(SPY) Archives

Stress Testing the Mad Hedge Fund Trader Strategy

It is always a great idea to know how bomb proof your portfolio is.

Big hedge funds have teams of MIT educated mathematicians that constantly build models that stress test their holdings for every conceivable outcome.

WWIII? A Global pandemic? A 1,000 point flash crash? No problem. Analysts will tell you to the decimal point exactly how trading books will perform in every possible scenario.

The problem is that these are just predictions, which is code for ?educated guesses.?

The most notorious example of this was the Long Term Capital Management melt down where the best minds in the world constructed a portfolio that essentially vaporized in two weeks with a total loss.

S&P 500 volatility (VIX) exceeding $40? Never happen!

Oops. Better get those resumes out!

That?s why events like the Monday, August 24 1,000 flash crash are particularly valuable. While numbers and probabilities are great, they are not certainties. Nothing beats real world experience.

As markets are populated by humans, they will do things that no one can anticipate. Every machine has its programming shortcoming.

Given that standard, I think the Mad Hedge Fund Trader?s strategy did pretty well in the downdraft. I went into Monday with an aggressive ?RISK ON? portfolio that included the following:

The basic assumptions of this book were that the long term bull market has more to run, the housing sector would lead, interest rates would rise going into the September 17 Federal Reserve meeting, the dollar would remain strong, and that stock market volatility would stay within a 12%-20% range.

What we got was the sharpest one-day stock decline in history, a 28 basis point spike up in interest rates, a complete collapse in the dollar, and stock market volatility at an eye popping 53.85%.

Yikes! I couldn?t have been more wrong.

Now here?s the good news.

When we finally got believable options prices 30 minutes after the opening I priced my portfolio, bracing myself. My August performance plunged from +5.12% on Friday to -10%.

Hey, I never promised you a rose garden.

But that only took my performance for the year back to my June 17 figure, when I was up 23% on the year. In other words, I had only given up two months worth of profits, and that was at the low of the day.

I then sat back and watched the Dow rally an incredible 800 points. Now it was time to de risk. So I dumped my entire portfolio. The assumptions for the portfolio were no longer valid, so I unloaded the entire thing.

This was no time to be stubborn, proud, and full of hubris.

By the end of the day, I was down only -0.48% for August, and up +32.65% for the year.

Ask any manager, and they would have given their right arm to be down only -0.28% on August 24.

Of course, it helped that I had spent all month aggressively shorting the market into the crash, building up a nice 5.12% bank of profits to trade against. That is one of the reasons you subscribe to the Diary of a Mad Hedge Fund Trader.

The biggest hit came from my short position in the Japanese yen (FXY), which was just backing off of a decade low and therefore coiled for a sharp reversal. It cost me -4.85%.

My smallest loss was found in the short Treasury bond position (TLT), where I only shed 1.52%. But the (TLT) had already rallied 9 points going into the crash, so I was only able to eke out another 4 points to the upside on a flight to safety bid.

Lennar Homes gave me a 2.59% hickey, while the S&P 500 long I added only on Friday (after all, the market was then already extremely oversold) subtracted another 1.61%.

The big lesson here is that my short option hedges were worth their weight in gold. Without them, the losses on the Monday opening would have been intolerable, some two to three times higher.

You can come back from a 10% loss. I have done so many times in my life. A 30% loss is a completely different kettle of fish, and is life threatening.

For years, readers complained that my strategy was too conservative and cautious, really suited for the old man that I have become.

Readers were able to make a lot more money following my Trade Alerts through just buying the call options and skipping the hedge, or better yet, buying the futures.

I didn?t receive a single one of those complaints on Monday.

I?ll tell you who you didn?t hear from on Monday, and that was friends who pursued the moronic trading strategies you often find touted on the Internet.

That includes approaches like leveraged naked shorting of puts that are always advertising fantastic track records...when they work.

You didn?t hear from them because they were on the phone pleading with their brokers while they were forcibly liquidating portfolio showing 100% losses.

Any idiot can look like a genius shorting puts until it blows up in their face on a day like Monday and they lose everything they have. I know this because many of these people end up buying my service after getting wiped out by others.

I work on the theory that I am too old to go broke and start over. Besides, Morgan Stanley probably wouldn?t have me back anyway. It?s a different firm now.

Would I have made more money just sitting tight and doing nothing?

Absolutely!

But the risks involved would have been unacceptable. I would have failed my own test of not being able to sleep at night. That is not what this service is all about.

In any case, I know I can go back to the market and make money anytime I want. That makes the hits easier to swallow.

You can?t do this without any capital.

With the stress test of stress tests behind us, the rest of the years should be a piece of cake.

Good luck, and good trading.

