The continuing collapse in oil prices has finally spilled over into the real world, at its worst knocking 290 points off of the Dow Average yesterday.
Traders who grew accustomed to a market that went up like clockwork every day were in for a rude awakening. Is the positive case for equities coming to an end?
Is the bull dead?
Not yet. All we are seeing is a normal 5%-7% correction in a long-term uptrend. It?s really all about the numbers, as it always is.
American companies are still on tract to increase earnings by 10% in 2015, and S&P 500 earnings are set to reach $130. Technology and innovation are hyper accelerating. Our energy costs have been cut in half, creating a giant tax cut. The world still wants to send its money here.
Goldilocks is still alive and well, just momentarily hiding under the bed.
Yes, it?s another buying opportunity.
This time, however, it?s different.
Oil has gone down so fast, some $46, or 43% in a scant six months that it has set the cat among the pigeons within the producing countries. The decline has been so precipitous that the budgets of oil producing countries from Saudi Arabia, to Russia, to Norway, have taken a real walloping. What else would you expect when your principal revenue source suddenly halves?
The plunge caught the producers totally by surprise. So to meet budget shortfalls, they are having to raise cash from their sovereign wealth funds. Some 15 of the world?s 20 largest sovereign wealth funds are run by oil producing countries.
To raise money, they are having to sell off investments, primarily stocks, and especially energy stocks. That is one of the few industries they actually understand.
This all means that the selling should dry up going into yearend, once budgetary requirements are met. If the price of oil stabilizes here at $61, or heaven forbid, starts to rise, then their selling of stocks completely ceases.
The bull market returns.
After suffering through a Trade Alert drought that has lasted more than a month, there are finally some nice trades setting up. I?m thinking specifically about the S&P 500 (SPY), energy (OXY), (XOM) and Solar stocks (SCTY), (FSLR), (VSLR), and even a chance to get back into the front-runners, technology (XLK) and biotech (BBH). Europe is also finally starting to look enticing.
Finally, the economy is starting to deliver the blockbuster numbers that I have been predicting all year.
The 321,000 gain in the November nonfarm payroll on Friday wasn?t just good, they were fantastic, truly of boom time proportions. It was the best report in nearly three years. The headline unemployment rate stayed at 5.8%, a seven year low.
It vindicates my ultra bullish view for the US economy of a robust 4% GDP growth rate in 2015. It also makes my own out-of-consensus $2,100 yearend target for the S&P 500 a chip shot (everybody and his brother?s target now, but certainly out-of-consensus last January).
There has been a steady drip, drip of data warning that something big was headed our way for the last several months. November auto sales a 17 million annualized rate was a key piece of the puzzle, as consumers cashed in on cheap gas prices to buy low mileage, high profit margin SUV?s. The Chrysler Jeep Cherokee, a piece of crap car if there ever was one, saw sales rocket by a mind-boggling 60%!
It reaffirms my view that the 40% collapse in the price of energy since June is not worth the 10% improvement in stock indexes we have seen so far. It justifies at least a double, probably to be spread over the next three years.
It also looks like Santa Claus will be working overtime this Christmas. Retailers are reporting a vast improvement over last year?s weather compromised sales results. A standout figure in the payroll report was the 50,000 jobs added by the sector. This is much more than just a seasonal influence, as FedEx and UPS pile on new workers.
The market impact was predictable. Treasury bond yields (TLT) spiked 10 basis points, the biggest one-day gain in four years. My position in the short Treasury ETF (TBT) saw a nice pop. Unloved gold (GLD) got slaughtered, again, cratering $25.
Stocks (SPY) didn?t see any big moves, and simply failed to give up their recent humongous gains once again. A major exception was the financials (XLF), egged on by diving bond prices. My long in Bank of America (BAC) saw another new high for the year.
All in all, it was another good day for followers of the Mad Hedge Fund Trader.
To understand how overwhelmingly positive the report was, you have to dive into the weeds. Average hourly earnings were up the most in 17 months. The September payroll report was revised upward from 256,000 to 271,000, while October was boosted from 214,000 to 243,000.
Professional and business services led the pack, up a whopping 86,000. There are serious, non minimum wage jobs. Job gains have averaged an impressive 278,000 over the last three months.
The broader U-6 unemployment rate fell to 11.4%, down from 12.7% a year ago. Most importantly, wage growth is accelerating, and hours worked are at a new cyclical high.
