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My Equity Scenario for the Rest of 2010

madhedgefundtrader's picture




 

Not a day goes by when I don’t fall down on my knees and thank the heavens that I avoided equities for much of this year (click here for “I’d Rather Get a Poke in the Eye With a Sharp Stick Than Buy Equities” in January at http://www.madhedgefundtrader.com/january_4__2010.html). Trading in American stocks this week is a sloppy, low volume, conviction free affair. Good thing I focused on the grains, the Canadian and Australian dollars, emerging market equities and debt, junk bonds, precious metals, rare earths, and a few special situations like BIDU, POT, AGU, FCX, BP, RIG, and MOS.

I am hoping for a final flush this month which would breaks the 1000 support which has held for 3 ½ months and takes us down to my long standing 950 target for the S&P 500 (click here for “Why There is No Place to Hide in This Sell Off” at http://www.madhedgefundtrader.com/may_21__2010.html ). Gold’s positively virile action recently, where it touched $1,260, just shy of an all time high, tells you that September may not be a pretty picture.

Historically, stock markets are weak for the six months going into midterm elections. The April 25 top on the SPX neatly fits that time table. In every election since 1950, markets then rallied for six months after the midterms, setting up for a nice yearend rally.

The catalyst for the move will be the removal of the elections themselves as an unknown. With the two political parties at contemptible, diametrical, even hateful  extremes, elections these days have a much larger impact on financial markets than they have in the past.

End September will also bring the next round of earnings reports, which should be pretty good. After all, firing people to boost productivity and profitability is the winning business model of 2010. A 950 SPX gives you a PE multiple of 10, the lowest it has been for years. For you technicians out there, 950 also happens to be a key Fibonacci level.

Mind you, we aren’t re-entering a new bull market. I still believe that we will remain mired in the broad trading range in US stock for years that a GDP growth rate of 2% justifies. There are far tastier fish to fry abroad, like in Chile (ECH) (click here for “Chile is Looking Hot” at http://www.madhedgefundtrader.com/august-2-2010.html ), Thailand (TF) (click here for “Where to Buy on the Dip” at http://www.madhedgefundtrader.com/may_18__2010.html ), Indonesia (IDX) (click here for “Keep Indonesia on Your Radar” at http://www.madhedgefundtrader.com/august-16-2010-3.html ), and Poland (EPOL) (click here http://www.madhedgefundtrader.com/june-15-20100-vivian-lewis.html ).

I have often said that markets will do whatever they have to do to screw the most people. Getting as many as possible maximum short in September, then running the markets up for the rest of the year, fits the bill nicely.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

 

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Fri, 09/10/2010 - 10:52 | 574031 Shiznit Diggity
Shiznit Diggity's picture

If the mkt is going to confound the maximum number of people, a more likely scenario would be up in Sept., down post election.

Fri, 09/10/2010 - 10:03 | 573937 freshman
freshman's picture

This is all bull-sh*t. Please give some reasons before predicting market will do this or that.

Fri, 09/10/2010 - 09:56 | 573922 Dismal Scientist
Dismal Scientist's picture

I wonder if MHFT is related to Jonny Bravo. Or is perhaps his idol.

Fri, 09/10/2010 - 09:52 | 573913 sweetwater88
sweetwater88's picture

Did you forget your YCS tout.....

Fri, 09/10/2010 - 09:34 | 573880 Sherman McCoy
Sherman McCoy's picture

As a great trader told me 30 years ago, "those that tell don't know, and those that know, don't tell" Unless, of course you're paying 2 and 20 for the privledge. If MHFT were any good, he'd at least be charging a subscription for his wisdom, not pimping other sites to get his name out there.

Fri, 09/10/2010 - 09:16 | 573863 lbrecken
lbrecken's picture

Look there is no uncertainty regarding elections the expectations are GOP takes house and senate stays DEM.  The uncertainty you speak of is what maybe brining some optimism to mkt BEFORE elections.

Fri, 09/10/2010 - 09:09 | 573849 curbyourrisk
curbyourrisk's picture

With the expiration of the upper end of the tax cuts, will there be equity selling at the end of the year due to this????  If Obamamamamama had let them all expire I would have expected an end of year ROUT to stock.

Fri, 09/10/2010 - 08:51 | 573821 MiningJunkie
MiningJunkie's picture

Holy crap! This smackdown on MHFT is really quite remarkable! Good thing his opinions are offered free, right? (This bout of distemper is launched by fried shorts, I suspect...)

