HFL Portfolio Recap: 8-20-2010

The Hedge Fund Live portfolio closed the day down 12 basis points outperforming the S&P 500 which was down 37 basis points but underperformed the Russell 200 which closed the day up 11 basis points.  The winners in the book were ATHN, futures, FXE, BKS, and WHR.  ATHN was down 3.72% today and was our biggest winner generating three basis points of PNL.  ATHN is a newly initiated short position that we started to put on yesterday.  The S&P futures closed the day flat but were traded well intra-day generating some alpha for the firm.  The FXE got killed of the killed off the open before grinding higher and closing the day down 86 basis points.  BKS was up 1.97% as the buyers stepped in a bought stock heading into the weekend in hopes of a take out.  WHR was down 56 basis points closing at 77.58.

The losers were XIDE, CBS, MA, and ATI.  XIDE continues to show weakness closing the day down 3.11% at 4.67.  CBS was down 1.16% and MA was down 1.85% on no direct news.  Last is ATI which should weakness today closing down 2.85% at 43.70.  We took about 20% of gross exposure down today as we start to get smaller towards the end of the month.  There is still much uncertainty in the market so we enter the weekend with no net exposure.

More Bad News From Europe Adding Pressure to Already Weak Market


Morning Notes

-       S&P futures down about 7 handles from FV

-       Weakness from yesterday extends to today and is clearly affecting overseas markets as well

-       Asian markets have shown weakness: Japan and Shanghai down relatively big (nearly 2%)

-       Seeing some flight to the dollar- up about 70bps

-       Treasuries also seeing a bid this AM

-       2-yr treasury note is at a record low, about 0.45% while 10-yr note is at a 15-month low of 2.53%

-       No economic data out this morning

-       On corporate news front, HPQ reported in line earnings last night as well as MRVL

-       DELL posted upside earnings

-       Futures pulled in after statement from ECB’s Weber: said ECB should extend its emergency lending/stimulus measures) through the rest of 2010

-       Weber said Germany’s Bundesbank may raise Germany’s GDP forecast for 2011

-       European markets obviously sold off after Weber’s statement

-       Greece seeing the most weakness (along with rest of eurozone)

-       DAX down about 1%

-       Expecting light day again in terms of volume, especially in light of the fact that there is no economic data coming out today (and as is typical of a summer Friday)

-       Euro down 1%, again as an aftermath of Weber’s statement

Learning to Profit from Technical Analysis

During a retracement to the upside yesterday John Deere (DE) offered two opportunities to make profitable trades from technical analysis of moving averages and pivot points.  The price was rising with a general rally in the Market although the stock was on an S4 Sell Signal.  As it approached the S3 Buy Signal at 65.42 (green line below), pressure was building as the 20 Day Simple Moving Average (SMA) climbed towards the 200 Day SMA.  The two moving averages formed a gauntlet converging near the S3 Buy Pivot.  Freshman Trader Zach recognized and broadcast a Low Risk Sell opportunity just after 2:30 PM.  DE struggled with the resistance at the S3 Pivot, and then suddenly retraced twenty cents to the down side, just as Zach had suggested it might, finding support at the 20 day Simple Moving Average (SMA).  The opportunity was brief, and swift.  However, taking advantage of a larger sized position with a tight stop and using the first identifiable level of support for an Exit, was a good opportunity for a quick and profitable scalp.

 A few minutes later, DE tested the S3 Pivot again, this time successfully confirming the change of Signal from Sell to Buy, trading convincing volume around 65.50, eight cents above the R3 Pivot.  Price action was squeezed between the 20 SMA support and 200 SMA resistance, indicating another possible Buy confirmation if the 20 SMA would cross the longer term SMA.  The Pivot provided predictable support as the price momentum faded briefly, offering an Entry opportunity for a small position now to the Long side, on the brief pull back around 3:00 PM.  The subsequent resumption of the uptrend offered opportunities to Scale-In to a full sized position, offering profits to near the 66.00 figure after a fifty cent run in the stock price.  Over a 40-minute period, technical analysis of the Pivots and Moving Averages provided two opportunities to put profits in your pocket.  You can learn this simple, straightforward method of technical analysis the same way I did.  See the eLearning section of the Hedge Fund LIVE web site for lessons from the Head Trader on how to leverage similar opportunities to improve your trading.

