the mad hedge fund trader “’the alibaba correction” with john thomas from san francisco, ca...
TRANSCRIPT
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The Mad Hedge Fund Trader“’The Alibaba Correction”
With John Thomasfrom San Francisco, CA
September 24, 2014www.madhedgefundtrader.com
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Trade Alert PerformanceStill Another New All Time High!
*January Final +3.05%, *July Final +4.18% *February Final +6.41%, *August MTD 5.86%*March Final -2.52% *September +0.94%*April Final +3.32%*May Final +4.61%*June Final +4.24%
2014 YTD +30.45%, versus 3% for the Dow,an outperformance of 26%
*First 185 weeks of Trading +152.95%!
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Portfolio Review- The Correction is Here!
current capital at risk
Risk On
none 0.00%
Risk Off
(FXE) 10/$128-$130 put spread -10.00%(IWM) 11/$117-$120 put spread -10.00%
total net position -20.00%
Expiration P&L+34.26%
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Trailing 12 Month Return +51.8%%
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44 Months Since Inception-50 BP Short of All Time High
+152.95%, Averaged annualized +39.8%
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Strategy Outlook-Risk is Still On
*Global bonds certainly peaked last week on ECB move
*Alibaba brought “RISK OFF” move across asset classes
*Now Alibaba is looming over global capital markets, triggering $20 billion in reallocations
*Initial ECB QE fails, warning of more to come
*Strong US dollar demolishing commoditiesacross the board, including gold, silver, oil, metals, and the ags
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The Jim Parker ViewThe Mad Day Trader-On sale for a $1,500 upgrade
Technical Set Up of the week
Buy *The dollar in any form
Sell Short – *all foreign currencies*Oil above $92.60*Treasury bonds higher up
Avoid –*Emerging markets blowing up*Precious metals, too low to short
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The Global Economy-QE is Breaking Out All Over
*Fed is having to over stimulate the US to offset new weakness in Europe and Japan
*QE cut by $15 billion a month, to end next month
*August CPI at -0.20% means deflation has arrived!
*US Q2 GDP growth at 4.2% is hotter than hot, may get revised up more!
*August University of Michigan Consumer Sentiment leaps from 82.5 to 84.6
*China launches its own QE, adds $81 billion in liquidity to 5 largest banks, cuts short term interest rates
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Weekly Jobless Claims-The trend is your Friend-36,000 to 280,000, Touching new 14 year lows!
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Bonds-Welcome to the new range
*Highs for the year were certainly put in for for Europe and the US last month, welcome to the new 2.40%-2.60% range for ten year Treasuries
*QE cut by $15 billion a month, to end next month
*Profit taking hits (TBT)
*Fed tapers quantitative easing to zero in next month, but interest rates rises not until late 2015early 2016
*New trade of the year is to Switch out of bonds
*Huge rally in (JNK) vaporizes
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Ten Year Treasuries (TLT) 2.54%head and shoulders setting up?
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30 Year Treasury Yield ($TYX)-Yield 3.25%Inverse Head and Shoulders setting Up?
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Junk Bonds (HYG) 5.70% Yield
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2X Short Treasuries (TBT)Got Out at Cost to Buy Back Lower
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Investment Grade Corporate Bonds (LQD)3.49% Yield
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Emerging Market Debt (ELD) 3.30% Yield
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Municipal Bonds (MUB)-2.88% yield,Mix of AAA, AA, and A rated bonds
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MLP’s (LINE) 9.40% Yield-Holding Up Against Falling Oil
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Stocks-Alibaba Sucks the Oxygen out of the Market
*10 IPO’s scheduled for this week
*Alibaba doesn’t qualify for any index funds, Cayman Islands domicile
*During last two tightening cycles S&P 500 earnings rose 71%, takes us to $200/share, (SPX) to 3,420
*Corporate buy backs major driver his yeardown -27% QOQ
*77% of corporate free cash flow beingused to buy back stock in 2014
*Rising interest rates mean the next movewill be in the banks
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S&P 500
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Dow Average
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NASDAQ (QQQ)-
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Europe Hedged Equity (HEDJ)-Weak Euro Helping Stocks
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(VIX)-Probing top end of range
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Russell 2000 (IWM)-Targeting $108Long the 11/$117-$120 put spread
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Technology Sector SPDR (XLK), (ROM)Watch Out for an Apple Drag!
