Tag Archive | protection

Hedge fund leverage in the industry – how its grown

SmartStops comment:   Who watches out for the little guy?

A chart from MIT’s Andrew Lo of the growth of assets and hedge fund leverage over the last 20 years. You can see the expanding leverage in the 2001-2005 period.  originally posted at Infectious Greed blog.

Hedge Fund Leverage how-its-grown

Hedge_Fund_Leverage how-its-grown

Valuations in Free-Fall: S&P 500 Cheapest Since 1957!

 originally published at Kapitall, who go on to identify potential stocks to play.

The Standard and Poor’s 500 index valuation has hit 25% below the average from the last nine recessions, even as price estimates continue to fall, according to Bloomberg‘s data. These estimates provide a statistically significant outlook on analyst expectations for future growth and the degree to which stocks might be considered undervalued.

Historically, market contractions have not reached these lows since 1957 when the gauge for American equities traded at 13.7 times forecast earnings. Today’s equities trade at 10.2 times 2012 forecast earnings and earnings estimates continue to fall to their lowest level since April.

“What you’re seeing is a growth scare,” Wayne Lin, a money manager at Baltimore-based Legg Mason Inc. “The question is, how much of that is priced in. I’d say that if we don’t have a double-dip recession, if earnings just stay flat, these valuations are reasonable. The market already expects those downgrades.” (via Bloomberg)

Unlike previous market crashes or recessions, this one has been relatively slow-going. In the previous nine quarters, companies prepared for further economic volatility and managed to exceed income forecasts after cutting costs and lowering debt. With lowered analyst estimates for 2012 companies will have an easier time hitting their mark.

Whether or not lowered earnings estimates makes today’s stock prices a bargain is an ongoing debate between bears and bulls. According to Rob Arnorr, founder of Research Affiliates LLC, “the measures by which stocks are cheap today rely on continued recovery and a continued surge in already peak earnings. It relies on a very shaky foundation.”

for stock picks, go  to Kapitall.

After the Swoon, Capitulation Trade Opportunities Amid Surprisingly Decent Jobs Numbers

by Raghu Gullapalli, SmartStops contributor .     originally published at Minyanville:

Capitulation Buy Set Up: The S&P 500

 Everyone and their day trading mother is firmly of the belief that tomorrow’s job number will be a disappointment and that the market will continue its death spiral. But on the off chance fate’s fickle hand intervenes and decides to screw with the short sellers it may pay to be prepared.

 One scenario that may play out is a classic capitulation trade. In such a scenario an oversold stock, such as the SPDR S&P 500 (SPY), falls at an unsustainable pace extending itself away from the moving averages. It then snaps back toward the moving averages, sharply reversing direction at the bottom. This small period of time that becomes the focal point of the emotional distress of the sellers, and will provide an opportunity to profit significantly while defining your risk clearly.

 The rally that follows the reversal is a signal that the sellers are no longer calling the shots.

S&P500 SPY Capitulation

Listed below are the signals of an impending capitulation trade opportunity.

Read More…

VIX, Fear and maintaining Intelligent Protection

NEW:  SmartStops has just released its SmartStops Risk Barometer Indicator (SRBI) .   Click here  to check it out and let us know what you think.
SmartStops comment:    Why wait for VIX to go above a 200 day moving average in order to keep yourself protected?    There is a better way with SmartStops.

Are VIX ETFs Breaking Out?          originally published at ETFTrends  

Some traders have been keeping a close eye on the CBOE Volatility Index as a possible “tell” that the rally in risk assets since March 2009 may be due for a breather.

That’s why the VIX’s move above its 200-day moving average Wednesday drew the attention of investors with a technical bent.

The index, which measures the implied volatility of options contracts on the S&P 500, has been relatively subdued during the market’s recent rocky stretch. The benchmark is known as Wall Street’s favorite fear gauge.

However, the VIX was up 18% in the final hour of U.S. trading Wednesday to its highest level since March.

The largest exchange traded product following VIX futures, iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX), rose 8%.