Sometimes It Pays to Be Old

August 28, 2015/by Mad Hedge Fund Trader

What?s Really Happening in the Middle East

Diary, Free Research, Newsletter

Long-term observers of financial markets are befuddled, confused, and amazed at their complete lack of interest in the rapidly unfolding events in the Middle East.

It seems that the more horrific the atrocities, the higher stock prices want to climb.

Go figure.

ISIS is in fact accelerating the most important geopolitical event so far in this century, the rapprochement of relations between the U.S. and Iran, which have been in a deep freeze for 40 years.

A serious dialogue has not been held between these two countries since 52 hostages were seized at the American embassy in Tehran in 1979 and held for 444 days.

The Mullahs in Iran can?t help but notice last week?s U.S. air strikes to protect Shiite cities from a Sunni slaughter at the hands of ISIS. Suddenly, our natural enemy in the region has become our natural ally.

The Iranians have even offered to back up our air power with their ground forces, an offer the Obama administration has so far wisely turned down.

Don?t worry about ISIS. Their threat is being wildly overrated by the media.

There is a reason why terrorist groups have never held territory before. That makes them a big fat target for drones, smart bombs, and all the other types of fire that we rain down upon our enemies from above. This may be the first war in history entirely fought by drones on our side. That means it will be cheap, without casualties, and over quickly.

So what will the new treaty and peace between the U.S. and Iran bring us?

So far, Iran has agreed to a freeze on its nuclear enrichment program in exchange for international inspections and the unfreezing of $100 billion of their assets. Secret negotiations are being held intermittently in Geneva, Switzerland (I stopped by to say hello a few weeks ago).

This is unbelievably positive for all asset classes, except energy. This is the cause of the recent collapse of oil prices, which are now 65% off their 2014 high.

The US is now in a tremendously powerful negotiating position. If Iran dumps their nuclear program to our satisfaction, Iran then gets the carrot.

It will rejoin the world economy, unfreeze the rest of its assets and recover $100 billion a year in trade. The country?s banks will be allowed to rejoin U.S. dollar clearing, the $1 trillion a day CHIPS and SWIFT systems, their absence from which has been a deathblow to their international trade.

Its oil exports (USO) can recover from 750,000 barrels a day back to the pre crisis level of 3 million barrels. If it doesn?t then it gets the stick again in six months, resuming their economic freefall.

The geopolitical implications for the U.S. are enormous.? Iran is the last major rogue state hostile to the US in the Middle East, and it is teetering. The final domino of the Arab spring falls squarely at the gates of Tehran.

A friendly, or at least a non-hostile Iran, means we really don?t care what happens in Syria.

Remember that the first real revolution in the region was Iran?s Green Revolution in 2009. That revolt was successfully suppressed with an iron fist by fanatical and pitiless Revolutionary Guards.

The true death toll will never be known, but is thought to be well into the thousands. The antigovernment sentiments that provided the spark never went away and they continue to percolate just under the surface.

At the end of the day, the majority of the Persian population wants to join the relentless tide of globalization. They want to buy iPods and blue jeans, communicate freely through their Facebook pages and Twitter accounts, and have the jobs to pay for it all.

Since 1979, when the Shah was deposed, a succession of extremist, ultraconservative governments ruled by a religious minority, have abjectly failed to cater to these desires

If Iran doesn?t do a deal on nukes soon, it?s economy with sink deeper into the morass in which they currently find themselves. The Iranian ?street? will figure out that if they spill enough of their own blood that regime change is possible and the revolution there will reignite.

The Obama administration is now pulling out all the stops to accelerate the process.

The oil embargo former Secretary of State, Hillary Clinton, organized is steadily tightening the noose, with heating oil and gasoline becoming hard to obtain.

Yes, Russia and China are doing what they can to slow the process. This is what the Ukraine crisis is really all about, an attempt to keep oil prices high, Russia?s biggest earner.

But conducting international trade through the back door is expensive, and prices are rocketing. The unemployment rate is 40%.? The Iranian Rial has collapsed by 50%.

Let?s see how docile these people remain when the air conditioning quits running because of power shortages. Iran is a rotten piece of fruit ready to fall off on its own accord and go splat. The US is doing everything she can to shake the tree.

No military action of any kind is required on America?s part. No shot has been fired. That?s a big deal when the shots cost $10,000 apiece.

The geopolitical payoff of such an event for the U.S. would be almost incalculable. A successful revolution will almost certainly produce a secular, pro-Western regime whose first priority will be to rejoin the international community and use its oil wealth to rebuild an economy now in tatters.

Oil will has completely lost its risk premium, once believed by the oil industry to be $30 a barrel. A looming supply could cause prices to drop to as low as $20 a barrel.

