Naked Hedge Fund

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.

Unfortunately stockalicious.com has completely stopped supporting their product and its broken. I figured this would happen some time or another. So Im going to have to look for another product to be able to show updated performance on the sidebar. Its too bad because it filled the bill of what I needed, but it has not updated for weeks now. If any of you know of another site out there that provides portfolio performance and has the ability to post the performance as a sidebar widget let me know. Im going to take a crack at making my own when I get a chance … hopefully my software writing days come back to me.

CNBC has destroyed so many innocent people’s accounts out there. From the loose cannon bottom caller Jim Cramer to Larry “Goldilocks” Kudlow the whole crew has spun optimism with endless daily verbal diarehea. I think that what people deeply despise about CNBC the most is that they have taken a beautiful thing like optimism and tarnished it. They have tarnished it with :

* Zero accountability
* Touting strategically tailored information (For example they love showing very short term charts of economic numbers, which leads viewers to believe things have completely recovered even though the number is still down 50% from the peak in 2007)
* Cheering completely wrong information (an example in post)

FHA loans are the new exotic mortgage out there. Every addict … I mean person involved with with real estate is gobbling up as much as they can get with the Government backing. It seems that the banks have learned a lesson from the mortgage fallout by actually requiring people to establish equity in a home right off the bat with 20% down, but the Government is much more savvy only requiring 3.5% down. Im sure this will work out great for all involved… by the way if your an American citizen that means you.

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)

Nouriel Roubini believes that a “wall of liquidity” is chasing all kinds of assets, yet once the economy disappoints expectations, it will all come crashing down.

Yet for Dr. Doom, gold isn’t the answer.

According to him, despite the temporarily asset bubbles right now, we’re still in a deflationary world and we’ll realize it soon enough once growth stagnates and all kinds of inflated asset categories come falling down.

Roubini:

I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being.

The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.

This seems like the same drum that Roubini has been beating. He has a strong case that deflation could be in our future. Right now I feel like we are in a limbo land where the direction has been found. Could be a rocky ride either way and be sure that your ready to play the market either way.

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 when you have the SEC busy prepping their resumes and fighting off congressmen its easy to let some things slip by. This could be the case today when the AA ramp up started around 3:30pm right before the close and their surprise “in the black” EPS numbers. You can really see the big gorillas in the last minutes loading up on this with the volume spikes. Im guessing that right about now they are enjoying a nice steak at Luger’s.

One thing that I find funny is that if you look at the Alcoa numbers year over year:

* Q3 revenues are down 34% from last year
* Q3 EPS is down 90% from last year (q3 2008 $0.33 vs q3 2009 $0.08)
* Q3 Profit down 71% from last year
* Stock price last year $14.71 … after hours tonight $14.99

Well I guess we can throw them the ol “the market is forward looking” bit to get the market pumping on this.