and now our top story...

so Paulson is leaving Goldman to go to DC and work for Bush. Why anyone would want to leave one of the best and most powerful jobs on Wall Street to go work for the current administration is beyond me but what do I know.

Markets continue to be ‘under pressure’ as the talking heads call it. The markets are going to require some type of catalyst to reverse the current funk they are experiencing. What might that catalyst be?

You know it’s a big ‘up’ day when the top 10 gainers on Nasdaq by % price gain are all under $2.

Big news day: Iran talks, oil news, M&A speculation, domestic productivity, terrorism, the war. Same headlines day in - day out; they change the content around, but it’s pretty much the same noise each day with a slightly different spin on it. The news can supplement the research however do not become distracted from the root cause of profitability: are the stocks going up or down in price?

the bulls cry buy

Do two "up" days a reversal make? Doubtful - but to hear the talking heads, this is the buying opportunity of a lifetime. Same s**t, different day.

The start of the summer season. Happy Memorial Day weekend.

DJIA 11,278.61

NASDAQ 2,210.37

SP500 1,280.16

still fading

The markets continue their swoon into late May. The longs have lost their luster, particularly some of the commodity plays. However on the other side of the ball, the shorts are moving in the right direction with conviction. When the selling begins, the long-only investor will dump the stocks that are performing the worst from the long perspective. Any relief in sight? Who needs relief when you are net short. Of course the bulls will have their day once again someday as rallies are always a certainty. The length, breadth and distance of the move is always unclear, but the actual event is inevitable.

During a move like this, it is always good to reflect back upon money management rules. For long positions, the exit points should have been clearly established prior to or at entry and now is the time that some of those stops might be tested. Stick to the stops. No negotiation. Also, adjust stops accordingly on short positions as profits accumulate.

wrap-up

After a tough start to the week, the markets stabilized a bit (just a little bit).

Dow is still above its 200 dma, the S&P is at its 200 dma and the Naz (nasdaq composite) is now below its 200 dma.

Commodities have cooled a bit and several blue chip techs continue to slide (dell, intc, msft).

Looked at ebay lately? After touching and attempting to break through its 200 dma last month, the stock has sold off from $41 to $29. Many tech stocks follow similar patterns.

Happy weekend.

DJIA 11,144.06

NASDAQ 2,193.88

SP500 1,267.03

econ 101

a long/short strategy (not to be confused with market neutral) even works in sideways or ‘trendless’ markets. There are individual stocks that will go down due to poor fundamentals, bad management, inadequate product mix, or negative changes to their future outlook. Holders of the stock want out for possibly several reasons. They are not concerned about what the major market indices are doing, they just know they no longer want to be in the stock. When the number of people who don’t want to own the stock any longer is greater than the people who want to own it, the price will be pushed down. On the flip side, even if the markets are going sideways, there is going to be select group of stocks that are going up because people want to own them. They see long term potential in the stock or a quick profit to be made, and the number of people who want to own the stock (buyers) are greater than the number of people who no longer want to own the stock (sellers) and the stock climbs. Lately there have been several high fliers that have defied gravity. Some fall into the ‘momentum stocks’ category and one must be wary of violent sell-offs as the stock owner’s decision to sell can be quick and without regard. Ultimately, the responsibility of the long/short manager is to identify which stocks are moving in their respective directions and then position the fund to best take advantage of the upward or downward moves in the stock price while minimizing downside risk to the fund. The markets contain many variables but one of the underlying factors is the fundamental concept of Econ 101, supply and demand. Are you a supplier or a demander today?

that flushing sound you hear...

an excerpt from one of the daily news compilation emails I receive: “One would think that a hedge fund that specializes in metals and the like would have struck gold with the current spike in commodity prices, but TheStreet.com reports that’s not been the case so far this year for Ospraie Management. While the Commodity Research Bureau’s Metal Index has soared 45%, the New York-based hedge fund has seen a 10% drop in its flagship fund. According to TheStreet, the root cause is a series of 'bearish bets' on copper and silver, which have been charging like a bull.”