Fri, 09/10/2010 - 07:19 | 573713 alexwest
alexwest's picture

idiot

# for years that a GDP growth rate of 2% justifies.

forgot to add: also 20+% under/un emplyment , and +1.5  trln $ budget deficit..

it will end in 2 years

alex

Fri, 09/10/2010 - 07:36 | 573732 Bankster T Cubed
Bankster T Cubed's picture

What is an appropriate p/e for the market in a system that is headed for collapse sometime between tomorrow and 6 months?

Fri, 09/10/2010 - 09:34 | 573879 chrisina
chrisina's picture

why 6 months?

Fri, 09/10/2010 - 07:14 | 573711 Samsonov
Samsonov's picture

So MHFT, you say you "focused" on 15 separate investments, all of which rang the register huge?  Uh, sure, whatever, and I caught a 1000 lb. blue marlin with a worm on a string.  By the way, while enumerating all the awesome trades you've made this year, you somehow forgot to mention TBT.

Fri, 09/10/2010 - 07:11 | 573707 Bankster T Cubed
Bankster T Cubed's picture

sounds like conventional wisdom to me

Fri, 09/10/2010 - 06:18 | 573692 newstreet
newstreet's picture

Sounds good though.

Fri, 09/10/2010 - 05:14 | 573674 BigDuke6
BigDuke6's picture

What do you expect? - we've got another labour lefty government to piss all the money away and hand out other peoples cash to the lazy and themselves

Fri, 09/10/2010 - 04:34 | 573670 gerriek
gerriek's picture

Be careful of the AUD.

AUSTRALIA'S national debt is threatening to crash through the $1 trillion mark for the first time.

http://www.news.com.au/business/federal-budget/national-debt-to-reach-1-...

Fri, 09/10/2010 - 03:32 | 573641 ZackLo
ZackLo's picture

republicans=rally, democrats = selloff...

Fri, 09/10/2010 - 02:26 | 573601 Murchadh
Murchadh's picture

"Not a day goes by when I don’t fall down on my knees and thank the heavens that I avoided equities for much of this year" - SPX -1% YTD. You missed some big losses alright.

Fri, 09/10/2010 - 02:13 | 573588 traderjoe
traderjoe's picture

I think earnings reports and guidance will disappoint. Seen that with INTC, TXN, etc. Might be priced into some stocks, but not others. I betting on a break below Dow 10k next week. S&P 1040 seems to be the line in the sand. A break below on a 2-3% down day (on bad news) will quickly send us to 1010. PPT won't want a 3-digit S&P, but ultimately that will happen too. 

Fri, 09/10/2010 - 07:56 | 573751 Phat Stax
Phat Stax's picture

Yes the y-o-y comparisons will be increasingly harder to beat as we have moved beyond the former extreme range.

Fri, 09/10/2010 - 02:10 | 573585 SheHunter
SheHunter's picture

Ummmm....how come I didn't have to do a triple negative math calculus eqution with an answer requiring three blocks and only being provided with two before being posted?  You must have tired of having to zap me in red over and over when I gave you a distorted and then irritable answer.  Love it!  Ask me something more pertinent like how to shoe a horse or tell a griz from a black bear print.  But leave the 1 plus -77 squared questions to those in that kind of know.  When the world begins to fall apart those with the math IQ's will be beating a path to the door of those of us who know how to survive in the true sense of the wor(l)d. 

Fri, 09/10/2010 - 11:55 | 574177 grunion
grunion's picture

Now, now, don't take it personally...Unless you are of course, a ROBOT.

This is afterall, a financially oriented site and math is kinda important. At least, I am pretty sure it is still important.

Fri, 09/10/2010 - 02:02 | 573572 SheHunter
SheHunter's picture

Today's market action in the mid-day may have been the most sluggish I've seen to date- slower than the half day before Christmas.  I was watching GS, FCX, SPY along with DNDN and BUCY.  SPY showed a constant stream of (reluctant) activity but each of the others had pauses in action....no buyers, no sellers...just d-e-a-d.  The lack of participation was almost eerie.  A new and disturbing game in town.  Trade the first hour or two and then get out.  You'll become a caffeine addict trying to stay awake to catch a tradeable move later in the trade day.  Short this sucker for now.   

Fri, 09/10/2010 - 01:06 | 573506 Smu the Wonderhorse
Smu the Wonderhorse's picture

With the exodus of retail from equities ("dumb money"), even while I am otherwise very bearish, a strong leg higher following the election along the lines of the article would not surprise me.