In stock ETFs, a Nasdaq-100 fund was pushed below a key indicator in Wednesday’s sell-off. [Nasdaq ETF Lower]

CBOE Volatility Index


Netflix takes South America

 by Raghu Gullapalli, contributing writer

This morning news came out courtesy of All Things Digital that Netflix (NFLX) the provider of on demand internet streaming video and flat rate DVD-by-mail. was expanding its operations into Latin America.

 Upon the break of this news the stock gapped up in the pre market and looks ready to launch its booster rockets once again in attempt to break the $300 barrier.


 This is a prototypical example of a long gap trade.

  1. Netflix gaps above a long-term resistance level, in this case the all time highs of $277.70.
  2. The premarket volume in the stock exceeded 500,000 shares, ensuring liquidity.
  3. The stock gapped up more than 3%
  4. Netflix gapped on a strong catalyst that did not involve earnings, i.e., the news of its impending expansion into the Mexican, Caribbean and South American markets.

This expansion into these markets south of the U.S. borders, gives credence to Netflix’s (NFLX) foreign expansion plans and lends credibility to the company’s overall strategy. If you will recall, just last fall the company expanded into the Canadian market and in just a few quarters of operations it has is emerged as the market leader.

 With the equity markets reacting well to the news of the Greek bailout and the strong surge over the past week, I have little doubt that the tailwinds from the market could be enough to push the stock into the hallowed $300 territory. An area occupied by precious few technology companies.

 If all that wasn’t enough, how about a cherry on top? In the form of an “F” for Facebook the social media behemoth, that has been considering a joint venture with Netflix. Facebook recently added Reed Hastings, the CEO of Netflix to its board of directors.

But a word to the wise, in this dynamic market landscape, today’s darling could well become tomorrow’s dud, as is well represented by the misfortunes of Research in Motion (RIMM). And market sentiment could change very quickly and could become headwinds blowing in the face of upward momentum.

 SmartStops intelligent risk management software has the short-term and long-term stop for Netflix at $239.64


NetFlix SmartStops Chart - NFLX



Driving the stock market boom – Is it company buy-backs?

By Brett Arends, MarketWatch

NEW YORK (MarketWatch) — A new report from TrimTabs, the investment analysts, has blown the whistle on what really went on behind the stock-market “boom” we saw in the first quarter, when the S&P 500 Index rose more than 5%.

No wonder everyone turned bullish by the end of March — just before the market started tanking again.

So who was driving up the market? What was creating this boom?

Turns out it was the companies themselves. TrimTabs says companies spent a thumping $124 billion in the first three months of the year trying to boost their share prices by buying up stock.

That works out at about $2 billion for every day the market opened.

Meanwhile, according to Trim Tabs, guess who avoided buying stock during the first quarter? Company executives. The “insiders.”

These are the guys whose stock purchases tend to strongly signal bull markets and genuine booms. They were spending investors’ money buying their stock, but weren’t spending their own.

TrimTabs says insiders’ stock purchases came to less than $2 billion for the entire quarter, a comparatively low level.

“We’ve never seen such a sharp contrast between what insiders are doing with their own money and what they’re doing with the money of the companies they manage,” TrimTabs Chief Executive Charles Biderman wrote in a note. Stock buybacks outnumbered executive stock purchases by the highest ratio TrimTabs has seen since it started tracking the numbers back in 2004.

“While insiders are willing to use corporate cash to try to support the value of their stock-based compensation, they don’t seem to think their stocks are attractively priced,“ Biderman said.

No kidding. When it comes to insiders, follow what they do, not what they say.

When company executives are spending their own money buying stock, it’s a bullish sign. After all, who better knows their companies’ prospects? But when they are sitting on their hands or cashing out, it’s not so good.

As for companies buying up their own shares, this needn’t be a bad thing. After all, if you drive up stock prices, all shareholders benefit.

Share buybacks also are a pretty good way of returning cash to investors. They’re not as good as paying dividends, but they are a better investment than most of the other things management likes to do with the money — like investing in pet projects, or providing more executive perks or making ill-timed acquisitions.

Alas, in this case, there’s another chapter to this story.

Read More…

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