In view of these impressive numbers, it is unlikely that we will see any substantial pullback in share prices for the rest of 2014. For that, we will have to wait until 2015.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/12/Rosie-the-Riverter.jpg353306Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-12-08 09:28:162014-12-08 09:28:16The November Nonfarm Payroll Report is a Game Changer
Any doubts that my bullish call on global risk markets would play out as promised were blown away on Friday.
That was when the central banks of China and Europe delivered a surprise, one two punch of monetary stimulus for their own troubled economies. The quantitative easing baton has successful been passed from America?s Federal Reserve to central bankers abroad.
The net net for you and I is that stocks and the dollar will continue to appreciate.
Specifically, China came out of the blue with a 0.4% interest rate cut, thus stimulating the world?s largest emerging market.
Then the European Central Bank?s president, Mario Draghi, said he would take whatever steps necessary to return the continent to a 2% inflation rate, up from today?s 0.40%. Unbelievably, Spanish ten-year bond yield fell below 2% in a heartbeat and German ten year funds pierced 0.80%.
For good measure, the Japanese central bank then chimed in, boosting the country?s money supply growth by 33% as promised earlier. Saying is one thing, but doing it is much better, especially when it carries a radical tinge.
The measures make my 2,100 target for the S&P 500 by the end of December a pretty safe bet. Look for a tedious, prolonged sideways grind, followed by rapid headline driven pop. Easy entry points will be few.
It really is one of those ?Close your eyes and buy? type of markets. I doubt we get pullback of less than 3% in the major indexes this year. Volatility will remain muted. All the black swans of landed.
It gets better.
This kind of market action could continue for another three years. After the ?Great Recession?, we are now witnessing the ?Great Recovery?. That means returning to a 3% or better GDP growth rate and 10% annual corporate earnings increases.
Add in 2% a year in dividend yields, and you get a (SPY) that rises by 10% a year. Look at the 100-year average gain for stocks and it comes in remarkably close to this number. Factor in an earnings multiple increase from the current 16, and they will rise faster.
This is all Goldilocks on steroids. Interest rates, the cost of labor, energy, and commodity price inputs stay low, earnings rise, and everybody else in the world sends their money here because it is the best bet going.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/08/John-Thomas-Beach-e1416856744606.png400276Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-11-25 01:05:412014-11-25 01:05:41The Yearend Melt Up Has Started!
Those of you who recently purchased the Mad Hedge Fund Trader?s mentoring service may have noticed a sudden drop off in Trade Alerts.
During October, I sent out a record 44 Alerts and Updates. As a result, that month was my best of the year, bringing in a gain of 6.69%. This month, only 5 Trade Alerts have gone out.
What gives?
I assure you, I have not been basking in the sun on a yacht in the Caribbean. Nor have I been catching the end of the ski season on New Zealand?s South Island. I have not even taken off on a hundred mile snowshoe across the High Sierras (that is not scheduled until Thanksgiving week).
No, I?m afraid that I have to tell you that the problem has been the market. I like to focus on sending out Trade Alerts that have an overwhelming chance of success. The fundamentals, the technical?s, the sun, moon, and stars all have to line up perfectly.
When they don?t, I don?t trade. It?s called maintaining discipline. The same is true for my friend, Mad Day Trader, Jim Parker. Sometimes, the best trades are the ones you think about, but never do, because your models say ?Stay away!?
When I ran my big hedge fund during the 1990?s I developed a perfect leading indicator. It was based my own clients? cash flows. When money poured in, it reliably signaled a market top. When it flowed out, it presciently indicated a market bottom.
It made absolutely no difference what my own performance was. If I was up 40% on the year, and the stock market dove 10%, investors wanted their money back?and now! No excuses, no explanations.
When investors wanted to redeem, I bought them out with my own money. Eventually, over the years, I ended up owning the entire hedge fund, which I then sold at a big premium at the market top to a group of foreign investors.
The closing date was January 1, 2000, four months before the beginning of the Great Dotcom crash. People told me I was stupid for four months?then I never heard from them again, except to occasionally see their resumes put in front of me by hopeful headhunters.
I am seeing the same sort of behavior in the newsletter business. Market surges bring in large numbers of new subscribers, who then expect immediate gratification in the form of a ton of Trade Alerts. At market bottoms the PayPal account goes completely dormant.
