the mad hedge fund trader “the one way market” with john thomas from san francisco, ca december...
TRANSCRIPT
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The Mad Hedge Fund Trader“The One Way Market”
With John Thomasfrom San Francisco, CA
December 3, 2014www.madhedgefundtrader.com
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Portfolio ReviewRunning a Small Low Risk Book at the Top of a Massive Move
Adding to longs on small Dips
World is Getting Better
Risk On
(TBT) short Treasury ETF 10.00%
(BAC) 12/$15-$16 call spread 10.00%
(SCTY) 12/$47.50-$52.50 call spread 10.00%
(LINN) units 10.00%
World is Getting Worse
Risk Off
total net position 40.00%
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Trade Alert PerformanceFour Year Anniversary!
*January Final +3.05%, *July Final +4.18% *February Final +6.41%, *August Final 5.86%*March Final -2.52% *September Final 5.01%*April Final +3.32% *October Final 6.69%*May Final +4.61% * November Final -1.26%*June Final +4.24%
2014 YTD +40%, versus 8% for the Dow
*First 208 weeks of Trading +162.5%!
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Paid Subscriber Trailing 12 Month Return +47.9%
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48 Months Since Inception Averaged annualized +40.4%
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Strategy Outlook-Risk Back On
*Now its Europe’s turn for “shock and awe,” with ECB’s Draghi saying he will “do what he must” to boost Euro inflation from 0.40% to 2.0%
*China in with a 0.40% overnight interest rate cut.
*Stocks deliver new all time highs right on schedule, Look for a slow grind up in stocks leading into a year end rally, volatility to stay low
*Commodities, oil, gold, silver, base metals, and foreign currencies all plumping new lows
*The bond top is in, but prices to grind sideways for the indefinite future
*The transportation crisis finally gave the grains a low
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The Jim Parker ViewThe Mad Day Trader-On sale for a $1,500 upgrade
Technical Set Up of the week-Chase the Winners!
Buy
*Everything that’s up, “top fishing”*like energy names (XOM), (DIG), (COP), (OXY)*Gold may have put in a tradable bottom*Banks, bonds just topped again
Sell Short
*everything that’s down
Avoid *Grains, too technical for mere mortals
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The Global Economy- Still a US Story
*Gasoline still falling nationally, is a huge surprise stimulus/tax cut, positive impacts still wildly underestimated by investors, is worth a doubling of stocks, not the 10% move seen so far
*Almost all US data points coming in stronger than expected, pointing to a stronger economy next year, November auto salesblow out to the upside as buyers rush towardslow mileage models, JEEP up 60%!
*US GDP revised up from 3.5% to a red hot 3.9% ramping up to a 4% growth rate in 2015, Philly Fed Index rockets to 40.8, strongest read in 21 years
*Japanese debt downgrade yields a “ho hum”, takes yen to new lows
*China interest rate cut extended global stimulus
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Weekly Jobless Claims - The trend is your Friend+21,000 to 313,000, still hugging 14 year lows!
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Bonds-Twin Peaks?
*Treasury bonds put in a secondary peak last week, may test lows going into year end
*Quantitative easing is over in the US, but is reborn in Japan and the US, German bond yields fall below 0.80%!
*Look for the ten year Treasury yield to break to a new 2.30%-2.60% range and then stay there for a long time
*Take profits on (TBT) when the ten year yield hits 2.60%
*Sell off in junk bonds means that risk is rising
*Fed not to raise interest rates until 2016.
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Ten Year Treasuries (TLT) 2.30%A Secondary Top?
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30 Year Treasury Yield ($TYX)-Yield 3.04%Ditto Here
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Junk Bonds (HYG) 5.68% YieldThe New Lead Contract
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2X Short Treasuries (TBT) 10% long position-Cost of Carry 45 basis points a month-Avoid options
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Investment Grade Corporate Bonds (LQD)3.49% Yield
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Emerging Market Debt (ELD) 3.57% Yield
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Municipal Bonds (MUB)-2.85% yield, Mix of AAA, AA, and A rated bonds
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MLP’s (LINE) 15.90% Yield-Capitulation Sell Offlong a 10% Position
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Stocks-Slow Motion Melt up Continues
*The rally was so fast, most managers were left behind, $11 trillion in cash sitting under the market
*32 trading days above the 5 day moving average, the longest run since 1928
*Market has fallen during the November to April period only one time in 30 years
*Now dealing with the same problem we have faced for most of the year: do we buy at the market top?
*US corporate profits looking to gain another 10% in 2015
*Maybe another 25 points in (SPX) to 2,100 by yearend
*Long term investors now bottom fishingenergy names
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S&P 500
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S&P 500-Superheated
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Dow Average-New Highs
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NASDAQ (QQQ)-
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Europe Hedged Equity (HEDJ)-Drinking the ECB Kool-Aid
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(VIX)-Is saying no 10% correction for 3 years!
