Hedge Fund, Mutual Fund and other Money managers have 12 weeks remaining

The buying that institutional investors began the prior week turned into a tsunami of buying sentiment last week. Unlike the first cycle of buying 5 weeks ago that failed to establish an uptrend, this wave of buying has involved much higher volumes and included a majority of stocks – suggesting institutional resolve this time around is much more widespread.

There were no significant developments to attribute this sudden sentiment reversal to, other than possibly delayed relief reaction that the Fed did not raise interest rates or the fact many stocks can be obtained at the lowest prices of the year. Cynics would point to just as likely a reason: hedge fund, mutual fund and other money managers have just 12 weeks remaining in the year to push stocks into positive territory in order to earn their year-end compensation bonuses for having delivered clients a positive annual investment return.

For us this sea change in sentiment means a “sea of yellow” below, with by far the most trade signals of any week this year – almost all are short exits (buys to cover + avoid) or full reversals (short exit + buys) or buys of previously avoided stocks, with a few exception stocks that continue falling and remain short. Among most Levels, new weekly highs matched or outnumbered new weekly lows for the first time in months. Numerous trade choices for those of you who cannot short and have been waiting patiently.

Highlights: 4 new weekly highs. Double-digit long gains in MESG +23% on large rise and NOAH +14% in first week.

4 new weekly lows, from recent short trades. Double-digit short gains in ADXS +17%, CARA +10% and XNCR +15%. Locking in gain of +10% in XOXO (21 weeks).

Analytics: The tweak made several weeks ago to lessen sensitivity to short exits has proven too aggressive – it caused a number of shorts to be held through last week that would have been advantageous to exit the week before – producing some uncharacteristically large short exit losses this week, particularly on those short trades entered 2 weeks ago. This has been recognized and dealt with, analytics adjusted at a mid-point “Goldilocks” sensitivity setting – “not too sensitive, not too in-sensitive, just right” – for more favorable outcomes going forward.

Stock list changes: Further adding to trade signal totals this week is a larger than usual number of substitutions. Deleting BAH, with others planned when current trades close out. Adding the following, with past compound trading returns listed and trades indicated:

Barrick Gold Corp (ABX) [gold/silver], +79.4% in past 14 months
TrueCar Inc (TRUE) [computer services], +63.7% in past 6 months
Urban Outfitters Inc (URBN) [retail-apparel], +60.5% in past 10 months

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