The Mad Hedge Fund Trader “Trading the Crash” With John Thomas from San Francisco, August 26,

Trade Alert Performance New All Time High! *January +0.53% Final *July +6.42% *February +7.73% Final *August +1.27% MTD *March +3.00% Final *April +6.62% Final *May +5.15% Final *June +3.68% Final *2015 Year to Date % compared to -8.8% for the Dow Average *Trailing 1 year return +40.1%, % since inception *Average annualized return of 40.1%

Portfolio Review Run a small book in crash conditions a very wide short strangle Expiration P&L 36.40% Mad Hedge Fund Trader Trading Book Asset Class Breakdown Risk Adjusted Basis current capital at risk Risk On World is Getting Better (SPY) 9/$171-$176 call spread10.00% Risk Off World is Getting Worse (SPY) 9/$204-$208 put spread-20.00% total net position-10.00%

Paid Subscriber Trailing 12 Month Audited Return % Ouch! Snake Bit by the Crash

57 Months Since Inception Daily Audited Performance Averaged annualized return %

10 Stocks to Buy at the Bottom Lennar Homes (LEN) $53.45 Home Depot (HD) $ Walt Disney (DIS) $98.84 General Motors (GM) $29.60 Tesla (TSLA) $ Apple (AAPL) $ Solar City (SCTY) $40.99 Gilead Sciences (GILD) $ Wisdom Tree Japan Hedged Equity (DXJ) $52.01 Wisdom Tree Europe Hedged Equity (HEDJ) $56.95

How to Trade A Crash *Shrink trading book to a single position so it’s easier to watch *Shrink your size so its small enough for you to sleep at night…. Even during a crash *Watch the (VIX) as a leading indicator *Don’t be afraid to trade, now is when risk is the lowest, don’t give up and go into hiding *Expect breakdowns everywhere, trading platforms, PC’s, and the Internet to slow down *When you buy single names, focus on quality, it is a rare chance to buy the best at a discount *Don’t even think about calling your broker, you’re on your own *Maintain discipline, let the other people panic *Now is when you define yourself as a trader, anyone can trade a bull market

Strategy Outlook- *China crash brings an American one, but there were no confirming moves in other asset classes, Beijing cuts interest rates by ¼%, but doesn’t help *The bottom may be in, but expect a retest *Oil hits the $30 handle, we may see the $20 handle before it is over *Bond market gets a flight to safety bid, which vaporizes quickly *Profit taking on King dollar returns *Economy is too strong for crash to continue, therefore, you buy stocks *Gold finally gets a “flight to safety” bid

The Bill Davis View Picks of the Week Buys: QIHOO 360 Techology (QIHU) $53.13 Target to $62.50 SolarCity Corp (SCTY) $43.75 Target to $50 Facebook (FB) $78.13 Target to $90 Keurig Green Mountain (GMCR) $50 Target to $75 Alexion Pharmaceuticals (ALXN) $156 Target to $181 Sells: 3M Co (MMM) $155 Target to $131 Wynn Resorts (WYNN) $87 Target to $81 Federal Express (FDX) $165 Target to $148 L-3 Communications (LLL) $114 Target to $106 Deckers Outdoor (DECK) $70 Target to $64

The Global Economy-Hot US, Cold Cruel World *July retail sales up a hot +0.6%, July industrial production up a dynamic +0.6%, auto production up a stunning 10.6%, housing is on fire, July durable goods up a hot 0.2% *US job creation is growing at twice the rate as the workforce, taking employment to all time highs and unemployment to decade lows *First read on Q2 GDP is a sub par 2.3%, but Q1 revised up by 0.6%, so we really got 3% in pieces, Europe still a weak 0.3%, green shoots barely there *Japan Q2 GDP drops 1.6% *Is China downshifting from 7% to 5% growth? August PMI drop from 47.8 to 47.1 causes a panic *European green shoots need fertilizer with 0.3% Q2 growth

Weekly Jobless Claims – Another Run at the Lows 4,000 to 277,000, NEW 42 YEAR LOW! headed for Full Unemployment at 5%-Global Recovery a Driver

Bonds-Flight to Safety *China crash spills into the the US Treasury bond market, bringing price spike and flushing me out of my short *Crash eliminates any chance of a Fed rate rise in September, even though the economic data say otherwise *215,000 nonfarm payroll and 5.3% unemployment rate puts a cap on any bond price rises, floor under yields *The China crash has slowed things down, with IMF and World begging for a rate hike delay, is basis for the recent 11 point rally *Junk bonds get slaughtered, touching October, 2014 low *Good time to reach for yield in energy MLP’s with oil bottom in, check out (LINE)

Ten Year Treasuries (TLT) 2.08% The down trend is in place! Sell Rallies!

