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Hedge Funds Are F#$%ed

Quite the headline. But it is true and no one is talking about it. Why are they f#$%ed? Simply because many cannot cheat any more. That may be harsh but it is true.  Now they must pick stocks without the insider’s edge.

The insider’s edge consisted of expert networks, other hedge funds “experts” and corporate insiders that invested in their funds. The biggest funds have been lined with the Fortune 1500 executives. No more thanks to the shut down of Pequot several years ago.

Hedge fund returns suck this year. Just go to www.hedgeindex.com and look at the returns through the end of October. Dedicated Short Bias -13.56%. Long/Short 1.88%. Event Driven 3.60%. Equity Market Neutral 4.43%. S&P 500  14.96%.

Time and again in the last 26 years I have heard, “well we do not need the technicals or a quantitative model because our network is what is our advantage”. Not anymore.

The Galleon insider trading scandal has every hedge fund in fear, especially now. Why? Because until now most of the convictions for insider trading were due to the perps being on tape. The Level Global/Diamondback Capital verdict out last night took the fear factor to a new high. Both those firms are toast as Diamondback last week joined Level Global in the category of hedge fund being shut down.

Why? Now the hedgies are being convicted without being on tape. Simply the jury believes they are guilty. The convictions will continue for the next several years as the Feds have so much material it is like shooting fish in a barrel for them.

Personally, I like this. Why? Because now hedge funds need to more intuitive and use quantitative tools like the ones I work with to make decisions. A great example of this process was yesterday’s recommendation of Chipolte. Such a process can enable researchers like me to best the returns of hedge funds several times over.

One of my smartest clients I ever worked with is a manager in Atlanta who told me in 1992 to use the quantitative tools but do your reading. If you do both, then you are ahead of 95% of your competition as most managers and salespeople are lazy. “Le Fly” is not lazy. His readers are lucky.

I came to this website because one of my client told me about “Le Fly”. As I started to read him,  “Le Fly” reminded me of one of my long time clients who busted the housing bubble. Just read the first three pages of House of Cards by William Cohan and you will see the similarities to Bennet Sedacca. Unfortunately, Bennet passed away in 2009 at too early an age but “Le Fly” is picking up the torch.

“Le Fly” is on to something here with this website, and we have been involved in other financial social media websites, and if you follow him then you to can learn much.

Hedge funds are going to have to morph their process if they are going to regain their edge. “Le Fly” has an edge in that he is showing you the reader how to make money, offer stops, educate and entertain you all for free. Such a deal.

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Tacos, Beers, Salsa…What’s Not To Like. New Buy CMG

December 18, 2012

We are adding Chipotle Mexican Grill (CMG) to our Morning Matters Portfolio which can be found on www.superstockinvestor.com as it just moved into a short squeeze for the first time in two months. There is some great upside on our stock scorecard and the technicals are finally starting to improve.

[Image 1]

There is nice earnings growth as the company is expected to earn $8.89 this year and $10.41 in 2013. That is growth of $1.52 or 17.09%. The P/E will drop from 33 to 27 in the next year.

[Image 2]

The Erlanger Weekly DMA (yellow chart) has now seen the stock price move above it which is a nice confirmation and the Erlanger Crossover Spread is in aggressive but not confirmed buy. We note the short ratio is above 5 and short intensity is elevated.

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Daily Playbook. Goldman Puts A Buy on SIRI

December 18, 2012

In After Hours Trading

President Obama proposed raising the cap on tax increase to above $400,000 from $250,000 and to accept certain spending cuts. Both the President and House Speaker Boehner are getting closer to a deal. The new number for tax revenues to be raised is $1.20 billion the exact middle of where President Obama and House Speaker wanted to be, $1.6 billion and $800 million.

 

DMND (-.03), SHFL (-.02), STEI (+.02).

What’s Happening This Morning

US futures: (S&P +6.00, DJI +43, NDX +17.80 with fair value lower) Asia higher ex Hong Kong and Europe higher. Copper and gold higher with WTI Crude Futures higher. $ is lower vs Euro, lower vs. Pound and flat vs. Yen. US ten-year Treasury Yield +.0105. Prices as of 7:55 a.m. EST.

Earnings Expected

Earnings due after the close ORCL HEI APOG AIR. Due tomorrow morning before the open FDS JEF SAFM.

Rags & Mags: Inside Wall Street

We are big fans of www.247wallst.com summary of the newspapers each day. Going forward we will link to their website so you can read their summary, Media Digest

Reported Earnings This Morning

FDS ( ), JEF ( ), SAFM (+.13).

