Posted by: jhamon | March 12, 2010

MysteryHedgie: A Twofer

Since the November lows in the US$ the small cap US Russell 2000 has roared ahead, most noticeably against the SPX, the large cap Index whose constituents export more and are therefore more adversely impacted by a rising $ than Russell 2000 names.

The correlation between the US$ and the IWM/SPY since the 11/26 lows has been very noticeable…

While we believe the $ will continue to move higher as 2010 progresses (PIIGS won’t fly), the ongoing “positioning pause” is likely to last awhile longer. If you are considering hedging your $ exposure or equity market exposure more broadly…

Monday is the Ides of March, we think equity hedging is a very wise choice at this (potential turning) point… sell IWM/buy SPY (like all other options right now, IWM puts represent excellent value in the March 31st and April expiries)…you get two hedges for the price of one……

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Posted by: jhamon | March 11, 2010

One More ARES Stock: RT +42% Since 12/17/09

ARES Stock RT +42% Since 12/17/09

Posted by: jhamon | March 11, 2010

Another ARES Winner: SUPG +18.7%

Posted by: jhamon | March 10, 2010

ARES Winner: VICR +28.7% Since Entry

VICR: Up 28.7% since entry on 2/11/10.

VICR: up 28.7% since entry on 2/11/10

Posted by: jhamon | March 10, 2010

MysteryHedgie: The Risk Manager Reflects

Order flow observation…as this morning’s gentle squeeze higher continues, led again by C’s trading through $4 as we thought likely in yesterday’s note, we have seen consistent sellers of “teenie” puts (so named after when options used to trade in sixteenths)… predominantly IWM March and April and XLF March and April, the leaders of this last rally leg.

While there are as yet few signs of imminent reversal (C’s inability to close above $4 today could be one such sign) selling this type of put options for scant income seems to disregard all the lessons learned from 2007-08.

The risk manager in us wants to take note of March’s tendency for market turning points, especially 2000, 2003 and 2009. With VIX 17, bond and gold and oil options similarly cheap, optionality makes sense….

Posted by: jhamon | March 9, 2010

MysteryHedgie: The Cream Rises

The Cream Rises… stocks and selected commodities continue to squeeze higher, led by financials, AIG (where borrow is quite difficult to obtain) and C; where the break above $3.76, the 200 Day Moving Average, has opened the door for $4 and higher as the 3/16 date for the contemplated stock sale by the US looms.

We see the 3/16 date as a potential win-win for C as no planned sales are a clear positive, whereas a sale is met by a list of “strong handed” longs willing to add to positions at “still depressed” prices.  It calls to mind the “unintended consequences” of the British Government’s gold sales in 1999, where supply counterintuitively unlocked a huge rally (below).

Now, as then, government involvement in markets can surprise (climactically?) as the Ides of March approach.

1999 Gold Spike

Posted by: jhamon | March 3, 2010

MysteryHedgie: Record Euro Shorts Portends A Bounce

Connecting the dots between record speculative shorts in the Euro (see CFTC chart below) and the headlines “US said to tell Hedge Funds to Save Euro Records” and “Banks summoned by EU to Discuss Sovereign CDS Market” and the prospect of a “short squeeze” in the Euro to 1.40+ has developed…

The temporary government FX rescue underpins risk assets, especially gold, ready for $1200 once more. With hedge funds generally at the low end of traditional exposures, call options on a variety of stocks and commodities, trading near two year low implied volatilities, are a sensible limited risk way to participate, should you choose.  The anniversary of the major 3/6/09 S&P low looks to be cause for a risk asset celebration; we don’t have to beware the Ides of March for another 12 days….

Euro Shorts Ready For A Pounding?

Posted by: jhamon | March 2, 2010

A Favorite Cartoon

Then Yeshua told them a story: “A rich man had a fertile farm that produced fine crops. He said to himself, ‘What should I do? I don’t have room for all my crops.’ Then he said, ‘I know! I’ll tear down my barns and build bigger ones. Then I’ll have room enough to store all my wheat and other goods. And I’ll sit back and say to myself, “My friend, you have enough stored away for years to come. Now take it easy! Eat, drink, and be merry!”‘ “But God said to him, ‘You fool! You will die this very night. Then who will get everything you worked for?’ “Yes, a person is a fool to store up earthly wealth but not have a rich relationship with God.”  (Luke 12:16-21 NLT)

Posted by: jhamon | March 2, 2010

(Late) MysteryHedgie: Why Are Equities Rising?

(This was written yesterday by MysteryHedgie, but we were out of pocket.  Our apologies.) 

Follow the Money… Market participants are wondering why the Euro and the British Pound can be so weak vs. the $ today (this has been a sign of general market distress in recent weeks) yet equity markets remain buoyant. We think the answer lies with beginning of March flows. 

With participation and conviction light, the “black boxes” are investing in the trends broadly defined by their 200 Day Moving Averages; short £ (see below ) short €, long $A and $C, yet gold is bid, and stocks, where most indexes (the Israeli TA-25 has made a new high, even as oil trades $80) remain above 200 DMA’s. 

Expect the alpha-generating quiet to persist prior to Friday’s US Jobs report where a number that deviates from the -50k consensus can reinforce or change trends based on the Yield Curve’s reaction. 

The Pound Plummets

Posted by: jhamon | February 25, 2010

Some Recent Trades…

I thought folks might want to see some of the recent trades we’ve been finding.  We are contemplating a subscription service to identify trading ideas like these.

If you are interested, please let me know

Shoes, of all things…

Long BWS - 1/13/10

 …and donuts (old timers remember this one from the dotbomb aftermath):

Long KKD - 2/10/10

BarcoLoungers

Long LZB - 11/20/09

 Semiconductors (you expected that, didn’t you?):

Long MCRL 2/2/10

 Pharmaceuticals

Long SCLN - 1/13/10

 … and BBQ!

Long TXRH - 11/17/09

Quite a mix of ideas!   Please subscribe to Outside The Box by email.

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