Hold Onto Your Seats: A Major Move Is About To Happen

Yet another one of those days where the recent gains in the market were erased.  The economic data released today were certainly disappointing- the Philly Fed number turned out to be even worse than the initial jobless claims.  However, for as absymal as those economic numbers were, I think the market held up decently well, relatively speaking.  The initial claims coming out at a psychologically poignant level of 500K should have puked the markets even further, in my opinion.  But we managed to hold support at 1068.50 and it’s a relief to me that we didn’t print a lower low on the daily chart of the Spooz.  Of course, there’s always tomorrow for another sell off… and the day after that and the day after that…  Like I wrote in my last blog, let’s take it one day at a time for now.

Now that you’ve read past the boring part, let me address the title of my blog today.  One fear-instilling reminder that was brought up today on the desk was that investors will come back once the summer is over.  I’ve been commenting practically daily on the light trading volume and I’ve simply been focusing on the much anticipated period when volumes will pick up to help push the market in a much more definitive direction.  However, what will that direction be?  And more importantly, how big will that move be?  I have totally been neglecting the latter question.  If investors all return and quickly come to the realization that market is either extremely overbought or oversold, we will sure as hell either sell off or rally hard.  I read from the charts that it will be a rally; but the economic data seem to tell me otherwise, especially the unemployment figures.  The unemployment picture is the largest stumbling block right now for the market.  A relatively sudden pick up in employment?  Not in this lifetime, IMHO.

HFL Portfolio Recap: 8-19-2010

An ugly day for the market as Initial Jobless Claims came in high at 500K and drove the market down ten handles to 1085.  We proceeded to grind higher into open but pulled down to 1083 prior to the Philly Fed Survey which came in light at -7.7 which pushed the market down for the remainder of the day.   The Hedge Fund Life portfolio held up well as we were prepared for disappointing numbers and had the book fairly hedged.  We closed the day down 49 basis points outperforming both the S&P 500 and Russell 2000 which were down 1.69% and 2.74%, respectively.

The book was flush with red names today making the biggest winners all shorts.  The futures hedge was our biggest winner generating three basis points of PNL.   SPG, GE, and WHR were down 2.69%, 2.87%, and 2.46%.  KIM was down the most on a percentage basis closing the day down 4.23%.  The losers on the day were GOOG, IMAX, CREE, AAPL, and MA.  GOOG continues to get hammered after the negative news regarding the end of search and closed the day down 2.94%.  GOOG broke below support at 480.50 and the next stop is 457.52.  IMAX was down 5.64% today on no direct news.  CREE finally faltered today after solid performance on Tuesday and Wednesday closing down 2.41%, 56.01 remains near term support.  AAPL and MA closed the day down 1.26% and 1.87%, respectively.

We took the absolute value of the book down slightly today as we covered up some of our hedge.  We remain uncertain regarding the market especially as the economic numbers continuing to go in the wrong direction, but, we covered some of our hedge as there is on news out tomorrow and we near support at 1060.

Keeping a Trade Journal: Learning from History

Lately, my trading has been exceptionally poor and today marks the fifth straight day of negative P&L.  This number is completely unacceptable.  I have become frustrated with these losses and this has hurt my confidence.  Today, I began a journal to track goals for the day, review trades, and document personal thoughts.  I hope that doing so will help me recognize and exploit my successful habits and learn from my mistakes.   Today I wrote: “CLF Trade: Tried to buy stock in a downward trending market against S4.  Missed the trade the first time then put a bid at the level.  Instead of bouncing again, the stock broke through the level.  Do not try to play a level if you miss the trade the first time, especially if you are trying to play mean reversion.”  Had I not documented this lesson, I would be liable to repeat this mistake again at a high financial and psychological cost.  Finally I wrote “goal for tomorrow: Get green!”  If this means making $40 by 10:30 and staying off the keys for the remainder of the day, then I will do so in order to break the cycle and begin to rebuild confidence.  I believe that keeping track of my trades and the thoughts that accompany them will allow me not only to get out of this slump but will provide benefit for years to come.