This price drop seen so far amount to a gigantic $2.18 trillion trillion tax cut for not just the US, but the entire global economy as well (92 million barrels a day X 365 days a year X $65).

Almost all funding of terrorist organizations will immediately dry up. I might point out here that this has always been the oil industry?s worst nightmare.

ISIS is a short.

At that point, the US will be without enemies, save for North Korea, and even the Hermit Kingdom could change with a new leader in place. A long Pax Americana will settle over the planet.

The implications for the financial markets will be enormous. The US will reap a peace dividend as large, or larger, than the one we enjoyed after the fall of the Soviet Union in 1992.

As you may recall, that black swan caused the Dow Average to soar from 2,000 to 10,000 in less than eight years, also partly fueled by the technology boom.

A collapse in oil imports will cause the U.S. dollar (UUP) to rocket.? An immediate halving of our defense spending to $400 billion or less and burgeoning new tax revenues would cause the budget deficit to collapse.

With the US government gone as a major new borrower, interest rates across the yield curve will fall further. The national debt completely disappears by the 2030?s (as it almost did during the late 1990?s).

A peace dividend will also cause US GDP growth to reaccelerate from 2% to 4%. Risk assets of every description will soar to multiples of their current levels, including stocks, junk bonds, commodities, precious metals, and food.

The Dow will soar to 30,000 and the S&P 500 (SPY) to 3,500, the Euro collapses to parity, gold rockets to $2,300 an ounce, silver flies to $100 an ounce, copper leaps to $6 a pound, and corn recovers $8 a bushel.

Some 2 million of the armed forces will get dumped on the job market as our manpower requirements shrink to peacetime levels. But a strong economy should be able to soak these well-trained and motivated people right up.

We will enter a new Golden Age, not just at home, but for civilization as a whole.

Wait, you ask, what if Iran develops an atomic bomb and holds the US at bay?

Don?t worry. There is no Iranian nuclear device. There is no real Iranian nuclear program large enough to threaten the United States. The entire concept is an invention of Israeli and American intelligence agencies as a means to put pressure on the regime.

According to them, Iran has been within a month of producing a tactical nuclear weapon for the last 30 years. I'm still waiting.

The head of the miniscule effort they have was assassinated by Israeli intelligence two years ago (a magnetic bomb, placed on a moving car, by a team on a motorcycle, nice!).

If Iran had anything substantial in the works, the Israeli planes would have taken off a long time ago.

Even if Iran had one nuclear weapon, would they really want to attack a country with 6,700, the US?

There is no plan to close the Straits of Hormuz, either. The training exercises in small rubber boats we have seen are done for CNN?s benefit, and comprise no credible threat.

I am a firm believer in the wisdom of markets, and that the marketplace becomes aware of major history changing events well before we mere individual mortals do.

The Dow began a 25-year bull market the day after American forces defeated the Japanese in the Battle of Midway in May of 1942, even though the true outcome of that confrontation was kept top secret for years.

If the advent of a new, docile Iran were going to lead to a global multi-decade economic boom and the end of history, how would the stock markets behave now?

They would remain in a long-term bull market, much like we have seen for the past six years. That?s why 10% corrections have been few and far between.

The Problem is That it?s a Hollow Threat

Aim This One at the Bears

August 26, 2015/by Mad Hedge Fund Trader

A Note on Next Week?s Options Expirations

Diary, Newsletter

We have an options positions that is deep in the money, and I just want to explain to the newbies how to best maximize their profits.

This comprises:

S&P 500 (SPY) August $214-$217 in-the-money vertical bear put spread with a cost of $2.50.

As long as the (SPY) closes at $214.00 or above on Friday, August 21, the position will expire worth $3.00 and you will achieve the maximum possible profit.

This will worth out to a 20% gain, something you have been able to achieve in only 17 trading days. Better than a poke in the eye with a sharp stick, as they say.

In this case, the expiration is very simple. You take your left hand, grab your right wrist, pull it behind your neck and pat yourself on the back for a job well done.

Your broker (are they still called that?) will automatically use the long put to cover the short put, cancelling out the positions. The profit will be credited to your account on the following Monday, and the margin freed up.

Of course, I am watching these positions like a hawk, as always. If an unforeseen geopolitical even causes the (SPY) to take off to the upside once again, such as Janet Yellen announces that there will never be another interest rate hike again.

You should get the Trade Alert in seconds.

If the (SPY) expires slightly out-of-the-money, like at $214.10, then the situation may be a little more complicated, and can become a headache.

On the close, your short put position expires worthless, but your long put position is converted into a large, leveraged outright naked short position in the (SPY) with a cost of $217.50.

