Top 5 Moves Hedge Funds Are Making Right Now |
| Written by Rob Goldman | ||||||||||||||||
|
If it feels like stocks are terrible performers you are right. The NASDAQ and Russell 2000 are down about 6% in just the past 10 days! What’s next? #1: Investor sentiment is at a record bearish level. Is this good news or bad news? How does that affect us today? #2: Have institutions been playing games lately to cause volatility? Are potential policy shifts and upcoming changes in Republican leadership affecting stocks to the same degree as economic, interest rate, and earnings concerns? #3: What are the top 5 moves hedge funds are making right now to generate big returns even in down to sideways markets? How they are setting themselves up for a huge end of year run? A POPULARITY CONTEST
It’s a good thing that Pope Francis is not a U.S. citizen because he would screw up all the polls. While Donald Trump and Hillary Clinton remain at the top of their political party polls, and typically attract a nice crowd, nothing tops the Pontiff. After all, after major pontificating events in Washington D.C. and New York, he led Mass and prayers for hundreds of thousands in Philadelphia, the city of brotherly love. It’s fitting that just after His Holiness addressed Congress by slamming many of our nation’s policies and societal ideals, Congressional chaos now looms on the horizon, with the announced resignation of the Speaker of the House John Boehner, and calls for the ousting of Senate Majority Leader Mitch McConnell as well. What does that mean for stocks? Investors sometimes forget that public and governmental policy are the real early catalysts for the market and specific sectors. That is why the inaction of the Fed 10 days ago has had such a detrimental effect on the market and why Hillary Clinton, the presumptive Democratic Presidential favorite, killed health care stocks for a spell by merely commenting about the sorry state of pricing of health care on Americans. As to the GOP leadership, most policy wonks anticipate some gridlock for a while regardless of who mans the rudder. However, it is a reminder that we must be wary of the policies and comments of leading political figures and that stocks may be vulnerable at times as we get through the primary season and pick our Presidential candidates. The Stock Market Today
The past ten days have been brutal haven’t they? If it feels like your portfolio has been smack around but the DJIA hasn’t, you are partially correct. There has been a sharp selloff in high growth consumer stocks but especially health care and biotech shares, prompted to some degree by the Clinton comments alluded to above. The damage has been pretty bad, with both the NASDAQ Composite and the Russell 2000 Index down by over 6% at their low points over the past 10 days. Watching the trading of the past week or so one thing has become apparent in the groups and stocks that have sold off sharply, such as the small cap space and biotechs. I believe that we have seen significant, seasonal window dressing by institutions amid the profit-taking in these well-performing equities. In most cases, much of this activity would have occurred in weeks two and three of September, since we are nearing the end of the quarter. Due to investors waiting on the Fed, the profit-taking and portfolio shifts occurred a bit later and with more fury, exacerbating the past 10-day decline. So what does this all mean? First, the window dressing means that institutions have reduced or eliminated holdings that appear out of favor so when they produce quarterly reports, the “bad” stocks are not there, or do not dominate top holdings. They also are likely sitting on cash, waiting to see what the Q3 earnings season will bring, along with a potential October move by the Fed. Don’t mistake these moves for inactivity. They will be active. More on that later. Say What?
Marketwatch http://www.marketwatch.com/story/stock-investors-havent-been-this-bearish-in-15-years-2015-09-25 This news bodes well and should be read, but is just one component of the whole picture, as readers of the Guide are aware. Zero Hedge It’s a headline like this that gives the Fed pause… CNBC http://www.cnbc.com/2015/09/25/fed-jobs-could-drop-more-rate-clues-in-week-ahead.html The market is desperate for signals and we can finally get it—maybe. The New York Times If you own mutual funds, this is a must read. This is a long time coming and could have a huge impact on funds and ETFs. Just the Stats!AAII Sentiment Survey (figures rounded)
Talk about a non-story. The figures in last week’s survey were practically unchanged which translates into no news or shifts to modify sentiment. However, I bet any material moves in either direction for stocks this week will impact next week’s survey. The Marketwatch story we referenced in the Say What? Section may onto something. The Tickersense poll has reached a scary low “Bullish” and crazy high “Bearish” sentiment, with no change in the “Neutral” category. This signals to us that it these pros believe it will get worse before it gets better.