If I met new subscriber expectations, I would create a perfect money destruction machine, one that mechanically buys tops and sells bottoms. That is a great way to buy a spanking brand new mega yacht for your broker, but not for yourself.
So what should you expect from the Mad Hedge Fund Trader? To get buried in Trade Alerts when conditions are ideal, and sit on your hands when they aren?t.
That is when you?re supposed to be reading those deep, insightful research pieces that I send you every day, and drawing up short lists of things to do when the call to action arises. Chance rewards the prepared.
Keeping you out of a high risk/low return market is a far more valuable service that I can provide than tying you to a low risk/high return one.
Hint: Just because you bought a new subscription to the Global Trading Dispatch doesn?t mean that trading conditions have suddenly become ideal.
If you have to wait for an entire market cycle for the sweet spots to start appearing in large numbers, that is the best way to protect and expand your wealth. Market discipline is the most valuable thing I can teach you.
With all that said, let?s talk about the markets.
This is a particularly tricky place for traders. The lowest risk day of the year to buy stocks was October 15. Since then, the risks have increased daily. We are now at the top of one of the extended runs in market history. Should we throw caution to the wind and buy with reckless abandon?
Hell no!
So maybe we should consider flipping to the short side?
We have just entered the six-month period when stocks are traditionally the strongest. You can add to this big upward influence the end of the year run up.
In fact, I think we will close 2014 at the high of the year. Looking at the way the Volatility Index (VIX) is trading, it could be another three years before we see another full 10% correction.
So I don?t think that selling short any risk asset is a good idea here either.
That leaves us the small weekly 1%-2% mini corrections we have been getting to get involved with on the long side. But since we are running into the annual book closing, you have to use tight stop losses to protect your investment.
The high frequency traders all know this, and will program their algorithms to trigger as many stop losses as possible before reversing markets. That?s how I lost my long vertical call spread in Alibaba (BABA) this year, for a -2.38% hickey.
This is why I wrote in the Trade Alert that short term traders should sell, but long-term investors should hold. I think the stock is going to $140 next year.
Long-term investors have no problem. My fundamental economic call remains unchanged. Analysts and investors alike are underestimating the strength of the US economy.
Almost every data point confirms my convictions. Everyone else is shocked, befuddled, and bemused. Not me.
So, this bull market could continue for three or more years, and all they need to do is take an extended cruise when the markets suffer their periodic corrections.
This is why those owning the deepest discount Vanguard index funds have outperformed both active and hedge fund mangers for the third year running.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/11/Golfer.jpg430320Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-11-21 01:04:592014-11-21 01:04:59Trade Alert Drought Explanation and My Market Take
?Be Fearful When Others Are Greedy, and Greedy When Others Are Fearful.?
That is one of my favorite quotes from Oracle of Omaha, Warren Buffet, and it was never more true than during the past 30 trading days.
It turns out that the lowest risk day to buy stocks in 2014 was October 15, when we saw a giant, capitulation, spike low in the S&P 500 (SPY) down to $182.
That was the most fearful day I can recall over the last three years. You wouldn?t believe how many people I begged not to sell out entire portfolios that day!
So where are we now with the markets? Go back to the beginning of that legendary quote, and the word ?fearful? really stands out.
That means traders are stuck right back in the uncomfortable position in which they have spent most of this year.
Do I try to play catch up here and chase the market for a few extra basis points of performance, even at the risk of enduring another calamitous selloff? Or do I sit here in cash and earn precisely zero and get fired at the end of the year?
It is a choice that would truly vex Salomon. But as a king, at least he had job security.
We are now entering the tag ends of 2014, with only 36 trading days left, including three half days. I think it is safe to say that the trends that have predominated since January 1 will continue. Expect markets to continue to over reward risk takers and over punish risk avoiders.
That means there are only three trades in the world to execute:
1) Buy the US Dollar
A yield advantage for the greenback is sucking in capital from all over the world. Concerns about principal risk is a further driver, creating a ?flight to safety? of prodigious proportions. Thanks to the collapse in energy prices and a ramp up in US domestic production, dollar outflows from America are at decade lows.
This can only mean that we are at the beginning of a multi year bull market in the buck. Sell short the Japanese yen (FXY) and the Euro (FXE), and buy the 2X short yen ETF (YCS), and the 2X short Euro ETF (EUO).