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Russell 2000 (IWM)-Poised for a Breakout
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Technology Sector SPDR (XLK), (ROM)
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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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Consumer Discretionary SPDR (XLY)
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Energy Select Sector ETF SPDR (XLE)
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Apple (AAPL) – Getting Overheated
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Google (GOOGL)-Relaunch Postponed
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Bank of America (BAC)- 11/$15-$16 vertical bull call spread-run to expired at maximum profit
long the 12/$15-$16 vertical bull call spread-2 weeks to expiration
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Alibaba (BABA)-stopped out of the 12/100-$105 call spread
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Solar City (SCTY)-long the 12/$47.50-$52.50 vertical bull call spread-2 weeks to expiration
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China (FXI)-China modernizes financial system with the introduction of
certificates of deposit, on the path to a free float of the YUAN
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Japan (DXJ)-Hedged Japan EquityYen Collapse Brings New Life
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Emerging Markets (EFA)-Getting a Boost from Cheap Oil
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India (EPI) –Biggest Beneficiary of Cheap Oil
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Foreign Currencies-New Lows!
*Mario Draghi’s latest blast crushes Euro, more to come, Italian ten year yields fall to 2.23%
*Snap Japanese elections in December bring a further collapse of the yen
*Aussie hits four year low on collapsing commodities and weaker growth, iron ore meltdown
*Sterling still weak
*Emerging currencies in free fall
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Euro (FXE)-Taking a rest on yearend profit taking
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Long Dollar Index (UUP)New Four Year High!
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British Pound (FXB)-
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Japanese Yen (FXY)- No FriendsNew Seven Year Low!
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Short Japanese Yen ETF (YCS)
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Australian Dollar (FXA) –New Four Year Low
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Chinese Yuan- (CYB)China modernizes financial system with the introduction of
certificates of deposit, on the path to a free float of the YUAN
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Emerging Market Currencies (CEW)Dragged down by commodities and rising US interest rates
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Energy-
*OPEC meeting brings no production cuts and the fastest price falls in history
*US imports from OPEC hit 30 year low
*Expect financial crisis in Russia, Venezuela, Nigeria, and trouble in Canada
*Long term players moving in to scoopup MLP’s for double digit yields
*Don’t expect a rapid bounce back,winding down 15 years of leverage accumulation
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Oil-Trying to Find a Bottom
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Oil 10 Years-Approaching 5 year support at $70
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United States Oil Fund (USO)
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Exxon (XOM)
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Occidental Petroleum (OXY)
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Conoco Phillips (COP)
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Natural Gas (UNG)-
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Copper-
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Freeport McMoRan (FCX)-New Lows
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Freeport McMoRan (FCX)-10 Year View
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Precious Metals-A Bear Market Rally
*Still trading like death
*No demand for metals in a disinflationary world
*Referendum on Swiss national gold overwhelmingly fails, triggers new leg down in prices
*No room for gold in a disinflationary world
*Still targeting $1,000
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Gold-Another Bear Market Rally Gone
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Barrack Gold (ABX)-New Lows
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Market Vectors Gold Miners ETF- (GDX)No Friends
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Silver (SLV)-New 5 Year Lows
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Silver Miners (SIL)
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Agriculture
•*Transportation crisis is providing support under market
*Collapse of Russian Ruble gives the huge price advantage in international markets
*Strong dollar hurting US sellers, will get worse
*Volatility has gone out of the market, look elsewhere for better trades
*Focus on 2015, but it will be another record crop withoutextreme weather
•
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(CORN) –
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(SOYB)-Not Much of a Rally
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Ag Commodities ETF (DBA)
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Real Estate-Looking Soft*October existing home sales up a strong 1.50%
*October new home sales a soft 0.7%, pending home sales (signed contracts) down -1.1%, inventory up 5% YOY
*Tight credit, increasing supply, less competition from all cash institutional home buyers
*Big just in median price from $264,00 to $305,000
*Foreclosures rising again, Mortgage volumes falling, despite record low interest rates
*Underwater houses, still 25% of the market,are still weighing on prices, as sellers get outat even
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May S&P/Case–Shiller Home Price Index+14% YOY down to +4.9%, Still Slowing
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US Home Construction Index (ITB)
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Trade SheetSo What Do We Do About All This?
*Stocks- buy the dips, with Financials, technology and health care leading, we’re running to new highs*Bonds- sell rallies across all fixed income, the end is here*Commodities-stand aside until global economy recovers*Currencies- sell every Euro rally forever, and the yen too*Precious Metals –stand aside until the $1,000 bottom is in*Volatility-stand aside, the peak is in*The Ags –stand aside until next season*Real estate- stand aside, the dead cat bounce is done
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To buy strategy luncheon tickets Please go to:
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Next Strategy Webinar 12:00 Wednesday, December 17, 2014 Live from San Francisco, CALast webinar of the year!
Good Luck and Good Trading!