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Please Stand By forJohn Thomas
Wednesday, March 6, 2013, San Francisco, CAGlobal Trading Dispatch
The Webinar will begin at 12:00 pm EST
The Mad Hedge Fund Trader“The Great Yawn of 2013”
Diary of a Mad Hedge Fund Trader
San Francisco, March 6, 2013
www.madhedgefundtrader.com
MHFT Global Strategy LuncheonsBuy tickets at www.madhedgefundtrader.com
2013 Schedule-Updated
April 12 San FranciscoApril 19 ChicagoJuly 2 New YorkJuly 8 London, EnglandJuly 12 Amsterdam, Neth.July 16 Berlin, GermanyJuly 18 Frankfurt, GermanyJuly 25 Portofino, ItalyAugust 1 Mykonos, GreeceAugust 9 Zermatt, Switzerland
MHFT Global Strategy LuncheonsBuy tickets at www.madhedgefundtrader.com
ChicagoApril 19
San FranciscoApril 12
Trade Alert PerformanceAnother all time high
*January +16.75% Dow +6.9% (2.4X) February +10.13% Dow +0.57% (18X) March +0.93%
*2013 YTD +27.8%, compared to 8.2%for the Dow, beating it by 19.6%
*First 114 weeks of Trading +82.9%*Versus +16.4% for the Dow AverageA 66.5% outperformance of the index110 out of 157 closed trades profitable
70% success rate on closed trades
Portfolio Review-Balancing Out Longs and Shorts, Volatility collapse causing options premiums to shrink,
increasing risk and reducing returns of option spread strategyMaximum return if nothing happens
Asset Class BreakdownRisk Adjusted Basis
current capital at risk
Risk On
(SPY) 3/$140-$145 call spread 30.00%(IWM) 3/$82-$86 call spread 20.00%(F) 3/$11-$12 call spread 10.00%
Risk Off
(FXY) 3/$110-$115 put spread -20.00%
total net position 40.00%
1234
Strategy Outlook-sitting on my handsrun all existing positions to March 15 expiration
*Too late to buy, too early to sell
*Volatility is too low to sell, but may go lower
*Capitulation top in stocks now underway
*Roll forward short yen position on any 2 point pop in (FXY)
*Can’t establish put spreads in (SPX) or (IWM) as long as upside breakout underway
*Only add very deep OTM call spreads with room for a 10% correction
*Single stocks too risky because of greater volatility
Performance Year to Date- +27.8%Biggest Performance Burst Since Launch
12/31/1
2
1/2/1
3
1/4/1
3
1/6/1
3
1/8/1
3
1/10/1
3
1/12/1
3
1/14/1
3
1/16/1
3
1/18/1
3
1/20/1
3
1/22/1
3
1/24/1
3
1/26/1
3
1/28/1
3
1/30/1
3
2/1/1
3
2/3/1
3
2/5/1
3
2/7/1
3
2/9/1
3
2/11/1
3
2/13/1
3
2/15/1
3
2/17/1
3
2/19/1
3
2/21/1
3
2/23/1
3
2/25/1
3
2/27/1
30.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Series1
Performance Since Inception-Gone Hyperbolic+37% Average Annualized Return
12/8/1
0
1/7/1
1
2/6/1
1
3/8/1
1
4/7/1
1
5/7/1
1
6/6/1
1
7/6/1
1
8/5/1
1
9/4/1
1
10/4/1
1
11/3/1
1
12/3/1
1
1/2/1
2
2/1/1
2
3/2/1
2
4/1/1
2
5/1/1
2
5/31/1
2
6/30/1
2
7/30/1
2
8/29/1
2
9/28/1
2
10/28/1
2
11/27/1
2
12/27/1
2
1/26/1
3
2/25/1
30.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
Series1
The Goldilocks Economy-Not too hot, not too cold-95% of data points positive with no inflation
*Global synchronized recovery in play*FEB US car sales +3.7% YOY to 15.4 million
*Sequestration bluff is called, -0.25% GDPonly big military states affected20% for VA and MD versus 2% for NY
*Europe IFO Index jumps from 104.3 to 107.4
*Jan non defense cap spending +6.3%FEBRUARY CHICAGO PMI 55.6 TO 56.8
*CPI YOY 1.6% = Goldilocks
*Q4 GDP update from -0.1% to +0.1%
*China February PMI 52.3 down to 50.44 month low
Weekly Jobless Claims-22,000 plunge to 344,000 is very market positive
Bonds-More of the Same*Ben Bernanke says he may never sell treasurieswill keep the $3.5 trillion he has until maturity
*Smart money is shortening duration and de-riskinggreat reallocation into stocks is from cash, not bonds
*Sending money abroad looking for non UScorrelated yield curves
*$85 billion a month in bond buyingis still huge support
*New 10 year Treasury range is 1.80%-2.50%
*Sell every substantial rally in Treasuries,corporates, and municipals
(TLT)
Short Treasuries (TBT)See the 1:4 reverse Split—5% annual cost of carry
Municipal Bonds (MUB)-3% yield,Mix of AAA, AA, and A rated bonds
(JNK)-chase for yield continues
Stocks-1,600 Not Looking so “Mad”*Drift up at multiyear highs is incredibly bullish,the dip that never comes
*Too many investors frozen out of themarket by the rapid market move
*Speed gave individuals a big advantage
*M&A Boom is creating equity shortage,takeover at triple 2012 levels
*Heinz, AA-US Air, and Comcast deal took $53 billionin stock out of market, today its Office Depot/Office Max
*Earnings multiples expanding faster than fundamentals, always ends in tears. Setting up the 2013 top-don’t forget to sell “Sell in May, and go away”, Part 5
Welcome to Fair Value2009 low was a 2X event