Data Points

Yesterday saw 2036 stocks rise and 1003 fall on the NYSE. NASDAQ saw 1717 rise and 766 fall. The S&P 500 now back below its 50 day moving average and above the 200 day moving average. The 10 day spread moving average of breadth is now positive again, barely, and we remain with the buy signal but a turn may be forthcoming. We are back to invested on the Madison Market Timing Indicator.

 

Economics

Due out this week housing starts, Q3 GDP, existing home sales, leading indicators, personal income and Michigan Confidence.

Politico

Dallas Federal Reserve President Fisher speaks on the economy at 1:15 p.m. EST.

Conference & Analyst Meetings

Analyst Meetings OREX MED.

Conference of Note

Lazard Capital Med Tech Conference.

M & A News

ARB to be acquired NLSN for $48 a share.

Key Upgrades and Downgrades

Firm Upgrades Downgrades
JP Morgan
Goldman Sachs SIRI CJES
Morgan Stanley
Deutsche Bank
Citigroup
Barclays
Wachovia/Wells Fargo HRZN
Credit Suisse
Banc of America
UBS
Lazard
Merrill Lynch
Jefferies
Cantor Fitzgerlad UNIS IRWD
Dahlman Rose
Sterne Agee
Stifel Nicolaus
Societe Generale
Keefe Bruyette
Friedman Billings
Robert W. Baird
Needham CUB

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Buy TASR Short SWHC or RGR

The biggest no brainer trade I have ever seen is to buy Taser (TASR) and short Smith & Wesson (SWHC) or Sturm, Ruger (RGR). Guns are going to become like cigarettes only MUCH WORSE.  Friday’s events guaranteed the fate of guns. This argument is so simple that I do not need to do detailed fundamental and technical reviews of the three stocks.

Guns will be allowed for hunters but the semi-automatic weapon and assault weapons are going to be banned. End of story. All guns will have to be registered and mandatory jail time for owning an unregistered gun. We are at the beginning of the rise of Taser. The gun nuts are going to get what they thought they would with Obama as President and this is a good thing.

Police departments have already begun to use the Taser over guns. Taser also has a product for police departments to record all police interaction via a camera on an officer’s sunglasses or hat.  Taser blew out numbers last quarter and with smart marketing they will convince people to trade a gun for a Taser.

I sold Taser at $8.08 on October 26th and this morning I will be a buyer based on the above. Oh and buy the way, the short ratio is 6.54 so shorts will feel the pressure of the change that will be forthcoming.

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Daily Playbook: Futures Start The Week On A Positive Note

December 17, 2012

In After Hours Trading

President Obama in a Sunday night speech called for action on gun control. Citigroup downgraded Apple from Buy to Neutral.

What’s Happening This Morning

US futures: (S&P +2.50, DJI +11, NDX -3.20 with fair value lower) Asia mixed and Europe lower. Copper and gold lower with WTI Crude Futures lower. $ is lower vs Euro, lower vs. Pound and higher vs. Yen. US ten-year Treasury Yield +.0147. Prices as of 7:55 a.m. EST.

Earnings Expected

Earnings due after the close SHFL STEI. Due tomorrow morning before the open FDS JEF SAFM.

Rags & Mags: Inside Wall Street

We are big fans of www.247wallst.com summary of the newspapers each day. Going forward we will link to their website so you can read their summary, Media Digest

Reported Earnings This Morning

No earnings due this morning.

Data Points

Yesterday saw 1374 stocks rise and 1601 fall on the NYSE. NASDAQ saw 1195 rise and 1239 fall. The S&P 500 now back below its 50 day moving average and above the 200 day moving average. The 10 day spread moving average of breadth is now positive again, barely, and we remain with the buy signal but a turn may be forthcoming. We are back to invested on the Madison Market Timing Indicator.

 

Economics

Due out this week housing starts, Q3 GDP, existing home sales, leading indicators, personal income and Michigan Confidence.

Politico

The horse trading over the fiscal cliff continues between House Speaker Boehner and President Obama. ECB President Mario Draghi testifies before the European Parliament about economic and monetary affairs. Richmond Federal Reserve President Lacker speaks.

Conference & Analyst Meetings

Analyst Meetings UNM GE.

Conference of Note

None of note.

M & A News

CLWR to be acquired by S for $2.97.

Key Upgrades and Downgrades

Firm Upgrades Downgrades
JP Morgan
Goldman Sachs
Morgan Stanley
Deutsche Bank
Citigroup SPG SKT
Barclays
Wachovia/Wells Fargo
Credit Suisse
Banc of America
UBS
Lazard
Merrill Lynch CPHD
Jefferies
Oppenheimer
Dahlman Rose LCC UAL DAL LUV
Sterne Agee ONNN DIOD TXN

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Daily Playbook & Earnings Due For Next Week

December 14, 2012

In After Hours Trading

ADBE (+.05), CIS (0.10), NDSN (+.01), ZQK (-.02), PAY (0.00).