2) Buy US Stocks
The majority of US portfolio managers are still underweight stocks and are desperately trying to get in. Now that the 10% correction is finally behind us, they can afford the luxury of being more aggressive loading up on the dips.
The midterm elections, which saw the Republicans take control of the Senate with a seven seat gain, is a new turbocharger for equities. Congress is now seen as pro business. Since the stock market tripled and corporate profits rocketed with an anti business elected body, imagine how well they will do with a friendly one!
I was hoping for the Senate results to get tied up in runoffs and the courts for a couple of months, triggering a 5% market correction and an opportunity to load the boat once more. It was not to be. What is left for us now is to see the (SPX) grind up to close the year at a 2100 all time high.
Who will be the sector leaders? The usual suspects who have led the charge all year, technology, health care, and financials.
3) Sell Short All Commodities
It is truly impressive to see the entire commodity space collapse all at the same time. This includes oil, natural gas, gold, silver, copper, corn, wheat, soybeans, and the commodity producing currencies of the Australian and Canadian dollars.
They have all been hard hit with a perfect storm; overwhelming supply of product, a strong dollar, and weak demand caused by a slowing global economy. The story is the same everywhere.
Commodity collapses always last longer and deeper than you imagine possible because you cannot turn off production by simply flipping a switch, as you can with the paper assets of stocks and bonds. Cutting off supplies means freezing capital spending worth hundreds of billions of dollars spread over decades, no easy task.
So, before you purchase a hard asset of any kind, lie down and take a long nap first. And please stop emailing me asking if this is the bottom for all of the above. It isn?t.
4) Sell All Bonds
There is a fourth secular trend that began exactly on October 15, right after the market opening. The ten year Treasury bond (TLT) hit a yield of 1.86%. This is a secondary low in yields, high in prices, after the 1.39% yield we saw in 2012. This means we are now two years into a 30-year bear market for all fixed income securities.
However, don?t expect a crash like we saw during the 1970?s, when yields soared up to 13%. Expect a slow grind up in interest rates, often spending 3-6 months in tedious, narrow, sleep inducing ranges.
This makes your entry points on the short side important. Only buy the short Treasury bond ETF (TBT) on substantial dips, lest hair starts growing on the position.
There is one other alternative if you have been following the Trade Alerts of the Mad Hedge Fund Trader all year.
Quit trading and take the rest of the year off. Start your Christmas shopping early. Contribute to retail sales and the national GDP. You earned it. The 42% profit you have earned so far is of heroic proportions.
https://www.madhedgefundtrader.com/wp-content/uploads/2011/10/johnthomas00.png378251Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-11-07 01:04:292014-11-07 01:04:29How to Trade the Rest of 2014
Those who woke up early Friday morning may be forgiven for blinking at their screens quite a few times.
The Japanese yen (FXY), (YCS) was down by an incredible 3%, the Dow Average futures were trading at an all time high of $17,400, and the S&P 500 was just short of a new peak at $202.
The Japanese stock market blasted 5% to the upside, taking the Wisdom Tree Japan Hedged Equity ETF (DXJ) up a staggering 8%.
Was this a trick or treat?
It only took a few seconds for me to learn that this was all in reaction to bold moves announced by the Bank of Japan overnight. In one fell swoop, they boosted their target for monetary expansion this fiscal year from Y60 trillion to Y80 trillion, an instant gain of 33%, or $200 billion.
Prorate this number for the difference in out two nations? GDP?s, and that is like the Federal Reserve announcing a new $700 billion monetary stimulus program out of the blue. Quantitative easing is not dead. The baton has merely been passed from the US to Europe and Japan.
The bottom line for us? Asset prices everywhere go higher.
Of course, readers of the Mad Hedge Fund Trader knew all this was coming.
While taking profits yesterday on my Japan yen put spread, I cautioned holders of the ProShares Ultra Short Yen ETF (YCS) to hang on because the beleaguered Japanese currency was headed much lower.
Those who did so were richly rewarded with a one-day pop of $4.50 overnight to $79.50, an all time high.
Parsing through the BOJ statement, it?s clear that these spectacular, once a decade moves were justified.
When the Japanese government implemented a poorly conceived tax increase in April, the BOJ sat on its hands.
After sleeping through most of the year, the hand of Japanese central bank was finally forced by simultaneous weakness in Europe. It is now implementing the Fed QE policy lock, stock, and barrel, given the proven excellent results here in the US. They are only five years late!
