The Mad Hedge Fund Trader“Waiting for Mario”
With John Thomasfrom San Francisco, CA
January 21, 2015www.madhedgefundtrader.com
MHFT Global Strategy LuncheonsBuy tickets at www.madhedgefundtrader.com
Honolulu, HawaiiApril 3, 2015
Portfolio ReviewRunning a Big New Year Book Mostly Hedged
current capital at risk
World is Getting BetterRisk On
(TBT) short Treasury ETF 10.00%(LINN) units 10.00%(GILD) 1/$85-$90 call spread 10.00%(IWM) 2/$107-$112 call spread 10.00%(BAC) 2/$16-$17 call spread 10.00%(OXY) 2/$70-$75 call spread 10.00%
World is Getting WorseRisk Off
(AA) 2/$17-$18 put spread -10.00%(FXE) 2/$122-$124 put spread -10.00%(FXE) 2/$120-$122 put spread -10.00%
total net position 30.00%
Trade Alert PerformanceFour Year Anniversary!
*January MTD -2.50%
2014 FINAL +30.31%, versus 7% for the Dow
*First 214 weeks of Trading +152.8%!
Paid Subscriber Trailing 12 Month Return +22.2%
49 Months Since Inception Averaged annualized +36.8%
Strategy Outlook-Deflation is the New Driver
*Super weak oil and strong cancels the Christmas and New Year rallies, prompts global “RISK OFF” and profit taking, but the end is near
*Oil fell so fast that it is creating global systemic risks and uncertainty watch out for the unintended consequences (Texas housing, North Dakota jobs)
*Swiss franc shock further destabilizes the global trading system
*ECB announces QE of E$50 billion/month ofbond purchases for one year
*Multiple crisis bring gold back to life
*Grains in winter hibernation, a neutralUSDA January report
The Jim Parker ViewThe Mad Day Trader-On sale for a $1,500 upgrade
Technical Set Up of the week-Stuck in range until ECB on Thursday
Buy
Biotechs on dips (IBB)grains trying to bottom (JJG)gold on dips over $1,300 (GLD)
Sell Short
(FXE) too risky, $116.70 in cash triggers big rally(USO) if breaks oil $45.80
Avoid
Bonds (TLT) , could go higher
The Global Economy-Is America Slowing?
*Spate of weak US data prompt recession fears. There is no recession on the horizon, but you have to let the fears work their way through the market first
*Data is mixed, December PPI is a deflationary -0.3%, +1.1% YOY, December Philly Fed 24.5 to 6.3, December industrial production -0.1%, but January consumer sentiment jumps from 94.4 to 98.8, a ten year high, but market is only looking at negative data
*US dollar is rocketing, Euro is crashing, prompting concerns about foreign earnings
*We have to survive the collapse of the oil industry first, now 10% of the stock market
*Greek elections setting up another “RISK OFF” day
*Overnight 20% increase in Swiss franc interest andprincipal a new burden in Europe
Weekly Jobless Claims - The trend is your Friend+19,000 to 316,000
Bonds-Reaching a CrescendoGunning for 1.36%
*All Fixed Income are Putting in Blow Off Tops
*German ten year bunds at 0.45% are dragging down yields globally, JGB’s at 0.19%, and Swiss hit -0.4%, negative for the first time in history anywhere
*US 10 Year Treasury poised to test record low 1.36% yield set in 2012, (TBT) aiming at $37 handle
*Fed not to raise interest rates until 2016, reinforced by oil and bond yield crashes
*Deflation is here to stay
*Momentum may favor bonds for a few more months
Ten Year Treasuries (TLT) 2.00%The Trend is Your Enemy
Ten Year Treasuries ($TNX) 1.70%
30 Year Treasury Yield ($TYX)-Yield 2.40%Ditto Here
Junk Bonds (HYG) 5.09% YieldThe New Lead Contract
2X Short Treasuries (TBT) stopped out of a 10% long position-Potential move to $37
Investment Grade Corporate Bonds (LQD)3.05% Yield
Emerging Market Debt (ELD) 5.20% Yield
Municipal Bonds (MUB)-2.62% yield, Mix of AAA, AA, and A rated bonds
Stocks-A Buyable Dip is Close
*This is another 5%-10% correction, not a new bear market, if bonds make a run to 1.36%, it will be 10% more than 5%
*Outbreak of global uncertainty has stock buyers sitting on their hands
*This is creating a great entry point for 2015 for the best non oil sectors, like technology, health care, and solar
*Economic data is modestly weakening, giving fright of a potential slowdown
*58% of companies beating top line estimates (revenues)88% beating bottom line (profits)
*Bond rally has demolished financials
*China bans new margin lending for 3 monthsto cool market, market crashes 8%
S&P 500-Targeting 1,900?
Dow Average-Targeting 16,800?