Bearish bets on silver? Bearish bets on copper? A series of bets? As in more than just one? Have they seen those charts? Those commodities have done nothing but gone up, or at least have been trending up for quite some time – try over a year. I guess the managers were ‘early’ in their position-building, which is a great way to take the sting out of saying ‘we were wrong’. Nothing like trying to step in front of a runaway freight train. There is this old saying, maybe these guys haven’t heard it: The trend if your friend. Maybe the managers had very sound fundamental reasons for their ‘bearish bets’. Many have said that the recent bull run in commodity prices is irrational. Look at the spikes and huge run-ups in gold, titanium and most other metals. Rumors have been circulated that it is nothing but greedy speculators driving the prices higher. Easy to write the entire move off as being irrational. There is another great saying: ‘the markets can stay irrational longer than one can stay solvent.’ Sadly, their investors placed money in that fund because the investors were anticipating a nice return off the strength of the metals market. Little did the limited partners know, their investment in the fund should now be viewed more as a hedge to their overall portfolio than as a way to actually make money. Of course the managers still collect the tidy little management fee despite the negative return on the fund, but think of the money they missed on the incentive fee. All they had to do was go long, sit on their hands and watch the metals market rise almost 50%, and that’s not including any additional alpha return they could have generated by being superior money managers!! That’s gotta hurt.

On a more celebratory note, one year ago today was the creation and first entry of this blog. After a slow start (the next entry was dated Sept 17th), the 'official start' was more like February 1 of this year. Never one to pass up a party, happy birthday to this blog....cheers.

a positive light

actually came across several news stories lately that have portrayed hedge funds in a somewhat positive light. Refreshing given the random blow-up that seems to get an unfair chunk of attention from the media. The industry is growing, assets continue to flow into funds, regulation is being viewed as a positive by the general public, transparency is becoming more valuable, institutions continue to increase their exposure, and more individual investors are becoming knowledgeable about the different strategies available to them. Most importantly, performance is up for most strategies YTD.

http://www.nytimes.com/2006/05/12/business/12insider.html?_r=1&oref=slogin

http://www.post-gazette.com/pg/06134/689786-28.stm

http://www.newyorker.com/talk/content/articles/
060522ta_talk_surowiecki

and an old one:
http://www.philly.com/mld/belleville/business/14497144.htm?source=rss&channel=belleville_business

Short-term outlook: Looks like the dow and S&P have found some traction at least for the moment yet the naz continues to find itself on a slippery slope.

whacked

now that's what they call a sell-off. The last two days have been an eye-opener for those that thought the market could do nothing but go up. The dow 30 is back to where is was a few weeks ago at the beginning of May. The S&P moved from the top of its 6-month trend channel to the bottom of its trend channel in two days. The Naz, well, that took it on the chin pretty good. Some of the stocks that have been levitating recently hit some air pockets and erased a big chunk of shareholder value in the last several trading sessions. If one shorted the Q's on Monday, well congrats, that was a good trade.

Unfortunately, I was forced to watch a bit of cnbc this week. I try to avoid nbc's faux business channel at all costs. I had to watch that channel about 10 hours a day for several years working on a prop desk and by the end I was so tired of it, I now have developed a strong aversion to it. First, there's about 20 minutes of commercials and lead-ins/lead-outs every hour. Then there's the flip/flop nature of the content. The dow is down? We're entering a bear market. The dow is up? The all-time highs are going to be easily taken out and we're moving higher and never looking back. I think I heard the the words "under pressure", "momentum" and "hedge funds" probably 5 times each in the matter of one hour. I get my information off the internet and various data services. The talking heads are worthless, reading garbage content and trying to make it sound like it is that elusive nugget of information that will now allow their listeners to finally make those riches they have searched for over the years.

The posts here have been few and far between lately. All in all, the dow and s&p don't look that bad from a bull's perspective. The naz on the other hand, well the bears are probably licking their lips in anticipation on that one. There are quite a few stocks that are looking ripe to fall.

Even the current darling of the day, commodities, had a bit of a rough go today. Titanium Metals (TIE) was down 8%, silver down 4%, gold of course was hanging tough, basically flat on the day.

In other news, summer is almost here, Memorial Day is right around the corner, which leads right into fireworks season, the hot days of August and then labor day, time to put away the whites and get back to school/work. Bloomberg had a story about the poor folks who procrastinated and now can't find a place in the hamptons this summer. I guess all the good stuff went early this year. Now any would-be renter is going to be spending their weekends in a small house with out-dated appliances on a busy road far away from any beach.

Happy Friday.

DJIA 11,380.99

NASDAQ 2,243.78

SP500 1,291.24

breakout

Breakout on the dow and s&p, looks like they are moving higher....

Happy Friday.

DJIA 11,577.74

NASDAQ 2,342.57

SP500 1,325.76