Naked Hedge Fund

Naked Hedge Fund Weekly report. PDF on post.

The uptrend has been our friend lately as we have ridden the daily stochastic up from the pullback. Todays breakout could lead to more highs in this stairstep pattern, but there is some long term resistance ahead to consider. Below is a long term monthly chart of SPY marked up that shows the 25 and 50 moving averages with slow stochastics. This shows the potential crash course around the 111-112 range on the SPY. Also around this same level is a 50% Fibonacci retracement from the March lows… The ETF Corner does a good job showing this chart at ETF Corner Link .

This all may seem like hocus pocus voodoo $@$% to most of you and a lot of times it does to me as well, but you have to consider whose trading out there. Its not people trading out there anymore, the majority is programmed computers. This is not our grandfathers market where people buy a stock because they believe in a company and invest for years and years. You do that these days and you will give it all back and then some. Being a computer programmer definitely has helped my thought process when approaching the markets. Algorithms are unemotional mathematical beings (I say beings because they are there… making the trades) and when certain numbers (triggers) are included in the program and in the back of the minds of millions of human traders things can happen. So technicals as silly and far fetched as they seem do play a role that at least deserve consideration when investing.

Obviously the market has been changing its tune lately from being overly optimistic and applauding all shapes and sizes of earnings to now dumping on most news even when it could be construed as a positive. This only further proves that the market reaction is what matters not so much what the numbers are that come out from an economic or earnings perspective. For example the market had risen 60% from its lows on better economic and earnings data even though if you take a step back and look at the big picture the numbers are still relatively bad.

So maybe the market may finally correct now. This correction has been touted since the week after the “bottom” (March 6th). So in a lot of people’s minds this is looooong overdue. To us it doesn’t matter what people think only what the market thinks. This is why we were able to catch a large chunk of the rally from March. Recently the market has head faked us and others into going on the short side only to reverse and cut out a portion of our year-to-date gains.

So will this time be different? We have been short since this past Monday when the downtrend was confirmed with an ugly midday reversal. So far it has worked out well, but could this be another head fake? Currently we are right on the 50 day Moving average of the S&P 500 (SPY) and this is where the bulls usually flex their muscles. But somethings to note for the bears defense is:

* Leading stocks such as the financials (XLF) and small caps (IWM) have broken down through their 50 day moving averages already.
* Below the 50 day Moving average on the S&P 500 there is very little in terms of support. (Support chart below)
* Long term technicals are overbought and have potential for large correction (Monthly chart below)

Optimism is rampid. Party hats are all over the place in the media and on the streets of Wall Street. Calamity has been avoided and nothing but clear skies ahead…. right? That is what you would think based on everything out there these days and it definitely has been a good trend to follow in terms of the keeping the NHF sidebar portfolio roaring along. Definitely wish we didn’t get sucked into a couple head fake downturns along the way, but we wanted to stay on our toes with this kind of market in case of a morning wake up gap down 500 kind of day. So with all this in mind and looking back at how far we have come is there any kind of hurdle in the future? It seems that there is no end in sight after all of the theories out there have been surpassed many times over. Using some technical analysis we wanted to find any kind of resistance that could be potential killers lurking and looking at some long term analysis we have marked some significant levels on the SPY (S&P 500) to consider.

Today Meredith threw a curve ball at the overly optimistic market with fresh downgrade on Goldman Sachs from a buy to a Neutral. Normally this kind of thing doesn’t matter to us here because most analysts are completely off base or in the companies pocket, but Meredith has proven herself in the recent past. Her reasoning behind the downgrade follows a theme of “Why be greedy” in that the price of GS has already met her year target price ($186) in the matter of months. Thanks to ZeroHedge for making this document available.

Actual note from Meredith Whitneys Advisory Group on the post.

Well even though the earnings season has just started there has definitely been a trend established where the earnings have been received well and stocks have responded in a positive fashion. Of course the rallies in gold and oil have helped as well.

This week has some big boys reporting:

* Intel : Tues Night
* JP Morgan: Wed Morning
* Citigroup: Thur Morning
* Goldman Sachs: Thur Morning
* Google: Thur Night
* IBM: Thur Night
* Bank of America: Fri Morning
* General Electric: Fri Morning

In the post we go into some more details and charts about JPM and INTC.

Well after much anticipation the 3rd quarter earnings season is upon us. There has been endless talk on both sides of the tape. The bears have beaten to death the “lack of earnings” argument, while the bulls have done the same with the “things are getting better” argument. Starting with Alcoa we will see what kind of reaction the market will have with the results…. and thats all that matters is what the market thinks.

This post has some charts that will help you get up to speed with the expectations.

Just to touch base with everyone some charts are below showing where we are from the last post on the downtrend. The NHF sidebar portfolio is short still even though the 50 day moving average bounce is in full effect. The longer term trend is still pointing down, but will announce if there is a change with our position. The charts below have some notes pointing out items of interest to keep in mind.

During this amazing rally since March there have been several head fakes to the downside and the million dollar question is if this current pullback will lead to something significant. At the current point the short term uptrend has been broken, but we have not changed the NHF sidebar portfolio yet to start shorting the SPY.

There is definitely a potential for a very large pullback based on technicals. We have not seen monthly stochastic levels this high since the very beginning of the stock market thrashing back in 2007. Below are three charts showing these technical items of interest.

Lately the trend has definitely been our friend as those that are able to lay back and relax with a long position are making nice gains. It’s definitely hard to do sometimes with all of the noise that comes out from the media and websites, but if you trust the trend and head to the beach or somewhere quiet things are easy street. The NHF sidebar portfolio has been taking advantage of this up move. What a huge difference from last year at this time when we were in full crisis mode having 800 point swings in single day. On the full post below I have a couple images one being a chart with last years key events and a long term technical chart of SPY.