Thursday, December 11, 2003
Issue Contents:
| 06:04 | Good Morning Hedge funds. |
| 07:05 | Gold Exit, stage left! |
| 09:26 | Paul's Watch List Stock picks for intraday and swing trades. |
| 09:30 | Daily Swing Trade Today's stock setups. |
| 16:14 | Economic Data Roundup Today's key releases. |
| 16:16 | Active Trader Transcript Real time forum log. |
Found an interesting link to the Reuters UK website on hedge funds. Some headlines:
Commerzbank doubles hedge fund of fund assets
LONDON (Reuters) - Commerzbank Securities' Alternative Investment Strategies unit has doubled its hedge fund of fund assets over six months and sees regulatory change and strong investor demand continuing to support rapid growth.Fund of hedge fund investors face big risks
LONDON (Reuters) - Investors in some funds of hedge funds risk losing a big chunk of their investments because many providers fail to structure portfolios to account for a variety of risks, according to research published on Friday.
Hedge funds up 1.4 percent in October
LONDON (Reuters) - Hedge funds have posted a positive return for the 12th month in a row in October but lagged stocks as the global economic recovery gathered pace, according to new data.
The CSFB Tremont Hedge Fund Index, which charts the returns from a blend of 3,000 hedge funds using 10 different strategies, rose 1.4 percent in October after a gain of 1.5 percent in September.
Hedge funds, complex investment strategies which aim to provide positive returns whatever the direction of mainstream asset classes, have not been able to keep pace with the rebound in stock markets since March this year.
The index, published on Tuesday, is up 12 percent this year against a rise of more than 21 percent in the S&P 500.
With the S&P up 5.6 percent in October, long-short equity funds were the best performing hedge fund strategy, up nearly 2.5 percent.
"With a strong stock market at their backs, equity oriented strategies posted generally solid gains in October," said Oliver Schupp, President of Credit Suisse First Boston Tremont Index.
Dedicated short-selling funds -- which borrow stocks and sell them hoping they will fall and they can buy them back at a cheaper price -- performed worst, falling more than 7.5 percent over the month. They are also the worst over the year, down 28.4 percent.
Of course it is the last headline that is the most interesting, since this means that the average hedge fund cannot beat the S&P 500 while short-selling fund managers just don't seem to know when to quit. It sure makes you wonder why investors are flocking to vehicles with loads of risk, but not the commensurate rewards.
It's an up-Schwing! Just keep moving the stop loss up until it's hit!
The real question is what value does the average hedge fund manager add to the fund, if "active management" typically means underperformance when the market is going up? I mean, how hard is it for a hedge fund manager -- supplied with anything they want or need to do the job -- to learn to avoid buying into a downtrend or shorting into an uptrend, particularly in the big picture, when we have dead simple tools such as swing charts? Or a 25 cent plastic ruler? Or eyeballs?
Or am I just too demanding?
For the record, on December 1, 2003, I wrote for subscribers:
GOLDBUGS INDEX: Note that this daily chart is showing the largest Average True Range reading this year. It tells us that the move up is now "leaping and bounding", meaning that it's in what we call the "parabolic phase" where people are literally diving in. I will be looking to exit my personal gold holdings somewhere on this move up and that includes all the bullion purchased in 2000 in advance of Y2K, and my long-term position in Kinross Gold.
Looking at this pair of charts, it's not hard to imagine that there is a major reversal setting up here on gold and the Dollar, as it hits the big downside target on the monthly chart.
From my perspective as someone who was a gold trader for a decade, that lower swing high and subsequent reversal of the index and stocks ahead of the metal was the big warning sign which we discussed on December 9:
If it feels like NEWMONT MINING is playing mind games on us, it's because the move up in gold and gold stocks is now registering ADX readings that are extreme for the symbols and timeframes on the weekly charts. The explanation for yesterday's scalp setup was complicated because the probabililty of "sudden death" is probably the highest it's been in a long time, and therefore we cannot expect buy setups to get to where they are "supposed" to go.
For example, NEM did not get to the upside target of the December 2 swing high and went down yesterday. This might be the first signal that the quick and dirty small bull flag just doesn't have enough power to get there, and that a deeper pullback in the form of a classic bull flag or an ABC Correction lies in wait. If there is a meltdown, I will play it intraday.