What’s Happening This Morning

US futures: (S&P +2.20, DJI +27, NDX -2.0 with fair value flat) Asia higher ex Japan and Europe mixed. Copper and gold higher with WTI Crude Futures lower. $ is lower vs Euro, lower vs. Pound and higher vs. Yen. US ten-year Treasury Yield +.0001. Prices as of 7:55 a.m. EST.

Earnings Expected

Notable names next week SHFL FDS JEF SAM AIR ORCL FDX GIS NAV KMX CCL CAG DFS DRI KBH CTAS FCEL MU NKE RHT RIMM TIBX WAG.

Rags & Mags: Inside Wall Street

We are big fans of www.247wallst.com summary of the newspapers each day. Going forward we will link to their website so you can read their summary, Media Digest

Reported Earnings This Morning

No earnings due this morning or after the close.

Data Points

Yesterday saw 910 stocks rise and 2113 fall on the NYSE. NASDAQ saw 926 rise and 1543 fall. The S&P 500 now back above its 50 day moving average and above the 200 day moving average. The 10 day spread moving average of breadth is negative but we remain with the buy signal but a turn may be forthcoming. We are back to invested on the Madison Market TimingIndicator.

 

Economics

November CPI is due out at 8:30 a.m. EST and is expected to drop to -0.2% from 0.1%. Meanwhile, at 9:15 a.m. EST November Industrial Production is expected to improve to 0.2% from -0.4%.

Politico

The hrose trading over the fiscal cliff continues between House Speaker Boehner and President Obama.

Conference & Analyst Meetings

Analyst Meetings CNC LUV ITW SMG ASTX AVGO. FB lockup expires on 156 millions shares.

Conference of Note

M & A News

Key Upgrades and Downgrades

Firm Upgrades Downgrades
JP Morgan
Goldman Sachs MRO TIVO
Morgan Stanley
Deutsche Bank
Citigroup HST LFRGY TDW GLF HOS
Barclays
Wachovia/Wells Fargo
Credit Suisse
Banc of America
UBS
Lazard
Merrill Lynch ZUMZ
Jefferies ESV SNY
Oppenheimer
RBC
Bernstein
Stifel Nicolaus
Societe Generale AZN
Keefe Bruyette
Friedman Billings
Robert W. Baird
Needham
Nomura DVA SPW

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Sticking With P, Pigs Get Slaughtered

We wrote about P the day before earnings and recommending buying with a put. It brought out entry cost down to $8.91. The stock is at $8.54 this morning and the short squeeze is on with Erlanger Volume Swing staying about zero which is a big plus.

The chart below shows that many shorts are still in this name and that buyers are still hanging in there. The stock sold off NOT on earnings but guidance over the fiscal cliff. If the can is kicked down the wrote, then P could squeeze shorts that are being rather piggy here with big gains. Remember the most you can make on a short is 100%.

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Daily Playbook “What Will Move Markets Today”

December 13, 2012

In After Hours Trading

AVNR (-.01), RH (+.03).

What’s Happening This Morning

US futures: (S&P -1.20, DJI +5, NDX unchanged with fair value flat) Asia lower ex Japan and Europe lower. Copper and gold lower with WTI Crude Futures lower. $ is higher vs Euro, higher vs. Pound and higher vs. Yen. US ten-year Treasury Yield +.0035. Prices as of 7:55 a.m. EST.

Earnings Expected

ADBE NDSN PAY ZQK due after the close. No earnings due Friday morning before the open none of note.

Rags & Mags: Inside Wall Street

We are big fans of www.247wallst.com summary of the newspapers each day. Going forward we will link to their website so you can read their summary, Media Digest

Reported Earnings This Morning

CIEN (-.01), HOV ( ), PIR (+.01).

Data Points

Yesterday saw 1473 stocks rise and 1559 fall on the NYSE. NASDAQ saw 982 rise and 1502 fall. The S&P 500 now back above its 50 day moving average and above the 200 day moving average. The 10 day spread moving average of breadth is positive and is now back to a buy signal. We are back to invested on the Madison Market Timing Indicator.

 

Economics

November PPI and Retail Sales are due out at 8:30 a.m. EST and is expected to drop to -0.5% from -0.2% and improve to 0.5% from -0.3%. Weekly Jobless Claims due out at 8:30 a.m. EST.

Politico

Fiscal Cliff discussions continue and sound bites will impact markets.