Fri, 09/10/2010 - 00:42 | 573470 RockyRacoon
RockyRacoon's picture

With volume being what it is, the last days of the market will be 2 guys standing on the front steps of the Exchange swapping bid/offer tickets.  The algos will be shut down to save electricity. Stocks will surge to 30,000 and CNBC will be ordering new hats.

Fri, 09/10/2010 - 12:38 | 574288 TraderTimm
TraderTimm's picture

RockyRacoon - you get a +100 for that one, really gave me a good laugh on this miserably boring day.

Thanks for that.

Fri, 09/10/2010 - 09:18 | 573866 dr_teeth
dr_teeth's picture

As a puddle forms under Erin Burnet's chair.

Fri, 09/10/2010 - 11:49 | 574171 grunion
grunion's picture

Hah! What a vision you create!

Bet she's heavy in S/M...

Fri, 09/10/2010 - 08:37 | 573792 El Hosel
El Hosel's picture

 

 

 Take off the mask Leo, your are not fooling anybody with the Sybil act.

Fri, 09/10/2010 - 05:48 | 573681 NoBull1994
NoBull1994's picture

Anyone who listens to MHFT is an idiot.  This guy, if he has been following his own recommendantions, is broke.  He is definitely down at least 40% on his TBT call, on which he's been pounding the table for the better part of a year.  My favorite is his January 13, 2010 post "Why the Big Trade of 2010 Will Be a 30 Year Treasury Short (http://www.zerohedge.com/article/why-big-trade-2010-will-be-30-year-trea...)."  He says he is a "worshipper of the TBT" and that "$60 looks like a chip shot for the first half" and that longer term "this ETF could hit $200."  This awesome trade would have lost your ass, as the TBT has gone from $50.37 at the time of his post, to $35.48 on June 30th (great call on the "chip shot" to $60!) to $33.14 at present.  Fucking dumbass, he clearly doesn't even understand the inherent decay in a long-hold leveraged short ETF. 

 

He also resorts to plagiarism when he has nothing better to do (http://www.zerohedge.com/article/here%E2%80%99s-next-hedge-fund-target), which he wrote as if it was his own idea just a couple days after Steve Eisman presented his short thesis on this industry at the Value Investor Conference.

MHFT is a complete waste of space and not fit for Zero Hedge.

Fri, 09/10/2010 - 10:24 | 573976 SteveNYC
SteveNYC's picture

That sure was a poorly timed call. I think now is the time for TBT/PST if anyone wants to have a crack. I think the PPT will belt equities up into the election, bond yields are low enough for Bernanke to keep his woody and allow some movement to the upside in the 7s10s30. Plenty of breathing space here, and last QE saw yields rise.

So, if MHFT is not yet broke, now is the time to make this trade in my opinion. BTW, I was hard long 7s10 since April, made good coin. Now, the hat is on backwards....

Fri, 09/10/2010 - 07:49 | 573742 prophet
prophet's picture

"inherent decay in a long-hold leveraged"

 

I look at the long 3X ETFs held for 2009 and they look pretty solid. 

I don't see much inherent going on there other than daily compounding.  Sequence matters.  Persistent trending matters.  They work exactly how you would expect. 

Fri, 09/10/2010 - 11:46 | 574167 grunion
grunion's picture

I have had the exact same experience with those short ETFs. I would appear to have come through reasonably intact with this position, for what it's worth.

But there is a change in the wind and I am at a loss. Trade trend on technicals? Who the hell knows.

Fri, 09/10/2010 - 06:20 | 573693 VeloSpade
VeloSpade's picture

+10  MHFT has got alot of nerve spewing this crap with his major miss or whatever the hell you want to call it with TBT.

Fri, 09/10/2010 - 06:26 | 573695 VeloSpade
VeloSpade's picture

By the way, MHFT can take his "iconoclastic and out-of-consensus analysis" and shove it strait up his mad ass.

Fri, 09/10/2010 - 06:31 | 573696 VeloSpade
VeloSpade's picture

Should be "off-his-rocker, iconoclastic and out-of-his-fucking-mind analysis."  Yeah, that's more like it.

Fri, 09/10/2010 - 10:19 | 573962 stev3e
stev3e's picture

This guy really brings the quality of this site down with awful recommendations that he later denies or conveniently forgets about.  I'm also tired of his fantasy lunches at posh CA hotels with people who aren't worth a damn even if it were all real.

Do NOT follow this link or you will be banned from the site!