Two Possibilities


  • The two most likely outcomes are that we have a pullback this week or that we rally a little more and then get a meatier pullback next week. I don't believe its up, up and away from here.

  • I don't know which will happen, but either way I believe it will be better to wait for the pullback.

  • According to this article the average hedge fund is down for the year through June. The S&P 500 is up over 6% in the same time period.

  • There was an interesting theory in the FT over the weekend from a Citigroup strategist:


There is one more piece to this market jigsaw, in our view. That piece is arguably the key marginal buyer of equities — hedge funds. This year has not been a vintage year for equity hedge funds. Many funds are in need of a performance boost before year-end. We suspect that brings risk of ‘collective’ action from equity hedge funds at some point in 2H11. This is necessary to repair performance damage across the industry since start-year. This action is much more likely to occur in an environment of reduced, rather than elevated, macro uncertainty. To us, that could be September and that could be further fuel for another 4Q rally.


  • I could see the pile on happening "if" corporate profits are not hit by the slowing economy. That's a big if.

2 comments:

Anonymous said...

That "collecctive effort" could manifest as a big fall in s&p's as well.  If they collectively short and they are up a little and s&p's are down, they "win".  Nice game..

Tsachy Mishal said...

As a group hedge funds have never been anywhere close to net short. I think
their lowest net long exposure was 20 something percent during the low point
of the financial crisis