FRED
07-20-06, 04:53 PM
Bull Reversal Day - July 20, 2006
by John R. Serrapere
Past results may not be indicative of future results.
Today was most likely a pivotal one for the reversal of the Bull. My commentary below the S&P chart (to follow shortly) focuses on how this correction has been typical of prior trend reversals associated with investors rotating their capital out of low quality and into high quality stocks. These corrections have been greater than 10%, so we have further work on the downside.
Bear markets try to get money out of weak hands (dumb) and leveraged traders (dumber) into strong hands (investors).
Weak hands speculate on junk (airlines, bio-tech, tech, etc.) while strong hands invest for the long haul (industrials, consumer stables, utilities, etc.). The problem is that hedge funds control 30% to 40% of daily trading volume. My April 2006 research shows that too many equity hedge fund managers were simply too long the market (chasing market beta). Since the current correction began on May 8, 2006, equity hedge fund mangers have been down more than the market.
Many hedge fund managers are dumb and dumber because they do not focus upon being short low quality stocks while long high quality stocks. My work shows managers that do focus on this provide consistent absolute returns. Many of the best managers do not have stellar returns over the past three to four years because they have chased beta with junk!
Today's decline saw high quality stocks (DOW Industrials -0.8%) best low quality stocks (transports, -5%; small caps, -2.7%; and NASDAQ 100, -1.6%).
http://www.itulip.com/images/EquityvsOil.png
This report was originally written to internally advise private funds for a qualified investor. The posting of this report for public viewing is intended to demonstrate applied research without an intent of business solicitation.
John Serrapere - Investment Analyst & Strategist - Foster Holdings, Inc.
Mr. Serrapere has been advising investors since 1986. He currently is the Investment Analyst & Portfolio Strategist for Foster Holdings, Inc., a large Pittsburgh, PA based family office. His firm also consults other investors seeking alternative investment options. Mr. Serrapere was formerly a principal of Rydex Leveraged Hedges, LLC in Rockville, MD where he designed registered and non-registered products.
Mr. Serrapere has published in The Journal of Indexes (http://www.journalofindexes.com/), Global Financial Data (http://www.globalfinancialdata.com/), Corporate Finance Review (Warren Gorham & Lamont, NY, NY), The Retirement Planning Journal (Commerce Clearing House, Chicago, IL) and has presented for Information Management Network (NY, NY).
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Copyright © iTulip, Inc. 1998 - 2006 All Rights Reserved
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer (http://www.itulip.com/forums/../GeneralDisclaimer.htm)
by John R. Serrapere
Past results may not be indicative of future results.
Today was most likely a pivotal one for the reversal of the Bull. My commentary below the S&P chart (to follow shortly) focuses on how this correction has been typical of prior trend reversals associated with investors rotating their capital out of low quality and into high quality stocks. These corrections have been greater than 10%, so we have further work on the downside.
Bear markets try to get money out of weak hands (dumb) and leveraged traders (dumber) into strong hands (investors).
Weak hands speculate on junk (airlines, bio-tech, tech, etc.) while strong hands invest for the long haul (industrials, consumer stables, utilities, etc.). The problem is that hedge funds control 30% to 40% of daily trading volume. My April 2006 research shows that too many equity hedge fund managers were simply too long the market (chasing market beta). Since the current correction began on May 8, 2006, equity hedge fund mangers have been down more than the market.
Many hedge fund managers are dumb and dumber because they do not focus upon being short low quality stocks while long high quality stocks. My work shows managers that do focus on this provide consistent absolute returns. Many of the best managers do not have stellar returns over the past three to four years because they have chased beta with junk!
Today's decline saw high quality stocks (DOW Industrials -0.8%) best low quality stocks (transports, -5%; small caps, -2.7%; and NASDAQ 100, -1.6%).
http://www.itulip.com/images/EquityvsOil.png
This report was originally written to internally advise private funds for a qualified investor. The posting of this report for public viewing is intended to demonstrate applied research without an intent of business solicitation.
John Serrapere - Investment Analyst & Strategist - Foster Holdings, Inc.
Mr. Serrapere has been advising investors since 1986. He currently is the Investment Analyst & Portfolio Strategist for Foster Holdings, Inc., a large Pittsburgh, PA based family office. His firm also consults other investors seeking alternative investment options. Mr. Serrapere was formerly a principal of Rydex Leveraged Hedges, LLC in Rockville, MD where he designed registered and non-registered products.
Mr. Serrapere has published in The Journal of Indexes (http://www.journalofindexes.com/), Global Financial Data (http://www.globalfinancialdata.com/), Corporate Finance Review (Warren Gorham & Lamont, NY, NY), The Retirement Planning Journal (Commerce Clearing House, Chicago, IL) and has presented for Information Management Network (NY, NY).
Join our FREE Email Mailing List (http://ui.constantcontact.com/d.jsp?m=1101238839116&p=oi)
Copyright © iTulip, Inc. 1998 - 2006 All Rights Reserved
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer (http://www.itulip.com/forums/../GeneralDisclaimer.htm)