This position you do not want on pain of death, as the potential risk is huge and unlimited, and your broker probably would not allow it unless you put up a ton of new margin.

This is not what moneymaking is all about.

Professionals caught in this circumstance then buy a number of shares of (SPY) on expiration day equal to the short position they inherit with the expiring $217 put to hedge out their risk.

Then the long (SPY) position is cancelled out by the short (SPY) position, and on Monday both disappear from your statement. However, this can be dicey to execute going into the close.

So for individuals, I would recommend just selling the $214-$217 put spread outright in the market if it looks like this situation may develop and the (SPY) is going to close very close to the $214 strike.

Keep in mind, also, that the liquidity in the options market disappears, and the spreads widen, when a security has only hours, or minutes until expiration. This is known in the trade as the ?expiration risk.?

One way or the other, I?m sure you?ll do OK, as long as I am looking over your shoulder, as I will be.

Well done, and on to the next trade.

Well Done and On to the Next Trade

?

August 12, 2015/by Mad Hedge Fund Trader

Cashing in on the Greek Crisis

Diary, Newsletter

Try as I may, there is absolutely no way to escape a financial crisis in the modern world anymore, not even in the dusty, remote Western Sahara village of Taghazout, Morocco.

There is an Ebola Virus outbreak 1,000 miles to the south, and 35 British tourists were massacred on a beach in neighboring Tunisia last week. There were exactly four passengers on my flight from Lisbon to Morocco.

Was it a warning, or a confirmation of hubris?

Starving stray dogs and cats wander the street, garbage lines the beach, and raw sewage seeps into the ocean. Rangy, two humped camels vainly await riders at the edge of town.

But satellite dishes sprout from the rooftop of even the most forlorn, impoverished, broken down cinder block structures, and the hum of the global markets is never more than a few channels away.

The CNBC here is available only in Arabic, and is fiercely competing with Omani soap operas and the Iraqi Business Channel (yes, despite ISIS, there is such a thing).

But it didn?t take me long to figure out that the people of Greece rejected the ECB latest bailout proposal by an overwhelming 61.5% to 38.5% margin.

It was no surprise to me.

You would think that voting against punishingly higher taxes and an excruciatingly longer recession was a no brainer. But the markets were expecting otherwise, and have been caught seriously wrong footed. Poor summer liquidity is exacerbating the moves.

My somewhat passable French enabled me to discern that the prices were taking it on the nose. Japan and China each dove 2%, while Australia and the Euro pared 1% apiece.

This was going to be a ?RISK OFF? day on steroids.

Suddenly, I smell opportunity everywhere.

Now we know the kneejerk response to an imminent Greek default.

However, the cold, harsh reality of the situation requires a little deeper analysis.

CNN was utterly useless, choosing instead to focus on the human side of the tragedy, the freshly impoverished Greek goat herder and the island hotel operator who can?t pay his staff.

No great insight there.

Greek citizens are now limited to withdrawing 60 Euros a day from an ATM, if they can find one that has any cash at all. To head off a certain run and Armageddon, the Greek banks have all been closed for a week, with no reopening in sight.

Thousands of foreign tourists are now stranded in the land of moussaka, retsina, and Zorba, cursing their vacation destination choice.

So I?ll refer to my May conversation with former Greek Prime Minister, George Papandreou, who ran the country from 2009 to 2011, and shepherded the country through the post financial crisis 2010 debacle.

His late father, Andreas, was also a Prime Minister, as was his grandfather, Georgio, who spent time in jail for his services, consider running this ungovernable country the family business.

To a large extent, the ECB (read the Germans) are in a subprime crisis entirely of their own making.

German banks provided funds to their Greek counterparts, initially to build the $8 billion 2000 Athens Olympics, which was almost entirely subcontracted to German engineering firms.

They then fueled the economic boom that followed, making possible the export of tens of thousands of Mercedes, BMW?s and Volkswagens. That bankrolled a major increase in the Greek standard of living, while adding several points to German GDP growth.

When dubious financial statements were presented to justify this lending binge, bankers simply winked, and looked the other way.

A decade and a half later, they are ?shocked, shocked? that some of the accompanying disclosures were inaccurate, as police inspector Claude Rains might have said in Casablanca (which, by the way, is only 400 miles north of here).

?Gambling in the casino? Perish the thought.? How do you say that in German?

The reality is that this is all a storm in a teacup. Accounting for only 2% of European GDP, it is neither here nor there whether the country stays or goes from the European Community or the Euro.

Total Greek debt to the ECB is now $3.5 billion, a drop in the bucket in the global scheme of things.

What?s more, this crisis is far less serious than the ones that occurred in 2010 and 2012. This time around, Greek bonds have already been taken off the books of German and French banks at cost, and placed with numerous multinational agencies, largely the ECB itself.