Top 5 Moves Hedge Funds Are Making Right Now
If you are a contrarian and you read about he Hulbert Composite showing the greatest bearish sentiment in 15 years, or that only 8% of all bloggers polled in the Tickersense poll were bullish that we are in the catbird seat. Unfortunately, it may get worse before it gets better. And, it will get better. A month ago we warned that there could be 10-12 weeks of pain. We are I the middle innings, in our view. Between the Fed, the economy, a tepid Q3 earnings seasons with little revenue growth and potential downward revisions for multinationals, the next month could be much like the past 10 days. Individual investors may fear October, but actually from the historical perspective it is a pretty good month for stocks, with equities rising 0.68% on average since 1950 and 1.49% for the past 20 years, which includes the 17% decline in 2008. Investors should pay attention to 52-week lows right now because the calendar will change some things. Many stocks, especially small caps, achieved their 52-week lows around mid-October 2014. So, it will be interesting to see how/when/if new lows are achieved and how these new lows will impact the indices and stocks when/if they achieve new lows during October. We had a big move in stocks the last 10 weeks of the year and we think that November will be a big month for equities, once the madness subsides. So what are the top 5 things hedge funds are doing right now? Sales: Trimming winning positions in high growth, high valuation consumer and heath care stocks Cash: Sitting on cash to go back into these positions, domestic-centric businesses, oversold stocks with exposure to China Old School Energy: Coal stocks and others are staging a comeback GARP & Value: Buying GARP and value tech trading at low valuations IPOs: The slate of IPOs should do well which could help reverse negative market sentiment 1498 Reisterstown Road, Suite 286 Baltimore Maryland 21208 Phone: 410.609.7100 [email protected] www.goldmanresearch.com Launched in May 2010, The Goldman Guide is a free weekly publication of Goldman Small Cap Research and is written by Founder Rob Goldman with contributions from the GSCR contributor team. This non-sponsored investment newsletter seeks to provide investors with market, economic, political and equity-specific insights via an action-oriented, straight to the point approach. No companies mentioned in this newsletter are current sponsored research clients of the Company or its parent, unless noted, With some exceptions, all companies or investment ideas mentioned in this publication are publicly traded stocks listed either on the NYSE or the NASDAQ. Goldman Small Cap Research members and contributors’ bios, certifications, and experience can be found on our website: www.goldmanresearch.com Disclaimer This newsletter was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces non-sponsored and sponsored (paid) investment research. Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co. The Firm’s non-sponsored research publications category, Select Research, reflects the Firm’s internally generated stock ideas, along with economic, industry and market outlooks. In virtually all cases, stocks mentioned in Select Research offerings are listed on the NYSE or the NASDAQ. Publications in this category include the weekly newsletter The Goldman Guide, Market Monitor blogs, Special Reports, and premium products such as The 30-30 Report. Goldman Small Cap Research analysts are neither long nor short stocks mentioned in this newsletter. Opportunity Research reports, updates and Microcap Hot Topics articles reflect sponsored (paid) research but can also include non-sponsored microcap research ideas that typically carry greater risks than those stocks covered in Select Research category. It is important to note that while we may track performance separately, we utilize many of the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in company-specific Opportunity Research reports, updates and articles. Goldman Small Cap Research has not been compensated for any content in this issue. All information contained in this newsletter and in our reports were provided by the companies mentioned via news releases, filings, and their websites or generated from our own due diligence. Economic, market data and charts are provided by a variety of sources and are cited upon publication. Stock performance data and information are derived from Yahoo! Finance and other websites or sources, as noted. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, other firms, or other financial news outlets. Goldman Small Cap Research relied solely upon information provided by companies through filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report, update, article, blog, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed. This newsletter does not take into account the investment objectives, financial situation, or particular needs of any particular person. This newsletter does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with the FINRA or with any state securities regulatory authority. Statements herein may contain forward-looking statements and are subject to significant risks and uncertainties affecting results. Separate from the factual content of our articles about the company featured in this newsletter, we may from time to time include our own opinions about the companies profiled herein, their businesses, markets and opportunities. Any opinions we may offer about the companies are solely our own, and are made in reliance upon our rights under the First Amendment to the U.S. Constitution, and are provided solely for the general opinionated discussion of our readers. Our opinions should not be considered to be complete, precise, accurate, or current investment advice. Such information and the opinions expressed are subject to change without notice. ALL INFORMATION IN THIS REPORT IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION. For more information, visit our Disclaimer: www.goldmanresearch.com. |
Download in PDF
There are some real must-reads this week, ranging from investor sentiment, potential Fed and market signals and a story that could have a huge impact on the mutual fund and ETF industries, and your investments.