When a Great Short Rallies in Your Face

Over the past few days I have been working on, what I think is a pretty good short thesis.  After reading dozens of articles, transcripts, SEC filings, and government websites, my hypothesis actually seemed to be proving out.  Unfortunately, one sell-side analyst had a very similar hypothesis of his own and decided to publish a note on it this morning.  He moved the stock from neutral to sell and it quickly dropped 4% after the market opened.  Not wanting to miss the party, we waited for the stock to rally a little of its bottom and put out a short.  We were actually making some pretty decent money for a good portion of the day until some other investors either started covering their shorts or saw this as a decent buying opportunity.  The stock is now near its highs of the day and has, in fact, rallied in our collective face.


This is classic. We shake off Jobless numbers but freak over the Philly Fed manufacturing number. Buy the dips , I say , because the rally will be fast and furious. We are down on air. Keep the bigger picture in mind these are all the signs i have seen at the end of previous recessions. It is literally deja vu for me. As a country we r recovering. We may not be adding jobs fast enough. Credit is not yet flowing properly. But we are moving forward. I am buying big in my personal account for a rally later in the day, that brings the markets back into the green. My only concern is that in late august there just may not be enough people actively trading to seize the moment. Time will tell soon enough , as i write this the Dow is down 160 points.

S&P Futures Flat Ahead of Jobless Claims Data


Morning Notes

-       Futures flat vs. FV after sell off in after hours yesterday

-       No specific news caused the sell off after the close

-       Closing price is calculated at 4:15p for futures so futures up this morning about 5 handles does not mean we will open higher; rather, futures are flat vs. FV

-       Overseas mkts up overnight

-       Strength in Europe upon positive GDP forecast from Germany’s central bank

-       Euro up on GDP forecast as well

-       Other currencies are near neutral line this AM

-       Strength in Asia as well

-       Initial Claims: 500K vs. 475K

-       Continuing Claims: 4.478M from 4.491M

-       Prior Initial Claims: revised to 488K from 484K

-       Futures selling off in reaction to jobless claims data

-       Futures down about 8 handles from FV

Tech/Telecom Recap: GOOG down on what?

The Technology/Telecom book underperformed the market but considering our gross exposure and the performance out of GOOG things weren’t that bad.  The book ended the day up 11 basis points underperforming the NASDAQ Composite which was up 28 basis points and the XLK (Tech Sector ETF) which was up 56 basis points.

The winners on the day were CREE, AAPL, VCLK, and V.  CREE had another strong day closing up 2.42% and continues to show strength off the Friday bottom of 56.01.  AAPL had a decent day closing up 44 basis points and is now nicely up on the week after the disappointing action Monday.  VCLK had a strong closing at ten cents of the highs of 10.95 up 1.7%.  VCLK has been strong after breaking up through 10 the figure  but is now running into resistance at 10.91 and 11.00.  We no longer have a position in VCLK after the run up into resistance.  V was down on the day along with MA but we were able to make a great low risk buy on V at S4 and sold the position when V went unched on the day.

The losers in the book were GOOG, MA, and BRCM.  GOOG had a miserable day and couldn’t manage one legitimate rally.  GOOG closed 50 cents off the lows of the day down 1.71% on negative news involving Google TV and the “death of search/the internet.”   BRCM was strong on the day closing above the 200 SMA but we were down on the trade as we initiated a position just off the highs of the day.

We added about $100,000 worth of value to the book as we added to positions in MA and CREE while initiating new positions in HPQ and BRCM.  These additions and new positions brought our gross exposure up 10 basis points to 66%.