Feeling like a Turkey!

The Market continues to show resiliency, especially during this Thanksgiving week -- continuing to make your friendly neighborhood Kcap team as well as other long/short hedge funds feel like turkeys of the worst kind.

Most traders know that historically, Thanksgiving week has a stubborn bid underneath it. This is especially true when performance anxiety gets mixed into the equation as is the case with the current environment. More than any rally over the past six years, the current environment has created tremendous angst. Most long/short hedge funds have severely underperformed due to their hedging abilities as well as their active trading operations. You would be hard pressed to find a hedge fund that has not taken partial profits along the way – leaving them noticeably underinvested during the past few months. That, in combination with their short positions has created the most unwelcome rally that many can remember. Only the long only mutual funds, which have a mandate of being fully invested at all times, have prospered handsomely since July. However, they will be the same funds that will get whacked when the performance anxiety among the hedge funds runs its course. Naturally, the hedge funds that capitulate last will suffer the greatest humiliation of all … missing the rally and holding the bag.

The market is extremely overextended by any metric that professionals measure it by. In fact, the VIX is at a historic low, which indicates that complacency is at a historic high. Amazingly, performance anxiety has been able to trump these metrics for the time being. Unfortunately, the piper must be paid, and it is only a matter of time. Whether or not it happens in 2006 is too difficult to determine at this point. In fact, any pullback from here next week is likely to still be met with dip buyers. Furthermore, a potential pullback would actually increase the chances for a continuation rally into year-end. This of course would be negated should the pullback occur on unexpected geopolitical news and cold weather – which might lead the oil sector higher.

The larger market pullback -- that we have been unsuccessfully planning for -- is still out there, but clearly not making it easy for your friendly neighborhood Kcap team. We have been actively trading over the past few months with a short side bias. It does not take a rocket scientist to see that this approach has been an upstream battle. Other than our large gold & oil plays we have been unsuccessful in racking up meaningful performance over the past couple of months. Our frustration levels are high, but so is our confidence that we will be ultimately proven right. Our view remains that a major bull market is imminent in the NASDAQ large cap stocks – perhaps lasting two to three years. However, we have been anticipating that Mr. Market will offer one more correction before the real upward move can take hold. Unfortunately, we have been off with our timing, but our metrics still show that the real fireworks cannot take place without one more major disappointment for the bulls. Most professionals will tell you that the market has rarely launched a multi-year sustainable upward move with such weak internals, especially after it has rallied without a healthy correction for an extended period of time. The market has been exhibiting signs of exhaustion for quite a while – being propped up by underperforming money managers that are finally capitulating and joining the party.

If you held a Taser to our Head
Patience is a virtue and will reward participants with significantly better entry points. Traders need not feel left out especially if the NASDAQ is truly entering a multi-year bull phase.

Have a happy Thanksgiving – and always remember that market opportunities are infinite as long as you have capital to work with. Chasing extended stocks at these levels comes with tremendous risk to your capital.

Hope you traded well!

___________________________________________________
The analysis, opinions and/or forecasts expressed on the Kcap Trading Blog (“KTB”) are for informational purposes only and should not be relied upon in making investment decisions. By using this site you agree that Kleiner Capital Management, LLC (“KCAP”) and its principals are not liable for any action you take or any decision you make in reliance on any content. Please be aware that there is no commitment by KCAP to update the KTB. Furthermore, there may be inconsistent timing and follow up (if any) of posts.
None of the information on KTB is considered individualized investment advice and should not be construed as a recommendation or solicitation to purchase any securities. Reliance on information provided on KTB in no way establishes an advisor-client relationship. Investors are encouraged to seek the advice of a qualified investment professional prior to investing funds.
Clients of KCAP, as well as the firm’s principals and other employees, may be invested in securities discussed at KTB. However, any mention of said securities is not intended to influence market conditions for the security to the benefit of KCAP clients and/or principals and employees. KCAP is not affiliated with any advertisers on this site and does not endorse any of their content. For additional information and disclosures, please visit www.kleinercapital.com.
The information on KTB has been furnished from sources we consider to be reliable, but no guarantee is made with respect to accuracy.
___________________________

Click Here To E-mail Comments