Naked Hedge Fund

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.

Video from the Jon Stewart Show on High Frequency Trading. Hilarious

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.

Copy of the Goldman Sachs Hedge Fund Report. It dives into a bunch of stats and trends that is fairly interesting about the moves that hedge funds have made. A lot of the overall news is a given such as funds are “re-risking” and have moved into high net long exposures. A sample of bullets:

* Net long exposure rises to 31% – highest since June 2008
* 7% of hedge funds have shut down since June 2008
* Hedge Funds now own 3.7% of the financial sector’s market cap
* Bank of America was a crowd favorite as the number of funds owning it doubled quarter over quarter.

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SPY Breakout Potential

The S&P has fought through the potential Head and Shoulders pattern and is setting up for a potential breakout above its YTD highs.
Some charts to show this potential

The new CFA at Bank of America/ Merrill Lynch put out a report today that predicts a 17% gain in the S&P 500 from the current levels. Some of the bullet points from the paper are:

* Slow GDP + low inflation + more saving = Shrink resistant P/E
* S&P 500 EPS recovery to outpace the US GDP recovery
* Overweight: Financials, Energy, Tech and Consumer Staples

Days of the 49ers are over investing in gold is easy these days.