Hedge Types

Last trading day of a year that saw the many one way positions with lousy risk managers get trashed. Risky underwriting usually means putting up less to in the hope of getting more. Being positioned correctly entails adaptive management with enough margin to back illiquidity during volatility. So many of the higher profile hedge types became vulnerable to every trader's nightmare, large position no market. The damage has rippled across Wall Street as described in an article about the smart money community.
Tags SP500 1480.75 NQ100 2114.25 STI D

Same Lesson

Designing trading models which are adaptive to a wide set of risk parameters is always a challenge. Beatings the hedge funds took this year always reveal liquidity issues which develop when models are implemented and ramped to achieve a high dollar returns. A net per unit return performance as represented in this chart allows for limited trade clock exposure and rampage. The debt models and their leg positions were helpless targets to trend reversals, squeezes, and poor management. Over trading big or small will eventually break your heart.

Markets Ending 07

Retreating index markets slid to a fall back position for the week. DJI currently up 7.23% for the year and is just six points from closing higher on the month. It has had lower monthly closes only four times this year with June and July being the only two consecutive. The SP5oo cash sits up 4.24% higher on the year and 6.2% off its October 11th high. The Nasdaq 100 spot futures made a weekly recovery high this week since the lows of November and now is 5.8% from o7 highs. The Nasdaq 100 cash is just under six percent from it's highs.
The bulls are still depending on the tech sector to save the rest of the market while the bears are building on a chart trail of three potential rally rollovers. There is enough downside to make o8 interesting but the bear has yet to drive the bull away.

Price Tags

Price Tags are not predicted ranges but rather price value areas from the previous day's trade which will usually be played during the next session.
Short Term Indicator (STI) Up, Down, Neutral.

Market Indicators

Yesterdays Score

Journey to Lower

The collective energies of various economies have made the bear's journey to 'lower' a tough task. Whether it be global bank maneuverings or new announcements regarding cash infusions to aid stock positions, all have helped place a bid underneath the market. It is clear that parts of the outside world are awash in cash and the mortgage related sell-off in stocks has revealed an appetite to invest stake money, especially in the brokerage business. Whether this is all enough to stem the bear's prediction that the market has not priced in the coming downturn in the economy is yet to be seen. The bear has placed a few technical roadblocks in front of the bull certainly, (DJI 13780 and 13962, SP500 1526.5 and 1558.5) and failure to recapture at least the bottom of those ranges soon will add some downside momentum. The tech side of the markets has an easier path with much less resistance. A close over 2151.5 in the NQ100 will provide some upside courage for the broader indexes. The VIX however continues to wane as wide ranges have become the norm and bets that a range bound market will be the eventual outcome.

Lower But

Bears turned the market last week as the DJI and SP500 retreated on Fed and inflation news. For all the bear action however, the overall stock markets continue to absorb the selling helped by trend buying for 2008. The VIX has softened as ranges stay wide indicating that if the downside becomes the trend, it will be a grinder. There is no lack of bearish sentiment out there but technically the trend is sill the bulls to surrender.

Week Compass

The week ahead shall probably determine the direction of the market for the remaining weeks of 2007. The DJI sits 540 points or 3.8% from it's all time highs. Whats more, it is only 337 points from closing above the October 31 high which would be a rejection of the October/November break. The bear camp has grown substantially in the last six weeks as the news of mortgage problems seemed to worsen. Other than the perennial bears, there is some genuine interest in the downside for the first time in years. Should the DJI make new highs this month, the bears will have to move their positions uncomfortably into 2008. This may prove to be a better bet as the current Fed activity will have played itself out, but shorts will be tired.

Next Time

The bears got this close to claiming technical victory last week but as usual could not accomplish much of anything. They are fighting various elements that include the Fed's renewed vigilance. Of course it is said that the Fed has little impact on the crucial matter of sub-prime loans, but try telling that to traders who are short. Like villagers carrying torches, big brokerage houses have stormed the Federal Reserve to seek relief in anyway possible in order to give their positions some type of edge. The irony of which is pointed out in Stein's article about Goldman.
Look for the bears to continue to seek turning points while trying to avoid the DJI close over 13982 and a SPX close over 1553.