NASDAQ (QQQ)-
Europe Hedged Equity (HEDJ)-Demolished by Russia
(VIX)-Setting up a Triple top
Russell 2000 (IWM)-Poised for a Breakoutlong 2/$107-$112 vertical bull call spread
Technology Sector SPDR (XLK), (ROM)
Industrials Sector SPDR (XLI)
Health Care Sector SPDR (XLV), (RXL)
Financial Select SPDR (XLF)-Demolished by bonds
Consumer Discretionary SPDR (XLY)
Apple (AAPL) –
Bank of America (BAC)-long 2/$14-$15 vertical bull call spread
two roll downs in one week
Alcoa (AA)- 12/$17-$18 vertical bear put spread
Gilead Sciences (GILD)- took profits on the 2/$85-$90 vertical bull call spread
AT&T (T)-long 2/$35-$37 vertical bear put spread
China (FXI)-
Japan (DXJ)-Hedged Japan Equity
Emerging Markets (EFA)-Biggest Beneficiaries of Cheap Oil-Go figure
India (EPI) –Biggest Beneficiary of Cheap Oil
Russia (RSX)
Foreign Currencies-Diverging Sharply
*Swiss National Bank ends Euro cap, prompts immediate 20% revaluation of the Swiss Franc against the Euro, sparks new round of Euro selling
*Euro (FXE) hits new 12 year low against greenback
*European court rules that QE is legal, paves the way for a new Euro leg down
*Oil industry collapse is weighing on Loonie
*Aussie hits new four year low on collapsing commodities and weaker growth, iron ore meltdown
*Emerging currencies in free fall
Currency of the Week
Euro ($XEU), (FXE), (EUO)Targeting $105, and then $85
took profits on long (FXE) 2/$122-124 vertical bear put spreadtook profits on long (FXE) 2/$120-122 vertical bear put spread
Long Dollar Index (UUP)New Four Year High
British Pound (FXB)-
Japanese Yen (FXY)- Global ‘RISK OFF” Means cover yen shorts
Short Japanese Yen ETF (YCS)
Australian Dollar (FXA) –New Four Year Low
Chinese Yuan- (CYB)
Emerging Market Currencies (CEW)Dragged down by commodities collapse
Energy-The New Subprime Crisis
*Bottom is here, or close, I don’t see the $30 handle
*Crude and product inventories through the roof, up by an amazing 11.50 million barrels last week
*A big cleanout of the industry is underway, with weaker players going under or taken over
*Oil carry trade is back on, 20% annual returns to buy spot, sell one year forward, and put into storage, a boom in old tankers
*Don’t expect a rapid bounce back,winding down 15 years of leverage accumulation
From 6.5 to 2.5 Million Barrels/day in 6 Years
Crashing Rig CountsFrom 1,650 to 1,350 rigs in 3 Months
Oil-Trying to Find a Bottom
United States Oil Fund (USO)
Energy Select Sector SPDR (XLE)
MLP’s (LINE) 13% Yield-Capitulation Sell Offlong a 10% Position, yielding 13% after a 47% dividend cut
Exxon (XOM)
Occidental Petroleum (OXY)stopped out of the 2/$70-$75 vertical bull call spread
Conoco Phillips (COP)
Natural Gas (UNG)-
Copper-
Freeport McMoRan (FCX)-New Lows
Precious Metals-A Bear Market Rally
*Flight to safety finally finds gold
*If you can’t hide in the Swiss franc, what else is left? Unreliability of SNB has made SF a higher risk currency
*Charts starting to put in a convincing, multi month bottom, setting up a trading rally
*Check out the new long gold/short yen ETF (GYEN) and the long gold/short Euro ETF (GEUO)
*Gold is pulling up silver as well
*Best potential is in the Miners (GDX) and Barrack Gold (ABX)
Gold-A More Convincing Bottom
Barrick Gold (ABX)-
Market Vectors Gold Miners ETF- (GDX)No Friends
Silver (SLV)-
Silver Miners (SIL)
Agriculture
•*Oil collapse is having a major positive impact on the profitability of all Ag sectors, fuel, fertilizer, distribution
*The flipside is that ethanol prices are collapsing on lower gasoline prices, inventories up from 17.5 to 20.20 million barrels
*Extreme cold weather boosting winter kill rates in the Midwest
*US grain now the world’s most expensive, thanks to strong dollar
*Volatility has gone out of the market, January USDA report was neutral, look elsewhere for better trades
*Focus on 2015, but it will be another record crop withoutextreme weather
•
(CORN) –
(SOYB)-
Ag Commodities ETF (DBA)
Real Estate-Looking Soft, But Better Next Year
*Ultra low 3.89% 30 year interest rates cause mortgage applications to pop 49% last, refi’s soar by 66%, and jumbo refi’s to rocket 400%
*Price cut on mortgage insurance by Obama is another boost
*Homebuilders getting hit with sudden collapse of entry level Texas market
*October S&P Case Shiller shows 4.5% YOY price gains in 20 cities
*December wage hike could finally give real estate the spur it needs.
October S&P/Case–Shiller Home Price Index+14% YOY down to +4.5%, Still Slowing
KB Homes (KBH)27% fall in 2 days on weak Texas sales
US Home Construction Index (ITB)
Trade SheetSo What Do We Do About All This?
*Stocks- buy the dips, with technology and health care leading, we’re running to new highs*Bonds- stand aside, its gone crazy*Commodities-stand aside until global economy recovers*Currencies- sell every Euro rally forever, and the yen too*Precious Metals –there may be a short term trade here*Volatility-is peaking, get ready to sell*The Ags –stand aside until next season*Real estate- stand aside, the dead cat bounce is done
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Good Luck and Good Trading!