What is almost completely lacking here is private risk, unless you happen to own a Greek bank, or the shares of other Greek companies.

What?s more, all of this is happening in the face of a massive 60 billion a month ECB quantitative easing program. The amount Greece owes comes to less than two days worth of this amount.

Never take a liquidity crisis in the middle of a structural global cash glut too seriously.

Even this paltry amount can be easily refinanced by the International Monetary Fund on a slow day. That?s what they are there for.

This pales in comparison to the 39 billion euros spent to bail out the Spanish banking system a few years ago, or the $4 billion IMF rescue of the United Kingdom in 1976.

In the end, the amounts are sofa change to the Chinese, who are starved for high yield investments. It was they who nailed the top of the last European bond yield spike (on my advice, I might add), acting as the buyer of last resort then.

In the end this will be solved, as have all international debt crises since time immemorial, since the British seized the Suez Canal from the French as collateral for bad debts in 1882. Extend and pretend. Move debt maturities out another ten years and hope everything gets solved by then.

It always works.

What all of this does do is create a great buying opportunity for the assets not directly involved in this crisis, notably US equities. Modest over valuation has encumbered main indexes with declining volumes, narrowing breadth, and shrinking volatility for all of 2015.

At the very least, the Euro crisis du jour will present a second test of the (SPY) 200-day moving average at $205.74. The best case is that it gives us a real gift, a visit to a full 10% retreat to $193, a pullback whose ferociousness has not been seen since October.

That?s where you load the boat for a rally to new index highs at yearend.

You can expect similar moves in other assets classes.

In this scenario, volatility (VIX) will rocket to 30%. The Euro (FXE) collapses to $103 once more, and the Japanese yen (FXY) revisits $82. Treasury bonds (TLT) enjoy a flight to safety bid that takes yields at least back to 2.30%. Gold (GLD) and silver (SLV) do nothing, as usual.

For followers of my Trade Alert service, this is all a dream come true. Having made 26.71%, or much more, in the first half of this year, you now have the opportunity to repeat this feat in the second half.

Going into a crisis like this with 100% cash and only dry powder is every trader?s wildest fantasy. Make sure you let the current Greek debt crisis play out before you commit.

This is what you all pay me for. At least I?ll get something for suffering through the hell holes and gin joints of West Africa.

I think I?ll go give those camels some business.

Retsina

July 6, 2015/by Mad Hedge Fund Trader

Why Stocks Hated the May Nonfarm Payroll

Diary, Newsletter

When the US Department of Labor announced its blockbuster May nonfarm payroll showing a 280,000 gain, stocks behaved like the world had just ended.

The 32,000 in March and April upward revisions didn?t help either.

You would think data showing that the economy is improving much faster than many realized would be positive for ?RISK ON? equity investments.

It wasn?t.

Now, the laser focus is on the bond market, which is collapsing globally. The complete disappearance of liquidity is exacerbating the moves.

Bond traders are now hyper sensitive to any news of a stronger American economy, which will soon lead to higher interest rate rises by Janet Yellen?s Federal Reserve.

A world is ending, but not the one you think. The zero interest rate regime on which we have all become heavily addicted over the last eight years is about to go into the history books.

Welcome to the looking glass world of investment these days. Good new is bad news and bad news good.

Players are in a manic depressive mood, expecting the economy to plunge into recession one month, and then discounting a robust recovery the next.

Then there?s Greece, which threatens to default on its debt on alternate days, and then offers to pay on the others. This has prompted the Euro (FXE) to undergo more gyrations than a circus contortionist.

Not a friendly environment for a trader. Sturm und drang with no net movement in the indexes doesn?t pave the road to trading riches. Even staying long volatility (VIX) is not working, unless you have the fastest finger in Chicago.

This is why I am keeping the Mad Hedge Fund Trader model trading portfolio to an absolute minimum bare bones of positions, a single 10% weighting in the S&P 500 that I snapped up at the Friday lows. And even that one has me edgy.

After polling many of my most loyal, long-term readers, I learned that they would rather see a small number of great trades than a large number of positions that include a few losers.

So, cherry picking it is, at least, for now.

To say that the nonfarm was fantastic is something of an under statement.

Private nonfarm jobs jumped by a dynamic 262,000. High paying professional and business services employment increased by a runaway 63,000. Leisure and hospitality ramped up to 57,000. Health care picked up 47,000.

The big loser was mining (coal, gold, silver), which shed 17,000 jobs. Headline unemployment held steady at 5.5%, while average hourly earnings rose by 0.3%.

It was almost a perfect report.

