The Mad Hedge Fund Trader “Getting Indigestion” With John Thomas San Francisco January 22, 2014 www.madhedgefundtrader.com

Trade Alert Performance Maintaining Momentum, but Cutting Back Risk *2013 Final +67.45%, compared to 26% for the Dow, beating it by 41.45% *January MTD +5.78%, versus -1% for Dow *First 162 weeks of Trading +128.3% *Versus +47% for the Dow Average An 83% outperformance of the index 9 out of 9 closed trades profitable in 2014 100% Success Rate in 2014

Portfolio Review-Reassessing risk waiting for next capitulation day in a modest correction current capital at risk Risk On (SFTBY) shares long 20.00% Risk Off (T) 2/$35-$37 put spread -10.00% total net position 10.00% Expiration P&L +6.74% YTD

2014 Performance +5.78% Since 2013 +73.23

37 Months Since Inception +128.3%, Averaged annualized +41.26%

Auckland, New Zealand February 12 Sydney, Australia February 14 MHFT Global Strategy Luncheons Buy tickets at www.madhedgefundtrader.com Auckland, New Zealand February 12 Sydney, Australia February 14

Melbourne, Australia February 20 Brisbane, Australia February 22 MHFT Global Strategy Luncheons Buy tickets at www.madhedgefundtrader.com Melbourne, Australia February 20 Brisbane, Australia February 22

Strategy Outlook-Buy the Dips, Risk On Lives *Bull market in risk assets continues well into 2014, but are now vastly over extended, take short term profits *Time to reassess, reduce risk *Bonds testing bottom of new range at 2.80% *Yen oversold, needs to consolidate a big move down *Don’t catch the falling knife in gold, the world wants paper assets, bottom isn’t in yet *Emerging markets still unloved, but may bottom soon, will be a rotation play *Commodities looking very cheap, must do well this year

The Global Economy-Ramping Up *Global synchronized recovery still the play for 2014, the US, Europe, China, and Japan all grow together for the first time since 2007 *World Bank ups forecast for global growth from 2.4% to 3.2%, with developed countries taking the lead for first time in 7 years *December nonfarm payroll on only 74,000 is an anomaly caused by weather, short calendar, expect upward revisions next month, 6.6% unemployment rate is the real number *Watch out for an Iran peace dividend *China reports Q4 GDP of 7.7%, better than expected

Weekly Jobless Claims -2,000 drop to 339,000

December Nonfarm Payroll The big anomaly, weather driven

Bonds-Another Poor Year Ahead *Bear Market continues Taper II scheduled for next week, another $10 billion cut in Fed bond buying to $60 billion a month *Most analysts targeting 3.5% yield on ten year Treasury for 2014, up from 2.95%, could spike to 4% *No Fed move on interest rates for a year *Another taper will come in the first half, but is already priced in *Sell every rally

Ten Year Treasuries (TLT) took profits in the 1/$104-$107 don’t sell into a pit

10 Year Treasury Yield ($TNX)-Yield 2.83%

Junk Bonds (HYG) 6.17% Yield

2X Short Treasuries (TBT)-Entering buy territory

Investment Grade Corporate Bonds (LQD) 3.84% Yield

Emerging Market Debt (ELD) 4.18% Yield

Municipal Bonds (MUB)-2.93% yield, Mix of AAA, AA, and A rated bonds

MLP’s (LINE) 9.60% Yield

Stocks – Indigestion Time *Still digesting the enormous gains of 2013 *Could flat line longer before the next rally *Is a temporary move, bull market resumes when year end effects end *Wait for a capitulation day to rebuild positions *Money moving from crap to quality

S&P 500 (SPX)-Begging for a Correction took profits on the 1/$173-$176 call spread

Dow Average-Down on the Year

NASDAQ (QQQ)-New 13 year Highs

Europe, Asia, Far East (EFA)

(VIX)-Dead as a Doorknob

Russell 2000 (IWM)

Apple (AAPL)-Takes a Hit on tax selling after 48% gain in 6 months took profits on the 1/$490-$520 call spread earnings on January 27

Technology Sector SPDR (XLK), (ROM) took profits on the 1/$33-$35 call spread

Cyclicals Sector SPDR (XLY), (UCC)

Industrials Sector SPDR (XLI)

Health Care Sector SPDR (XLV), (RXL)

Financial Select SPDR (XLF) took profits on the 1/$19-$21 call spread

Financial Select SPDR (XLE) took profits on the 1/$83-$86 call spread, but came out too soon

Softbank (SFTBY) – losing momentum

Gilead Sciences (GILD) took profits on the 1/$67.50-$70 call spread

Shanghai-Double Bottom setting up?