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Industrials Sector SPDR (XLI)
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Health Care Sector SPDR (XLV), (RXL)
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Financial Select SPDR (XLF)
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Goldman Sachs (GS) Upside Breakout
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Apple (AAPL) – We got the Run to New Highs10 million iPhone Sales in the First Weekend! $240 in parts
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Google (GOOGL)
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Stock of the Week-Alibaba (BABA)
*Don’t buy the Euphoria-Pros expect stock to fall, is why no Softbank rally, up 38% from IPO price, no money left for traders
*30 X PE multiple high for for a Chinese stock
*No dividend increases volatility
*50% of allocation to only 25 accounts, instead of thousands, create artificial demand, none for hedge funds
*Green Shoe added 15% to supply
*Can’t enter ETF’s for months or years
*Yahoo to sell to reinvigorate core business
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GT Advanced Technologies (GTAT)No Sapphire for iPhone 6
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Solar ETF (TAN)
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China-The Upside breakout is Here!
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Japan (DXJ)-Collapsing Yen Drives Upside breakout
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Emerging Markets (EEM)-Rising rates a killer
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India (EPI) –
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Foreign Currencies-King Dollar Rules!
*First tranche of Euro QE a complete failure, only 82 billion of 300 billion in offered loans taking down, so more aggressive QE to come, Draghi promising 2% inflation, up from zero-Sell Euro!
*Medium term target of $127 hit, next comes $125, $120, and eventually $1.00
*Scotland votes against independence 55-45, rallying the pound
*Yen in freefall, but over due for a bounce,sell next rally!
*Dollar hits new multiyear high on risingrates, flight to safety, and strongereconomic growth
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Euro (FXE)-The Freefall is Onlong the 10/%128-$130 put spread
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Long Dollar Index (UUP) – Euro and Yen Collapse Great for Dollar
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British Pound (FXB)The UK wins, 55-45!
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Japanese Yen (FXY)-Catching its Breath!
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Short Japanese Yen ETF (YCS)
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Australian Dollar (FXA) – Commodity Collapse Finally Bites!
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Chinese Yuan (CYB)-Only the Yuan is holding up against Uncle Buck
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Emerging Market Currencies (CEW)
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Energy-Collapse!
*Collapsing prices are forcing Russia to sell more oil to support weakening economy, accelerating the downturn
*Saudi Arabia fighting back to preserve market share, boosting production
*50 million barrel now at sea slow steaming awaiting storage
*Libyan exports resume, potentially adding 1.5 million barrels/day to global supply
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Oil- Back to Multi Year$77.50-$112.50 Range
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United States Oil Fund (USO)
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Natural Gas Futures
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Copper-It’s All About the Dollar
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Freeport McMoRan (FCX)-
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Precious Metals-The Anti Dollar Trade
*Simultaneous acceleration of quantitative easing in both Japan and Europe is very gold negative, Euro interest rate cut another nail in the gold coffin
*Although the geopolitical picture is scary, there is no spill over buying of gold
*Collapsing oil, ags and other commodities together dragging down gold
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Gold-Yuk!
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Barrack Gold (ABX)-
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Market Vectors Gold Miners ETF- (GDX)
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Silver (SLV)-Show Me the Rally
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Silver Miners (SIL)-
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Agriculture
*Perfect weather continues
*Too many farmers still waiting for a rally to sell into
*China buys 4.8 million tonnes of soybeans, now accounts for 60% of US exports
*Reserve stocks are now 24.7% of world annual consumption, an 11 year high
*Ukraine and Russia increasing acreageto boost exports and offset financial crisis
*Stand aside
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(CORN)-New Lows! Blame This on the Dollar Too!
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(SOYB)-Free Fall!
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DB Commodities Index ETF (DBC)-Double Yuk!
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Real Estate-An Autumn Revival?* Homeownership of under 30 Millennials has fallen from 44% to 36% over the past decade
*High prices pushing Institutional investors out of the market, falling from 30% to 20% to 12% of the market
*All household formation of past year has been among renters
* Homebuilder sentiment at 9 year low
*August housing starts -14.4%, permits -5.6%, existing home sales -1.8%, -5.3% YOY,new housing sales +18%, best since 1992
*Entry level buyer still a low 29%
*
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May S&P/Case–Shiller Home Price Index+9.3% down to +8.1% YOY
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(ITB)-US Home Construction Dow Sub indexpositive data is feeding into stocks
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Trade Sheet-keep positions small, better not to trade at all
than pursue marginal trades
*Stocks- buy the dips, but keep size small, with tech leading*Bonds- sell rallies across all fixed income, the top is in*Commodities-stand aside*Currencies- sell every Euro rally forever, and the yen too*Precious Metals –stand aside, buy the next bottom*Volatility-stand aside, range is too small*The Ags –wait for the final flush*Real estate- stand aside
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To buy strategy luncheon tickets Please Go towww.madhedgefundtrader.com
Next Strategy Webinar 12:00 Wednesday, October 8, 2014, Live from San Francisco, California
Good Luck and Good Trading!