It certainly reinforces my own forecast of a hot 3% GDP growth rate for the final three quarters of 2015. The question bedeviling traders and investors alike now is, ?How much of this growth is already discounted in today?s prices??

You almost wonder if stocks are tired of going up, which have been appreciating for more than six years. Stock buyers need a new story.

With a discount Euro beckoning, it sounds like this summer will be the best ever to take a long vacation.

Looks Like This is a Down Day

June 8, 2015/by Mad Hedge Fund Trader

How the Markets Will Play Out This Quarter

Diary, Newsletter, Research

I think I have figured out the course of the global financial markets over the next few months.

We are currently transitioning from an economic data flow from Q1 that was very weak, to the second quarter, which will almost certainly deliver us a robust set of numbers. This is on the heels of a white hot Q1, 2014.

Hot, cold, hot; this is a trader?s dream come true, as it gives us the volatility we need to make a fortune, as we skillfully weave in and out of these gyrations.

That is, if you read the Diary of a Mad Hedge Fund Trader.

This is not a new thing. A weak Q1 has been a recurring event over the last 30 years. The anomaly has been so reliable that not a few traders have been able to earn a living from it. :) Heaven help us if the government ever tries to fix it.

To further complicate matters, some markets see this, while others have yet to open their eyes.

The stock market (SPY), (QQQ), (IWM) agree with my view, probing new all time highs, while companies announce diabolical Q1 earnings (Twitter (TWTR)? Yikes!). So do commodities, like oil (USO) and copper (FCX), whose recent strength suggests we are on the doorstep of a great economic Golden Age.

However, the foreign exchange market (FXE), (FXY) doesn?t see it this way. They can only comprehend the last data point that just crossed the tape.

If it is weak, they assume the Federal Reserve won?t even think about raising interest rates until well into 2016. If it is healthy, they bet the Fed will jack up rates tomorrow.

You might assume this is ridiculous, and you?d be right. However, forex traders live in a world where interest rate differentials are the principal, and to many the only driver of foreign exchange rates.

One market is right, and one is wrong. Did I mention that this is also a license for we nimble traders to print money?

Of course, you can play both side of the fence, as I do. That?s how I was able to coin it with a long position in the euro (a weak economy trade) the same day my long US equity portfolio (a strong economy trade) was going through the roof.

Let me give you another iteration of these scenarios. Inside the dollar correction we are seeing a pronounced sector rotation among US stocks.

Traders are moving out of small caps (IWM) that sheltered then from a strong dollar into large caps (SPY). They are also taking profits in biotech and rolling it into financials (GS), cyber security (PANW) and solar (TAN).

Goldman Sachs (GS) gave us more rocket fuel for the bull case for of American stocks this morning. The sage investment bank, in which my Trade Alert Service currently maintains a profitable long position, says that corporations will return a mind blowing $1 trillion to investors in 2015.

Share buy back from companies should rise by 18%, while dividends should pop by 7%. It is all a continuation of a six-year trend.

Apple (AAPL) certainly kicked off this quarter?s cavalcade of higher payouts on Monday, when it added $50 billion to its own stock repurchase program and jacked up its dividend by 11%.

Markets could get even more interesting after next week, when some 80% of S&P 500 companies will have existed the ?black out? period when they are not allowed by SEC regulations to buy their own stock.

I say ?tally ho,? and ?tally ho? again.

It?s Tally Ho for the Stock Market

April 30, 2015/by Mad Hedge Fund Trader

Entering the Quiet Time

Diary, Newsletter

I?ll let you in on my top secret investment strategy that has brought me blockbuster results over the past six years.

Listen to the Wharton Business School?s professor, Jeremy Siegel.

The good doctor has been unremittingly bullish year in and year out, nearly pegging the stock index performance annually.

So, when he says that the Dow Average is going to rise to 20,000 by the end of 2015, that?s good enough for me. In fact Siegel thinks that at current price earnings multiple of 17 times, the bull market has years to run.

It would not be until we hit nosebleed levels of 25X or 30X earnings that he would get worried. And the current ultra low level of interest might even make these high multiple numbers justifiable.

So for the foreseeable future, we are going to see long periods of tedious range trading, followed by frenetic rounds of buying, once the market decides that it is time to discount the next rise in corporate earnings.

We happen to be in one of those range-trading periods right now, which my partner, Mad Day Trader Jim Parker, thinks could last all the way until September.

Actually, it is a little more complicated than that.

There is good reason for the stock market to go to sleep over the next two weeks.

Do you hear that great sucking sound? That is the noise of 170 million tax payers writing checks to the US Internal Revenue Service.

Foreign readers may not realize this, but tax payments are due in the United States on April 15 every year. I would ask for your sympathy, but I know all of you pay far more in taxes than we do. I know, because I used to pay them myself when I lived abroad for 23 years.