Conference & Analyst Meetings

Analyst Meetings PSX HI UTX. Conferences of note Gabelli Annual Best Ideas Conference, Bank of America Merrill Lynch 2012 Denver Health Care One on One Conference, Desjardins Capital Markets Materials Conference and Montreal Energy Conference.

Conference of Note

M & A News

Former head of Best Buy (BBY) may bid for the company.

Key Upgrades and Downgrades

Firm Upgrades Downgrades
JP Morgan
Goldman Sachs YUM AVGO AXS UTHR IRF
Morgan Stanley
Deutsche Bank
Citigroup BKW EAT LLTC
Barclays
Wachovia/Wells Fargo
Credit Suisse
Banc of America
UBS
Lazard
Merrill Lynch
Jefferies VRA NBR
Oppenheimer
RBC
Bernstein
Stifel Nicolaus
CLSA
Keefe Bruyette
Friedman Billings
Robert W. Baird
Needham PPLXS

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Shorts Digging In Their Heels In Front of Fiscal Cliff

Short interest numbers for the NYSE are reported for the period of settlement date November 30th. Short interest numbers have increased to 13,670,086,010 from 13,604,232,418 shares for an increase of 65,853,592 shares or 0.48% with 1967 advancers and 1517 decliners and seen more advancers than decliners in 38 of the last 75 initial reporting periods.

During this period on a trade date basis (11/12 to 11/27), the S&P rose 1.37%. The conclusion is shorts continue to add as the market rallied. There have been increases in seven of the last fourteen reporting periods. The next short interest collection covers from 11/27 to 12/11, the S&P 500 rose 2.07% with Tuesday cementing the change.

Short interest numbers for NASDAQ are reported for the period of settlement date November 30th. Short interest numbers were 7,779,511,734 shares from 7,585,572,651 shares for an increase of 193,939,083 shares or 2.56%. There were 1597 increases and 917 decreases. In the last 75 reporting periods, NASDAQ has seen more advancers than decliners in 42 of the 75 last reporting periods.

Dedicated short sellers lost -0.43% in October, as reported by www.hedgeindex.com and now YTD -12.66% while the index made 7.32% in 2011. For 2010 this index was down -17.79%. For 2009 this style lost -14.62%. In 2008, short sellers lost -1.52%. In 2007 short sellers made 4.14%.

Later today we will post some selective comments once Phil Erlanger updates his comments as well.

Comments »

Daily Playbook

In After Hours Trading

MCP fell in after hours after its CEO Mark Smith resigned.

What’s Happening This Morning

US futures: (S&P +3.70, DJI +24, NDX +6.50 with fair value lower) Asia and Europe higher. Copper and gold higher with WTI Crude Futures higher. $ is lower vs Euro, lower vs. Pound and higher vs. Yen. US ten-year Treasury Yield +.01. Prices as of 8:00 a.m. EST.

Earnings Expected

RSTO AVNR due after the close. Due Thursday morning before the open none of note.

Rags & Mags: Inside Wall Street

We are big fans of www.247wallst.com summary of the newspapers each day. Going forward we will link to their website so you can read their summary, Media Digest

Reported Earnings This Morning

COST (+.02), JOY (+.01).

Data Points

Yesterday saw 2045 stocks rise and 971 fall on the NYSE. NASDAQ saw 1762 rise and 713 fall. The S&P 500 now back above its 50 day moving average and above the 200 day moving average. The 10 day spread moving average of breadth is positive and is now back to a buy signal. We are back to invested on the Madison Market Timing Indicator.

 

Economics

None of note.

Politico

The Federal Reserve is expected to announce its follow-up action to Operation Twist. Decision due at 12:30 p.m. EST. Federal Reserve Chairman Bernanke to speak at 2:15 p.m. EST.

Conference & Analyst Meetings

Analyst Meetings AKAM TSO ENR AET EMN BFO. Conferences of note Dell World, Wedbush Securities Consumer Conference, Macquarie Global Metals & Mining Conference and the Annual Alzheimers Drug Development Summit.

Conference of Note

Power-Gen International Conference.

M & A News

No deals of note overnight.

Key Upgrades and Downgrades

Firm Upgrades Downgrades
JP Morgan DDD STX
Goldman Sachs
Morgan Stanley
Deutsche Bank
Citigroup
Barclays
Wachovia/Wells Fargo SF
Credit Suisse
Banc of America
UBS
Lazard
Merrill Lynch CPLP
Jefferies
Oppenheimer
RBC
Bernstein
Stifel Nicolaus
CLSA
Keefe Bruyette
Friedman Billings
Robert W. Baird TW PB
Needham
Cowen
PiperJaffray ALNY TTWO
Dahlman Rose
RBS
Raymond James
CIBC
Dresnder
Key Banc ABM

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