An even bigger blockbuster was another announcement made by Japan?s government controlled Pension Investment Corp. that it was totally reshuffling its massive $1.2 trillion investment portfolio.
It is doubling its allocation to international equities from $150 billion to $300 billion. Given the dire conditions in Europe, you can count on most of that money going into the US stocks. That explains our gap up in the (SPX) this morning, and a similar move down in bonds (TLT), (TBT).
Here is their new Model Portfolio:
Domestic Bonds 35% Domestic Stocks 25% International Stocks 25% International Bonds 15%
Total 100%
The net effect of all of this is to effect an epochal move out of bonds and into stocks, and also to increase international investments at the expense of domestic ones.
I believe this is the beginning of a prolonged world-wide investment trend.
The bottom line for us traders here is that the Japanese action opens up the possibility of an entire ?RISK ON? leg upward. This is occurring on top of one of the sharpest legs up in market history.
All of a sudden, my yearend target of $2,100 for the S&P 500 is firmly back on the table. If you have any outstanding short positions on your books, it is better to cover them at the earliest opportunity.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/10/Risk-e1414788138459.jpg201400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-11-03 01:06:022014-11-03 01:06:02Japanese Yen Melts Down to 12-Year Low!
Her red Tesla is parked in the driveway, her potted plants are back on the balcony, and the closet is once again filled with designer shoes.
Goldilocks is back!
It?s not like she was ever going to be gone for long. Once a woman of a certain maturity gets accustomed to the lifestyle of the rich and famous, it?s hard to give up the better things in life.
However, there were some doubts.
When the Dow Average opened down 400 points on October 15, a gigantic capitulation move saw $70 billion worth of stock sold at market at the absolute low of 15,850, and a spectacular 315 million shares of the S&P 500 ETF (SPY) were unloaded.
One might have thought that Goldilocks had changed her name and moved into a nunnery for good.
It was not to be.
The rally that ensued off of that print was one of the most ferocious in history. After having cleaned out hedge fund trader longs on the downside, the market then ripped their faces off on the upside.
It has not been a good year for hedge funds. It has been a fantastic year for high frequency traders, with September the most profitable month in the history of this arcane, computer trading strategy.
As for me, I never had any doubt that Goldilocks was coming back. As I miraculously pound into my followers on a daily basis, it?s all about the numbers. It?s always about the numbers.
The strength of the economy is such that the sudden 10% swoon we witnessed was in no way justified. All that was really required was that an extreme overbought condition in stocks we say six weeks ago be remedied. Now that is done, it is up, up, and away.
Corporate earnings obliged, with an eye-popping 80% delivering upside surprises. Corporate earnings are now growing at a robust year on year 11% annual rate.
Instead of focusing in on Ebola, Russia and ISIS, traders are now looking at improving Purchasing Managers Indexes in both Europe and China. The Middle East has gone quiet. There were even rumors, later quashed, of an extended quantitative easing for the US.
The European Central Bank announced the results of its bank stress test, and guess what? Almost everyone passed! Only 12 banks need to raise $12 billion in new capital.
Of course, this was never more than a window dressing exercise designed to make us all feel warm and fuzzy about the beleaguered continent.
It worked!
Capital spending also remains robust for the first time in eight years. But I think most analysts are missing the reason why this is happening. It is too late for companies to add capacity for this economic cycle.
They are instead building factories now to accommodate demand for the next economic and financial boom in the early 2020?s, when the stiff demographic headwind created by the baby boomers flips to a brisk tailwind provided by the Gen Xer?s.
The true 800-pound gorilla on the trading landscape these days is the price of oil, which broke the $80 handle yesterday morning. As with every move by every financial instrument everywhere, the more it goes down, the more dire the forecasts become. The savings in energy costs at this level amount to $12,000 per family per year. Do the math.
$10 a barrel? Really?
I think it is safe to say, like interest rates, energy prices will stay lower for longer than anyone imagines possible. So add another 1% to US GDP growth this year, next year and the one after that.
When the stock market figures this out, new highs will follow, probably before year end.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/10/Goldilocks.jpg337131Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-10-28 09:12:302014-10-28 09:12:30Goldilocks is Back!
The talking heads on TV have been working overtime speculating on where the worst move down in the stock market in three years will take us.
It all may sound like intelligent prognosticating to you.
As for me, I know they are guessing.