*Traditional bear market market drops 25% GDP falls -2% lasts 1 year
*2007-2009 bear market market fell 57% GDP dropped 4.6% lasted 18 months
*Today GDP growing 2% (SPX) earnings of $100 Multiple 15X, versus 9-22 historic range, so overvaluation is nextbut interest rates at 0%, govt. running $800 bil deficit, so higher before lower
Dow Average
(SPY)-Long the 3/$140-$145 call spread
Long 3/$155-$158 put spread
(SPX)-The 30,000 viewFail here
Trading Market Tops-(SPX) H1, 2012
Long Call
Spreads
Long PutsandPut
Spreads
Long Put spreadsand
Call Spreads
VolatilityCollapses
The Next TradeMarch $155-$158 Bear Put Spread, roll out to
April $158-$161 and May $161-$164*Profits in at all price points below $158 by April 19,or 32 trading days
*Profits in modestly rising, sideways, or falling market
*Mitigates some downside risk
*10% weighting =($0.30 X 100 X 37) = $1,110, or 1.11% for the notional $100,000 model portfolio, 100% = 11.1% a month
*Could be our core trade March-August
*We are closer to the top of the four year move than the bottom
(QQQ)-Finally Waking Up?Awaiting a rotation-Apple stopped going down, others up
(VIX)-Dying a slow deathheaded for the 9% handle
(AAPL)-dead in the water,putting in a bottom
(BAC)-Buy the Dip
Ford Motors (F)-the bottom is inlong the 3/$11-12 call spread
Russell 2000 (IWM)Long the 3/$82-$86 call spread
Shanghai-Still on Fire
China (FXI)
Japan Nikkei-up 30% since October
(DXJ)-the only way to play Japan-Nikkei with hedged yen
Y150 targets (DXJ) at $80, up 100%
Welcome Back King Dollar!
*Our position weathers an intraday, four handle move from $104 to $108,is the way to manage low volatility markets, the prudence of not chasing
*Dollar strength spreads to Euro and sterling
*Haruhiko Kuroda appointed new BOJ governor appointment Yen breaks down to ¥94.60, new 3 year low Gives nod to ¥120/$ Yen breaks to new low on Euro/Yen and Ausie/Yen crosses
*Is the start of a multiyear run to ¥150
*UK debt downgraded from AAAAusterity is not working, sterling craters.
*These trends will continue with only minor blips
Long Dollar Basket (UUP)
Euro (FXE)Looking for a $1.38 top
Australian Dollar (FXA)Commodity Bust Hits Ausie
Japanese Yen (FXY)-worth the chaselong (FXY) 3/$110-$115 in-the-money bear put spread
use any yen strength to roll over into April
(YCS)-break to new high
Energy-Commodity Bust Hits Oil
*Acceleration of the US economy is the main driver
*Spill over into China demand
*Volatility has collapsed thanks to new balance
*Rising gasoline prices could add 0.5% to CPI
*Commodity weakness has spilled over into oil
*Natural gas stuck in narrow range
Crude
(USO)
Natural Gas
Copper (CU)-Demonetization risk could cap movesChina growth rate may cap at 8%, not 13%, so slow grind up
Precious Metals-Ouch!
*Technical picture looking terrible
*Capitulation sell off below $1,500 setting up
*Who needs inflation hedge during deflation?
*Monetary expansion still flat suddenlyaccelerated, but gold still dead
*Only platinum and palladium held upby car industry
Monetary BaseWeekly December, 2011 to Feb, 2013
Gold
200Day MA
Silver
(Platinum) (PPLT)
Palladium (PALL)
Ford Motors (F)-the bottom is in53% move from October
long the 3/$11-12 call spread
The Ags-A bounce at last
*Corn finally bounces after worst move in 50 years,trend is still down
*High prices are curing high prices
*Awaiting next spikeup or down to tell us what to do
*All the action is long cotton orshort coffee
*Too many other things to do now
(CORN)
Soybeans (SOYB)
DB Commodities Index ETF (DBC)
Real Estate-the bounce continues*Jan Existing home sales -1.2% to +0.4%,pending home sales +4.5%
*Case Shiller up 5.9% YOY top 10 cities,3 month old data
*Inventories still an overhang
*Biggest price gains in worst hit markets +23% Phoenix +14% Detroit +13% Las Vegas
*New York and Chicago are the weakest
Real Estate-don’t touch the housing stocks-the risk/reward is terrible
Biggest Bounces YOY
Phoenix, Arizona 24.2%Boise City, Idaho 17.2%San Jose, California 16.8%Detroit, Michigan 14.4%Las Vegas, Nevada 14.2% Oakland, California 14.0% North Port, Florida 12.9% Cape Coral, Florida 12.7% San Francisco, Ca. 12.6%
(ITB)-US Home Construction Dow Sub index
Trade Sheet-No Change“RISK ON” has returned big time
*Stocks- buy the dips, running to a new high*Bonds- sell rallies under a 1.90% yield *Commodities-stand aside until global sell off ends*Currencies- sell yen on any rallies*Precious Metals –stand aside, wait for rebirth*Volatility-stand aside, will bounce along bottom*The ags –has gone dead, low priority*Real estate- rent, don’t buy
To buy strategy luncheon tickets Please Go towww.madhedgefundtrader.com
Next Strategy Webinar Wednesday, March 20, 2013
Good Luck and Good Trading!