Naked Hedge Fund

Are the bears out of hibernation?

Naked Hedge Fund Weekly report. PDF on post.

This earnings season isn’t working out to well for the market and the big question is if this is going to turn into something more. Obviously the markets have been very overbought and the VIX is extremely low long term as our post noted last week. Today the market confirmed the downtrend that we have been watching and is now at a support level at $112.50. We are going to keep an eye on this support going into the close today and will let you know if we do make a rotation to short. Below are a couple charts for info.

This report is the latest release from the Office of the Comptroller of the Currency and Office of Thrift Supervision on the mortgage industry and the stats on the performance. It is a great report that comes out quarterly that lays out all the details of the mortgages out there. A lot of great data tables and charts that show the current performance of mortgages and also the performance of the home retention actions.

Naked Hedge Fund Weekly report. PDF on post.

On the post is the earnings chart for Intel. It shows the history of Intels earnings and upcoming expections with the stocks performance during the same period. As you can see in the chart below the earnings difference year over year for the upcoming earnings Thursday could be potentially huge if they meet expectations. The earnings outlook will be very interesting and important for the streets reaction as well. The street expects $0.45 tomorrow evening.

There is an old saying on Wall Street that when the VIX is high you buy and when its low you go. For those unfamiliar with the VIX index it is the ticker symbol for the Chicago Board Options Exchange Volatility Index, a popular measure of the implied volatility of S&P 500 index options. A high value corresponds to a more volatile market and therefore more costly options, which can be used to defray risk from this volatility by selling options. Often referred to as the fear index, it represents one measure of the market’s expectation of volatility over the next 30 day period. So basically when fear is rampant in the market the VIX is high and when its an endless summer on Wall Street the VIX is low.

Below (on full post) is a chart that shows the VIX over a 4 year period. As you can imagine the VIX has been steadily declining since the market rally began last March. The interesting point is that the VIX has gotten so low that it is approaching the low levels pre crash in 2007 and 2008. So will the old saying hold true? Now that the VIX is getting low is it time to go?

Alcoa kicks off earnings tonight. Obviously the industry that Alcoa falls into has been red hot as of late with the falling dollar. It will be interesting to see what the numbers look like. Below is a chart showing the earnings expectations and the past earnings of the last year or so with a back lay of the stocks chart. The year over year comparison of Q4 earnings has the potential to spark a rally based on validation of Alcoa turning the corner from the depths of last March. 2008 Q4 earnings -$0.28 and the expectations for 2009 Q4 is $0.05, which is quite a difference and even more so for next quarter if they set positive outlooks.

Naked Hedge Fund Weekly report. PDF on post.

The Federal Reserve Bank of New York released a paper about the massive amounts of excess reserves that banks are packing onto their balance sheets. In the post is the link to the PDF:

A study done by First American Core Logic released by CAR (California Association of Realtors):

“Shadow Housing Inventory” Put At 1.7 Million in 3Q According to First American CoreLogic
Summary:

* As of September 2009, First American CoreLogic estimated there was a 1.7‐million‐unit pending supply of residential housing inventory, up from 1.1 million a year earlier. Pending supply, sometimes referred to as “shadow” inventory, estimates real estate owned (REO) by banks and mortgage companies, as a result of foreclosures and other actions, such as deeds in lieu, as well as real estate that is at least 90 days delinquent. Normally shadow inventory would not be included in the official measures of unsold inventory. At the current sales rate, the pending supply is 3.3 months, up from 2.4 months a year ago.

Charts on post