Of the $6 trillion in revenues from all sources due to Uncle Sam in 2015, 37%, or $2.2 trillion will come in the form of individual income taxes. That is a big hit for the financial system. That means for the next two weeks there won?t be any extra money lying around to put into the stock market.

There is another reason why the stock indexes are stagnating here. The Q1, 2015 corporate earnings reporting season kicks off when Alcoa (AA) reports on April 8, or in six trading days. Until then, we are in the quiet period, and companies are not allowed the buy back their own stock.

This is a big deal, since companies buying back their own shares have provided major support for the stock market for many years. Possibly a quarter of all the net cash flow pouring into stocks since 2009 has come from this source.

Take it away, even for a short period, and the most bullish thing the market can do is move sideways, which is exactly what it has been doing for the past two months.

What happens when the tax payment deadline passes and the quiet period ends? Stocks take off like a bat out of hell. That will take us to the spring interim peak.

This is why I strapped on three new ?RISK ON? positions last Friday, longs in the Russell 2000 (IWM) and Goldman Sachs (GS) and a short in the euro (FXE).

March 31, 2015/by Mad Hedge Fund Trader

Mad Hedge Fund Trader Hits 10% Profit in 2015

Diary, Newsletter

I am sitting here at the Lone Eagle Grill in Incline Village, Nevada, enjoying a rare solo lunch. No one is asking me about the future of interest rates, if there is any gold inside Fort Knox or if the aliens really landed at Roswell, New Mexico.

My table overlooks majestic Lake Tahoe, and a brace of mallard ducks has just skidded across the smooth surface for a landing.

My big score last night was coming across a wild bobcat, the first I had ever seen in the Sierras. After cautiously studying me for a minute with his bright yellow glowing eyes, he scampered up the mountain.

My pastrami sandwich is cooked to perfection, and would give Manhattan?s best culinary effort a run for its money. In fact, I have enough food here for two entire meals. Bring on the doggie bag!

After surviving a meat grinder of a January, putting the pedal to the metal in February, and dodging the raindrops of March, the model-trading portfolio of the Mad Hedge Fund Trader has posted a year-to-date gain of 10%.

We have generated profits for followers every month this year, and are now a mere 4.75% short of a new all time performance high.

Mad Day Trader, Jim Parker, and myself have performed like tag team wrestlers, delivering winners for our paid subscribers one right after the other. Some 12 out of my last 14 Trade Alerts have been profitable.

I managed to nail the collapse in the euro (FXE), (EUO) big time, backing that up with profitable long positions in the S&P 500 (SPY), the Russell 2000, and Gilead Sciences (GILD).

When the markets turned jittery, I coined it with short positions in Alcoa (AA), QUALCOM (QCOM) and AT&T (T).

Only a premature long in oil (LINE) and a short in Treasuries (TBT) have scarred my numbers so far this year.

Jim has been on an absolute hot streak in 2015, shaking the Bull Run in biotechs for all it is worth (ZIOP), (THRX), (ZTS) and executing some perfectly times shorts in oil (USO).

This is compared to the miserable performance of the Dow Average, which is up a pitiful +2% during the same period.

The nearly four and a half year return of my Trade Alert service is now at an amazing 162.4%, compared to a far more modest increase for the Dow Average during the same period of only 51%.

That brings my averaged annualized return up to 38.2%. Not bad in this zero interest rate world. It appears better to take on some risk and reach for capital gains and trading profits, than surrender to the paltry fixed income yields out there.

This has been the profit since my groundbreaking trade mentoring service was first launched in 2010. Thousands of followers now earn a full time living solely from my Trade Alerts, a development of which I am immensely proud.

What saved my bacon this month was my instant and accurate decoding of Fed chairman Janet Yellen?s cryptic comments on the future of possible interest rate hikes, or the lack thereof.

We got to eat our ?patience? and have it too.

Wall Street gets so greedy, and takes out so much money for itself, there is now nothing left for the individual investor any more. They literally kill the goose that lays the golden egg.

The Mad Hedge Fund Trader seeks to address this imbalance and level the playing field for the average Joe. Looking at the testimonials that come in every day, I?d say we?ve accomplished that goal.

It has all been a vindication of the trading and investment strategy that I have been preaching to followers for the past seven years.

Quite a few followers were able to move fast enough to cash in on my trading recommendations. To read the plaudits yourself, please go to my testimonials page by clicking here.

Watch this space, because the crack team at Mad Hedge Fund Trader has more new products and services cooking in the oven. You?ll hear about them as soon as they are out of beta testing.

Our business is booming, so I am plowing profits back in to enhance our added value for you.