(DXJ)-Upside breakout on more aggressive monetary easing, assets up from $300 million to $12 billion in 14 months

Emerging Markets (EEM) Trapped by the commodity complex, and rising rates

Dollar-Yen is the Big Story *Successful breakdown targets ¥125 in the cash, $75 in the (FXY), will be the big foreign currency trade of 2014, again. *But needs to consolidate first *Eurozone inflation falls to 0.7% vs 2% target, Q2 & Q3 GDP 0.3% and 0.1%, so more room for interest rates cuts and a falling Euro *Ausie Central Bank Governor still talking it down, December 22,600 jobless figure kills *Euro downtrend resumes, sell rallies

Long Dollar Basket (UUP)-Ready for Takeoff?

Rising Dollar is Great for US Stocks strong greenback sucks in huge foreign inflows

Strong Dollar is Terrible for Commodities as investors flee dollar alternatives and deflation

Japanese Yen (FXY)- Consolidation of Major breakdown Next long the 1/$95-$98 put spread

Short Japanese Yen ETF (YCS)-

Euro (FXE)-Double Top in Place

Euro (FXE)- Rising Unemployment and falling inflation is bad for the Euro, leaves room for more interest rate cuts

Australian Dollar (FXA)-Talking down the Aussie again

Emerging Market Currencies (CEW)

Crude-In balance, stuck in range, no trade *Harsh east coast winter is supporting oil and natural gas *So is a global economic recovery *Geneva Iran negations overhanging the market, but is a multi year affair *Ever present new supplies of natural gas

United States Oil Fund (USO)

Natural Gas (UNG)-Another Cold weather spike

Copper-Dragged up by Improving Global Recovery

Freeport McMoRan (FCX)- 2013 Losers punished one last time

Precious Metals-Signs of a Pulse *Long term investors picking up gold for a one year play *Physical buyers still there *Emerging market central banks buying every dip *Gold miners are outperforming on upside by 2:1 *Sell the current rally, bottom is not in yet

Gold-(GLD)

Barrack Gold (ABX)-

Market Vectors Gold Miners ETF- (GDX)

Silver (SLV)-

Agriculture-A Little Government Assistance * Positive Dept of Agriculture report provides a one day respite only *New of global surpluses is everywhere *Chinese buying can’t offset supplies *Failure to rally suggests new lows *Distress selling by farmers to meet cash flow continues *US Midwestern draught is over, moved to California, water rationing is on

(CORN)-

(CORN)-

(CORN)-

DB Commodities Index ETF (DBC)- buying for a later play

Real Estate-Slowing Down *Existing home supply is increasing, while buyers are disappearing *Rising rates scaring off buyers, with 30 year fixed mortgages at 4.25% *Homebuilders prefer profitability over market share, creating new home shortages *Nothing to do here

Home Equity versus Home Mortgages another reason to own the banks

September S&P/Case–Shiller Home Price Index

(ITB)-US Home Construction Dow Sub index Not the Sector to Own in Rising Interest Rates

Trade Sheet-No Change “RISK ON” Good Through Q1 2014 *Stocks- buy the dips, but cut back size, running to a new highs *Bonds- sell rallies, trade the 2.80%-3.5% range *Commodities-start scaling in on dips *Currencies- sell yen on any rallies, buy (CYB) *Precious Metals –wait for the final flush *Volatility-stand aside, will bounce along bottom *The Ags –stay away, no trade *Real estate- no trade

Good Luck and Good Trading! To buy strategy luncheon tickets Please Go to www.madhedgefundtrader.com Next Strategy Webinar 12:00 EST Wednesday, February 5, 2014 Live from San Francisco Good Luck and Good Trading!