Ten Year Treasury Yield ($TNX) 2.15% Testing the 1.95% Support

Junk Bonds (HYG) 6.44% Yield Big Hedge Funds lining up to short-Classic head and shoulders top

2X Short Treasuries (TBT)-Second Half Big Trade? Buy at the Dip, $41 will hold

Investment Grade Corporate Bonds (LQD) 4.27% Yield

Emerging Market Debt (ELD) 5.50% Yield- Big hedge funds lining up to sell-Identical chart to junk bonds

Municipal Bonds (MUB)-1.74% yield Mix of AAA, AA, and A rated bonds-another Puerto Rico Crisis looming

Stocks-Flash Crash Again *Monday morning opening flash crash may be the 2015 low, 18 months of stock appreciation given up in 5 minutes, retests to come, worst August since 1998 LTCM (Liar’s Poker) *Watch the stocks that bounced back the fastest, they will lead in next rally, (HD), (DIS), (AAPL), (GE), (SCTY), (NFLX) *Crash was exaggerated by Friday option expiration and low August liquidity *Stocks have gone from fairly valued to cheap in a week, multiple falls from 17.5 to 15, bringing in buyers in droves *Upside breakout happens when we start discounting 2016 earnings to be up 11% *China is a train wreck, increasingly volatility globally

Shanghai ($SSEC)-The Bad Boy

S&P Day MA in Play at $ Took Profits on 8/$214-$217 and 8/$211-$215 vertical bear put spreads long the 9/$204-$208 vertical bear put spread long the 9/$171-$176 vertical bull call spread

(SPX) 20 Year

Dow Average-Boring!, Down -8% on the year! 200-day MA break! Down on the Year!

NASDAQ (QQQ)-The new leadership

NASDAQ (QQQ)-20 Year

Solar City (SCTY)- Elon Musk engineers another short squeeze, Buys $50 million of stock

Europe Hedged Equity (HEDJ)-Greek bounce

(VIX)-Four Year High!

(XIV)- Velocity Shares Daily Inverse VIX Short Term ETN buy on next market selloff and VIX spike

Russell 2000 (IWM)-The Weak Link most affected by rising rates-Great leading indicator

Palo Alto Networks (PANW)- Taking Profits Where There Are Profits

Regional Bank Basket (KBE)-Who Killed the Rate Rise? (MTG), (RDN), (SIVB), (CFG), (CFR), (BXS)

Technology Sector SPDR (XLK), (ROM) (AAPL), (MSFT), (VZ), (T), (FB), (IBM)

Industrials Sector SPDR (XLI)-Dow Mainstay (GE), (MMM), (UNP), (UTX), (BA), (HON)

Transports Sector SPDR (XTN)-Another Dow Mainstay (ALGT), (ALK), (JBLU), (LUV), (CHRW), (DAL),

Health Care Sector SPDR (XLV), (RXL) (JNJ), (PFE), (MRK), (GILD), (ACT), (AMGN)

Financial Select SPDR (XLF)-Party Postponed (BLK/B), (WFC), (JPM), (BAC), (C), (GS)

Consumer Discretionary SPDR (XLY) (DIS), (AMZN), (HD), (CMCSA), (MCD), (SBUX)

Apple (AAPL) –$92?! Tim Cook Says Business is Great in China on Monday Opening waiting for the next catalyst-the iPhone 7

Biotech iShares (IBB)-The Generals Get Shot

China (FXI)-The party is over

Japan (DXJ)-Hedged Japan Equity took profits on 20% weighting-Global contagion kicks in

Sony (SNE)-Buy Territory

Emerging Markets (EFA)- another big short sellers target

India (EPI)-Buy it Here

Foreign Currencies-Farewell to Janet *Global panic brings dollar profit taking as traders dump all interest rate rise plays, no chance of September Fed rate rise, if they do rise, it will bring another crash, is all bad for the dollar *Will create another great long dollar entry point *Commodity currencies (FXC) and (FXA) get demolished *China devaluation reaches nearly 5% to boost economy and exports, slaughtering (CYB) *Panic brings Euro spike *Yen spike too, flushing me out of shorts