You can see that the weekly chart has an ADX of 50, while last week's candlestick, for all intents and purposes, was a small doji after a big expanded range tall white candle. Remember, when the ADX is extreme for the symbol and timeframe, we are mindful of "sudden death" spike top sort of reversals, which we wrote about a month or so ago when we surveyed the weekly charts of many of the top NASDAQ stocks.
We've watched a complete sentiment cycle play out on gold and the Dollar, starting in 2001. If it turns out that I was early in my exit, that's just fine. It's OK to leave some money on the table for those who need it more than me.
This is Paul's intraday and swing trade watch list for Thursday.
BUY SCALPS:
- MEDI @ 27.69
- IP @ 40.86
- WMT @ 53.26
SHORT SCALPS:
- No symbols today.
Prices above are used as ALERTS to look for intraday entries. If you need additional ideas, don't forget that we have automated Stock Scan Lists as well.
****
There are no swing trades set up for today.
With a big move downwards over the last few days, I would like to see a small bounce here before I set sell stops on some charts. If there is an upside reversal, we are going to play it intraday with S&P and NASDAQ e-mini futures.
I will update yesterday's picks during the day.
Import Prices +0.4%
Export Prices +0.5%
Econoday reports: The import price index rose 0.4 percent in November, reflecting mild but broad increases across many categories. Year-on-year import prices are up 2.1 percent, above October's year-on-year rise of 0.9 percent. Import petroleum prices rose 1.1 percent and are up 11.9 percent year-on-year. Non-petroleum import prices, led by price increases for metals and chemicals, increased 0.3 percent and are up 1.1 percent year-on-year.
Export prices rose 0.5 percent in November once again led by higher agricultural prices. Prices for nonagricultural exports rose 0.2 percent. Export prices year-on-year are up 1.8 percent. Motor vehicle and parts was the only major export category to post a decrease, down 0.1 percent.
Jobless Claims 378,000
Econoday reports: Initial jobless claims rose 13,000 in the week ended December 6 to 378,000, disappointing expectations for a level of 360,000 and indicating little new momentum in hiring. The four-week average, especially important to look at during the calendar disruptions of the holidays, rose 2,250 to 364,750, consistent with steady but sluggish improvement in national payrolls. Initial claims in the prior week were unrevised at 365,000.
Retail Sales +0.9%
Econoday reports: Retail sales jumped by 0.9 percent in November, slightly above analysts' expectations. October sales were unrevised -- dropping 0.3 percent. Retail sales were 6.9 percent above last year's levels. Excluding autos, retail sales were up 0.4 percent, also slightly above analysts' expectations. When compared with last year, retail sales excluding autos were up 6.5 percent. Excluding autos and gasoline station receipts, retail sales were up 0.3 percent after increasing by 0.6 percent in October.
Business Inventories +0.4%
Econoday reports: Business inventories rose a higher-than-expected 0.4 percent in October compared with September and were up 1.9 percent year-on-year. September business inventories were revised to an increase of 0.4 percent from an initially reported rise of 0.3 percent. Business sales rose 0.7 percent in October and 5.1 percent year-on-year. The inventories-to-sales ratio slipped to a record low of 1.35, consistent with other indications that businesses continue to manage inventories with greater efficiency.
Ten-Year Treasury Bills 4.365%
Econoday reports: In sloppy results, the Treasury auctioned $12 billion of 9-1/2 year notes at an awarded yield of 4.365 percent, up 0.5 basis point from last month's auction. The awarded yield was nearly 3 basis points higher than the yield on the when-issued note at the bidding deadline. The bid-to-cover was weak at 1.78 vs. 1.90 last month. Indirect bidding, that is bidding from non-primary dealers, was also weak at 24 percent, well below the 38 percent level of last month's auction which was for a much larger offering of $17 billion.
October 28 FOMC Minutes
Econoday reports: At the October 28 FOMC meeting, members felt that they needed more definitive signs of inflation to make significant changes to policy and their statement. They did realize that they would soon need to change the statement and began discussions at that time. Fed officials saw strengthening holiday sales as an indication that the economy was strengthening. In addition, they felt that rising import prices coming from a weak dollar, typically viewed as inflationary, as a factor offsetting the potential for disinflation. Also, a weak dollar would help boost export growth -- and help strengthen economic activity.
Real time forum log.
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