Hedge funds search for next wave
AS WE observe the twilight of the northern hemisphere summer, and darling buds are about to bloom down south, there is a fair bit of apprehension in the air. Many US commentators have remarked on the number of Hindenburg Omens to have lately struck the generally bullish trend of the S&P 500. This ominoussounding technical indicator refers to when a significant percentage of stocks in issue hit 52-week highs and a similar number plunge to 52-week lows.
The Hindenburg Omen suggests a market in a tizz, climbing the proverbial wall of worry but suffering some dramatic, portentous panic selling in the process. In the greater scheme, it implies the entire schizophrenic market is at risk of collapse.
Believers such as Jason Goepfert, author of the Sentimen-Trader Daily Report, call up data going back to 1965: in 11 instances of clusters of Hindenburg omens, markets rose only twice. The most vicious and sustained down-swing occurred in 2007 after the omen loomed.
Marc Faber, author of The Gloom, Boom & Doom Report, reckons the US is in for a crash of 20% or more — reminiscent of Black Monday on October 19 1987 — which marked the end of a five-year bull run in stocks. Faber has been crying wolf for years, but many former bulls are now taking him seriously. US indices (and by extension every other world index) have appeared to be levitating on little more than the hope of further quantitative easing from the Federal Reserve.
The Fed’s easy money, borrowed on the cheap by yield-hungry banks, has found a
As the cynics say, reported earnings can be tweaked but revenue tells the true story
comfy home in the stock market. As prices have risen, stocks have attracted further buyers in a supposedly virtuous process of momentum trading.
But several analysts have pointed out that top-line growth among a scary number of blue-chip companies is simply not there. As the cynics say, reported earnings can be tweaked but revenue tells the true story. Sooner or later, mutter the bears, investors will bolt for the exits.
More sanguine market players acknowledge things are choppy, but are prepared still to go surfing. Sure, they say, there are plenty of losing stocks, but concurrently the winners are providing a hell of a profitable ride.
Catch on to the coat-tails of the big hedge funds as they swivel into and out of different sectors. Volume-chasing may not be the most comfortable way to trade — particularly for an old-fashioned “value” investor — but that’s the way it is.
Author David Stockman speaks of hedge funds as a kind of amorphous breed of shape-shifting replicants that have “generated trillions of permanent momentum-chasing capital”.
Yes, it’s a bizarre game, but the cowboys say you’ve got to be in it to win it.