So I shall share with you my ten benchmark indicators that you can closely track to decide for yourself whether stocks are headed for perdition, or are soaring skyward once again.
1) Ten year Treasury bond yields start to rise, and break out above 2.30% (they are now at 2.18%).
2) The US dollar begins to appreciate once again, taking the Euro ETF (FXE) below $125.
3) Inflation expectations start to rise in Europe. Watch the monthly CPI numbers out of France and Italy, which have recently been negative.
4) Fed funds futures start to rise from near zero.
5) The price of crude oil stabilizes. Watch Brent, which will have the sharpest move up once recovery begins.
6) The small cap index, the Russell 2000 (IWM), starts to outperform the S&P 500 (SPY) on the upside. Smaller companies led the retreat on the downside, and should lead a new recovery as traders like me cover shorts (I already have).
7) Cyclical stocks, like airlines (DAL) outperform defensive stocks like soap and shampoo makers (PG) we already captured this with a (DAL) Trade Alert.
8) The junk bond market (HYG) starts to appreciate.
9) The macro data stream delivers a series of positive numbers.
10) People quit talking about the market bottom, and start opining about the next market top.
As you have probably figured out buy now with my flurry of recent Trade Alerts, I am leaning towards the probability that the bottom for stocks is already in. It?s all about oil.
I spent my weekend running numbers on the impact that cheap energy will have on the economy, and they are truly staggering. I list a few points below:
1) If oil stays down in this area, it will deliver a savings of $12,000 per family in gasoline, heating bills (being from California, I have only heard about these) and electricity.
2) The increased spending this will generate will add 1% to US GDP growth next year, as the cost of energy is pervasive through all industries, either directly, or indirectly.
3) This amounts to a $1.1 trillion stimulus package for the US economy, larger than the one we got in 2009. Think of it as a QE 4.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/10/Infrared-Picture.jpg296400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-10-21 01:05:192014-10-21 01:05:1910 Signs of a Market Bottom
I have an arrangement with several large hedge funds where they pay me a small fortune every month for the privilege of calling me one day a year.
Wednesday was that day.
It was a day when the $20 billion hedge fund waited on hold while I got off the phone with the $100 billion hedge fund. And that?s not including urgent calls from the White House, the office of the Joint Chiefs, and the Federal Reserve.
Of course, no one needs to tell these guys how to chew gum. They were interested to know if they were missing anything.
The advice I gave them was very short and simple: ?Keep your eye on the economic data, and ignore everything else.?
You can palpably feel the tension when enduring crisis like these. The Internet noticeably slows down. Transatlantic and Transpacific phone lines get clogged up. Traffic on our website, www.madhedgefundtrader.com, rises tenfold.
So do plaintive emails from followers, everyone of which I attempt to answer quickly. To save time, I will give a generic answer to all of you in advance: ?No, it is not time to stop out of your ProShares Ultra Short 20+ Treasury Bond ETF (TBT) position at the $46 handle.? We are at a multiyear peak in bonds, and this is absolutely not the place to puke out. That?s why I always keep my positions small.
You have to allow room for markets to breathe and still be able to hang on when it goes against you. It is also nice to have the dry powder to double up.
I know some of you are suffering from sleepless nights, so I?ll make it easy for you. We have hit bottom for the year. This is the best time in three years to buy stocks, just in case you forgot to load up at any time since 2011. Ditto for bonds on the sell side.
Earnings started coming out last week, and many companies have been delivering blockbuster reports, as I expected. Over all, I think we can expect total S&P 500 earnings to rise by $11.
This means that, given the market?s recent 10% plunge, stocks are now selling at 12.5 X 2015 earnings. That is a rare bargain. It is a chance to buy shares at 2011 valuations. Don?t blink and miss it.
The big driver hasn?t been the Ebola virus, the risk of which has been wildly exaggerated by the media, but the collapse of the price of oil.
I think we got very close to a bottom of the entire move this morning when we tickled $80. I take North Dakota fracking pioneer John Hamm?s view: If this isn?t the bottom, it is close, and wherever the bottom, we will race right back up to $100 sometime next year on China?s insatiable demand.
That means you buy stocks right now.
For a fuller explanation of the fundamentally bullish argument for the stock market, please click here?10 Reasons Why the Bull Market is Still Alive?.