Euro ($XEU), (FXE), (EUO)-Playing Both Asides Post Greece Hangover

Long Dollar Index (UUP)- Kiss this Baby Goodbye for Now

Canadian Dollar (FXC)-Commodity Collapse

Japanese Yen (FXY)- stopped out of (FXY) August $82-$84 vertical bear put spread

Short Japanese Yen ETF (YCS)

Australian Dollar (FXA) –Commodity Disaster

Chinese Yuan- (CYB)-5% Devaluation

Emerging Market Currencies (CEW) another hedge fund short target and flash crash

Energy-Lower for Longer *Has become the new industry mantra *Dividends dropping like flies throughout the energy space, cut by half or all? *BP Midwest Whiting Refinery taken off line for surprise maintenance, flooding the market with 240,000 barrels a day of crude *At what price does Saudi Arabia take the pressure off and cut production? *Wide futures contango shows the fall has further to go *During Q2 production outpaced consumption by 3 million b/d, the last time the gap was this wide, crude traded at $10. *Buy this final washout

Oil-May Be a Q4 Story

United States Oil Fund (USO )

Energy Select Sector SPDR (XLE) (XOM), (CVX), (SLB), (KMI), (EOG), (COP) stocks lead oil turnaround by 6 months

MLP’s (LINE)-Dividend Suspended! Shares fall to option value

Exxon (XOM)-A Perfect Storm Oil Crashes, then the Stock Market Crashes

Occidental Petroleum (OXY)-

Conoco Phillips (COP)-

Natural Gas (UNG)-Bouncing along a bottom

Copper-Commodity Collapse

Freeport McMoRan (FCX) - New Lows

Precious Metals-Don’t Chase Here! *Total gold purchases fell to 916 tonnes H1, 2015, half of the decline from India and China *Chinese sold gold to buy stocks until June, the sold more to meet margin calls after crash started *Chinese Yuan devaluation gives a brief respite to selling *Ongoing production cutbacks could lead to stable prices by next year, Hedge fund legend Stanley Druckenmiller buys $360 million worth for his personal account *Gold buying rose in Europe as investors fled falling Euro *As Fed interest rate rise looms, the fundamental picture for gold goes from bad to worse

Gold (GLD)- Finally, A Flight to Safety

Market Vectors Gold Miners ETF- (GDX)

Silver (SLV)-

Silver Miners (SIL)

Palladium (PALL)

Agriculture- Sunny Days Return, Except for Prices *Return of fine weather in the Midwest ends the rally, new lows in reach *Floods in Texas finally end *Extreme drought conditions continue in California, bringing back the water wars *No trade here, dragged down by the global commodity bust *Pass for now, bigger fish to fry elsewhere, US stocks much more interesting

(CORN) –Back to the Bottom

(WEAT)-

Ag Commodities ETF (DBA)-New Lows!

Real Estate-Gaining Speed *New housing starts hot eight year high, up +13% YOY, but still 25% below long term average *Multi family strong, making up for apartments not built during the crash *June Case Shiller up +5% YOY *Homebuilders to lead stock for rest of 2015 *Predicted rush to buy homes to beat the fed interest rate hike is unfolding *Spillover occurring into the existing home market, pushing Case Shiller data upward

June S&P/Case–Shiller Home Price Index +5.0% YOY, Denver, San Francisco, Dallas

US Home Construction Index (ITB) (DHI), (LEN), (PHM), (TOL), (NVR)

Trade Sheet So What Do We Do About All This? *Stocks- buy the next retest of the lows *Bonds-the top is in, sell rallies, buy (TBT) *Commodities-stand aside, buy the next oil down leg *Currencies- Sell short the Yen and Euro on rallies *Precious Metals –stand aside, wait for new low *Volatility-sell short through (XIV) *The Ags –wait for new lows *Real estate-buy the homebuilders LT

To buy strategy luncheon tickets Please go to: Next Strategy Webinar 12:00 EST Wednesday, September 9, 2015 San Francisco, California USA! Good Luck and Good Trading !