The coming year promises to deliver a harvest of new trading opportunities. The big driver will be a global synchronized recovery that promises to drive markets into the stratosphere by the end of 2015.

Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011, 14.87% in 2012, and 67.45% in 2013, and 30.3% in 2014.

Our flagship product,?Mad Hedge Fund Trader PRO, costs $4,500 a year. It includes?Global Trading Dispatch(my trade alert service and daily newsletter). You get a real-time trading portfolio, an enormous research database and live biweekly strategy webinars. You also get Jim Parker?s?Mad Day Trader?service and?The Opening Bell with Jim Parker.

To subscribe, please go to my website, ?www.madhedgefundtrader.com, click on the ?Memberships? located on the second row of tabs.

By the way, those of you who ran up huge profits with your euro shorts in January and February, and the overnight killing I scored with the Russell 2000 (IWM) this week, you all owe me new testimonials.

Ship em in!

Oh, and buy the way, there is no gold in Fort Knox. That is why Nixon took us off the gold standard in 1973. And the aliens did land at Roswell. Where do you think my iPhone and Tesla came from?

Looking for the Next Great Trade

March 23, 2015/by Mad Hedge Fund Trader

A Note on the Friday Options Expiration

Diary, Free Research, Newsletter

We have several options positions that expire on Friday, and I just want to explain to the newbies how to best maximize their profits.

These include:

The Currency Shares Japanese Yen Trust (FXY) February $84-$87 vertical bear put spread

The Gilead Sciences (GILD) February $87.50-$92.50 vertical bull call spread

The S&P 500 (SPY) February $199-$202 vertical bull call spread

My bets that (GILD) and the (SPY) would rise, and that the (FXY) would fall during January and February proved dead on accurate. We got a further kicker with the two stock positions in that we captured a dramatic plunge in volatility (VIX).

Provided that some 9/11 type event doesn?t occur today, all three positions should expire at their maximum profit point. In that case, your profits on these positions will amount to 13% for the (FXY), 19% for (GILD) and 20% for the (SPY).

This will bring us a fabulous 5.58% profit so far for February, and a market beating 6.11% for year-to-date 2015.

Many of you have already emailed me asking what to do with these winning positions. The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck and pat yourself on the back for a job well done. You don?t have to do anything.

Your broker (are they still called that?) will automatically use your long put position to cover the short put position, cancelling out the total holding. Ditto for the call spreads. The profit will be credited to your account on Monday morning, and he margin freed up.

If you don?t see the cash show up in you account on Monday, get on the blower immediately. Although the expiration process is now supposed to be fully automated, occasionally mistakes do occur. Better to sort out any confusion before losses ensue.

I don?t usually run positions into expiration like this, preferring to take profits two weeks ahead of time, as the risk reward is no longer that favorable.

But we have a ton of cash right now, and I don?t see any other great entry points for the moment. Better to keep the cash working and duck the double commissions. This time being a pig paid off handsomely.

If you want to wimp out and close the position before the expiration, it may be expensive to do so. Keep in mind that the liquidity in the options market disappears, and the spreads substantially widen, when a security has only hours, or minutes until expiration. This is known in the trade as the ?expiration risk.?

One way or the other, I?m sure you?ll do OK, as long as I am looking over your shoulder, as I will be.

This expiration will leave me with a very rare 100% cash position. I am going to hang back and wait for good entry points before jumping back in. It?s all about getting that ?buy low, sell high? thing going again.

There are already interesting trades setting up in bonds (TLT), the (SPY), the Russell 2000 (IWM), NASDAQ (QQQ), solar stocks (SCTY), oil (USO), and gold (GLD).

The currencies seem to have gone dead for the time being, so I?ll stay away.

Well done, and on to the next trade.

Pat Yourself on the Back

February 20, 2015/by Mad Hedge Fund Trader

The Market?s Technical Outlook is Terrible

Diary, Newsletter

At yesterday morning?s opening bell, we were greeted with the unmistakable evidence the stock market is technically breaking down.

The Dow Average has broken its three-year upward sloping trend line. Market leading sectors, like Consumer Discretionary and Financials have all put in eminently convincing ?Head and Shoulders? tops (click here). More distressingly, the head and shoulders for lead sector Technology has already broken down. Check out all the charts below.

I quickly ran my expiration P&L this morning. I figured out that if I sold all my longs for small profits (SPY), (IWM), and kept all my short positions (FXY), (T), (AA), I would be up 4.43% year to date by mid February, which in this environment is nothing less than heroic. The exception to the analysis is my sale of Linn Energy (LINE), which will be the subject of my next piece.

For more detail on why this is happening, read today?s letter, ?The Great American Rot is Ending? by clicking here).