Now Is the Time to Have a Gunslinger Working on Your Behalf
https://www.madhedgefundtrader.com/wp-content/uploads/2014/10/John-Thomas-Young-Man-Armed-e1413493245303.jpg400282Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-10-17 01:05:252014-10-17 01:05:25The Bottom Building Process Has Begun
Well, so much for the 200 day moving average! It?s like that girlfriend who has been ferociously loyal for the last year, and suddenly she is busy every weekend and never returns phone calls.
Not that this ever happens to me. Ahem.
I knew there would be trouble when the perma bulls on TV told me the market would bounce hard off this inviolable line in the sand, with the (SPX) at 1,905. I cut my bullish equity positions by two thirds on the first market rally and never looked back.
For proof that you still make beginner mistakes after 45 years in the business, take a look at how I handled my Tesla (TSLA) position last week. Elon Musk teased us all with his ?D? tweet two weeks ago, and the stock levitated magically while all other momentum stocks were being mercilessly thrown overboard.
?Women and traders? first comes to mind.
Did I sell into the rumor and capture the 80 basis point profit I had in hand? Nope. I held on until yesterday morning and bailed after a $40 plunge in the stock, taking a 1.62% hit.
This happened while the rest of Texas was coming down with Ebola Virus. I fall victim to the bout of over confidence whenever my Trade Alert success rate exceeds 90%, as it recently has done. I start to believe my own research, always a fatal flaw.
Fortunately, I?m still running double shorts in the S&P 500 (SPY) and the Russell 2000 (IWM) to hedge these losses. The ?Hedge? in ?Mad Hedge Fund Trader? is a well-earned one, I assure you.
You would think I would get hate mail for making such a stupid mistake. Au contraire! Readers thanked me for pulling the plug so quickly and with all humility. It appears that when most other newsletters put out a bad call they develop a sudden case of amnesia, leaving their customers to thrash about in bloody, shark-invested waters on their own.
Not here!
So, should we be burning up the Internet trunk lines with frenzied clicks to unload our long-term stock portfolios?
I think not. Here are ten reasons why I believe the bull market in shares is still alive and well:
1) Stocks are selling at only 14 X 2015 earnings, in the middle of the historic range.
2) The $23 plunge in oil prices we have enjoyed over the last five months amounts to a gigantic tax cut for the world economy, and could add a full 1% to US GDP growth, which has essentially come out of nowhere. Saudi Arabia told us today that this could go on for another year. Remember, it is our oil that is crushing prices.
3) The Christmas selling seasons is setting up to be a strong one, thanks to a friendly calendar and renewed consumer confidence. This is why retailers and credit card companies like American Express (AXP) have been reviving.
4) The November 4 midterm elections are still a big unknown for the market to discount. The next day could signal the beginning of the yearend bull market.
5) I think we are seeing the final blow off top in the bond market. A reversal would be very stock friendly, especially for financials (BAC).
6) Mergers and acquisitions are continuing at a torrid pace. This is happening because companies see each other as cheap, not expensive, and usually happens at market bottoms.
7) Those who aren?t merging are buying their own stock back with both hands, like Apple, at a staggering $400 billion annualized rate.
8) Volatility spikes (VIX) also signal market bottoms (see chart below). We are nearing another top with the closely followed indicator closing at $24.64 today, a high for the past two years.
9) Capital spending is accelerating, not only in technology, but across most other industries as well. This is why the IMF boosted its growth forecast for America next year to 3.8%, and that is probably a low number.
10) Ever heard of ?Sell in May and Go Away?? Well, ?Buy in November and stay put? is also true. That is only weeks away. October is usually the worst month of the year to sell and is not the path to untold riches.
The big question now is how much additional pain we have to suffer before the promised turnaround occurs.
My colleague, Mad Day Trader Jim Parker, went over his screens with a fine tooth comb and came up with $1,846 and $1,810 for the (SPX). Similarly, NASDAQ could trade down to the $3,700-$3,800 range.
My personal favorite is on the calendar, the Midterm elections on November 4. Whatever the outcome, we could see an upside explosion that lasts for six months, once thus unknown disappears. Not only could this make your year in 2014, but 2015 as well.
And I already know who is going to win! It is gridlock, whether the Democrats control one House of congress, or none!
https://www.madhedgefundtrader.com/wp-content/uploads/2014/03/John-Thoms-Black-Swans-e1413901799656.jpg337400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-10-14 09:48:062014-10-14 09:48:0610 Reasons Why the Bull Market is Still Alive
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