. We now awake each morning to be greeted by the latest disastrous headline from Europe that accelerates the capital flight from the continental currency.
The Euro (FXE), (EUO), is deteriorating from bad to worse, with the foreign exchange community now clearly gunning for the next short term support at $1.26. Look at a ?10 note these days and it has recently printed upon it ?Abandon hope all ye who enter here.?
Traditional diversification currencies, like the Australian (FXA) and Canadian dollars (FXC) are now biting the hands that fed them, dragged down by their export commodities? pitiful performance. Hard as it is to imagine, the Ausie has been the world?s worst performing major currency this year, even underperforming the dreadful euro. Australian readers who followed my advice to pay for their summer vacations in advance at the $1.10 that prevailed at the beginning of the year are smiling. Those they didn?t are now looking for a discount caravan at a remote, dingo plagued campsite somewhere in the Outback.
The Japanese yen, the currency that everyone loves to hate, has perked up to a flight to safety bid while the rest of the world goes to hell in a hand basket. We are currently in between Bank of Japan quantitative easings there, so don?t expect this to last much longer. The tipping point into hyper debt driven, economic Armageddon there creeps ever forwards with each passing day on the calendar.
Take a look at the charts below for the US Dollar Index and it is obvious that things may soon get a whole lot worse. For starters, the dollar has only rallied back to the midpoint of a multiyear range. To get back up to the top of that range it needs to appreciate another 10%. To understand why this is a problem, look at the second chart that proves a tremendous inverse correlation between the dollar and commodities. A strong dollar always leads to falling demand for the hard stuff.
The third chart suggests that the other grotesquely overvalued asset class, US stocks, is also cruising for a bruising. Commodities led equities in this downturn by three months, as they usually do. If they break support here, then they will easily drag the (SPX) down to my medium term target of 1,275, off a heart thumping 10.3% from the recent top. If the economic data continues to worsen on a daily basis, as I have been chronicling on a daily basis for the last two months ad naseum and ad absurdum, then we have a clear shot at the fall, 2011 low at 1,060.
Oops, There Goes My Equity Portfolio