[Ed.note: John Thomas, The Mad Hedge Fund Trader is one of today’s most successful Hedge Fund Managers and a 40 year veteran of the financial markets. He has one of the best performing newsletters and has just launched a new investment service for Investors and Traders – Mad Hedge Technology Letter.]
Other than that, Mrs. Lincoln, how was the play?
I thought I’d never see a 1987 crash again. But my problem is that I lived too long.
Welcome to the first flash crash of 2018, and probably not the last. And here’s the really good news. It’s not over!
The Volatility Index (VIX) traded in the aftermarket at $53 the DOW ($INDU) reached an intraday low of over 6%, up 36% from the close. The Short Volatility ETN was at $93 and trading after hours down to $16!
Clearly a major short (VIX) player has gone bust, triggering a forced liquidation and rapid underwind in the aftermarket. We’ll find out who in a couple of days.
This could market the top of the (VIX) and the bottom in stocks once we endure one more horrific opening.
When looking for the guilty party in the mass murder, you have to vote for “All of the above.”
The president declassified a memo, despite the FBI announcing in advance that it was false, prompting foreign concerns of an American right wing coup ‘d etat. He preceded this with a State of the Union address which could have been lifted from George Orwell’s 1984.
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Notice that every selloff started with a big share dump from Europeans concerned about American political risk. Gee, I can’t believe I’m saying that.
Fed governor Janet Yellen, the greatest stock market booster of all time, retired on Friday. Markets have a history of greeting new Fed governors with a slap in the face.
The yield on the ten-year Treasury bond yield popped 45 basis points to 2.85% in a month, taking away the punch bowl for many highly leveraged traders.
Then the January Nonfarm Payroll Report revealed the highest wage growth in many years, unleashing inflation fears.
And what about all those share buy backs, a major prop to the market? Sorry, they ain’t happening baby, not during the earnings quiet period. Apple shareholders will just have to wait for $270 billion in buying to hit the market.
The Bitcoin crash, from $20,000 to $6,000, as it destoyed a lot of wealth in the financial system.
While you can’t swing a dead cat without hitting a victim of the Dow Average’s 2,800-point, 10.5% decline, there were several winners.
ETF’s traded remarkably well, except for the above noted volatility plays. There were no forced liquidations into penny bids, as we saw with the last flash crash.
I went into the meltdown with a 50% cash position, and 50% in hedged spreads in options. I then cut all my higher risk positions right after the Monday opening, when the market was briefly up. A brilliant move.
It’s clear the swift pace of upward movement in bond yields, which you can notice by the cratering of the iShares 20+ Year Treasury Bond ETF (TLT), set forth this distinct, ferocious crash.
It looks like the harder I work, the luckier I get.
To show you how crazy things got, Yahoo mail was up and down all day, the Interactive Brokers platform regularly crashed every ten minutes, and the data inputs for the Mad Hedge Market Timing Index froze when it hit 40.
When the dust settles, we will be set up for the best buying opportunity of 2018. The market price earnings multiple has just fallen from 19X to 16X, and it may be at 15X before it is all over.
It is hard to imagine that institutions left behind by the January melt down will ignore this opportunity.
The best thing you can do now is to make lists of stocks to buy at the bottom, focusing on the premier technology names. Recent research names provided by the Mad Hedge Fund Trader would be a good place to start.