Dark Horse Hedge is Rocking On
by Sabrient - March 9th, 2011 2:42 pm
By Scott at Sabrient and Ilene
For those about to rock, we salute you – AC/DC
Dark Horse Hedge is Rocking On
With February and the most of earnings season passing, we decided to "stand up and be counted" with a summary article on the VIRTUAL Dark Horse Traders’ Hedge (DHH) virtual portfolio.
Our mission has been to generate absolute returns through the use of a tilted Long/Short strategy that remains market neutral, but with a partial bias towards momentum (as defined by measuring the S&P 500 relative to its 50 and 200 day Moving Averages). We have been tilted to the long side since October 2010.
Over the long term, reasons for using such a strategy include being positioned to take advantage of both bull and bear runs. As evidenced by the near zero returns of the market over the last 10 years, buy-and-hold strategies are majorly flawed. The market also teaches hard lessons to those who attempt to predict direction, and has forced many retail investors to reconsider their strategies after being pounded in 2001 and 2008.
Alpha is a measure of a return over and above a benchmark index’s return, and Beta is a measure of the virtual portfolio’s performance as it is correlated to movements of the market. With DHH, we strive to optimize Alpha while minimizing Beta to protect our virtual portfolio in up and down markets. Beta is reduced by holding both Long and Short positions and using a rules-based approach to determine which stocks have the best chacteristics to benefit when the market is rising, and conversely to determine which stocks are most apt to perform poorly when the market is falling. In other words, we want to be long stocks of the best companies and short stocks of the worst companies – we want to identify the "tails" of a market, index, sector or basket of stocks.
Once a virtual portfolio of Long and Short stocks is established, then it is a matter of gaining the desired exposure using the available…
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DARK HORSE HEDGE – Can’t Get No Satisfaction
by ilene - September 9th, 2010 4:31 pm
DARK HORSE HEDGE – Can’t Get No Satisfaction
Courtesy of Scott Brown at Sabrient and Ilene at PSW
When I’m drivin’ in my car
And that man comes on the radio
He’s tellin’ me more and more
About some useless information
Supposed to fire my imagination
I can’t get no, oh no no no
Hey hey hey, that’s what I say
I can’t get no satisfaction, The Rolling Stones
Phil Davis put the “He’s tellin’ me more and more, About some useless information” into perspective Tuesday when he wrote:
Nice market take-down by the Journal this morning, who led off with an article questioning the EU stress tests saying: "From this point of view, it is not surprising that the doubts raised about the validity of the stress tests are weighing on the Euro and also on other risk-correlated currencies." Then, to make sure no one misses the article, they run another headline for the US markets that says "Concerns Over EU Banks Hit Euro" in which they quote themselves:
"New concerns about the ability of European banks to weather the financial crisis came after the WSJ story highlighted once again the weaknesses of the stress tests. The report helped to widen the bond spreads on peripheral debtors and knocked European stock markets lower as another wave of euro zone jitters hit the market."
Phil continued: “think about the “nature” of this story. There is nothing NEW in this NEWs, is there? It’s the kind of article that could be written any time someone wants to push the markets. Even the data they are using is from back on 3/31 – they didn’t even bother to update their facts for Q2!”
Sure enough by Wednesday, 24 hours later, the headlines countered: “Stocks resume rally as European debt worries ease.”
It is worth noting…
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Monday Market Movement – Pattern Recognition
by phil - November 2nd, 2009 8:24 am
Here’s a scary chart pattern for you from our Chart School:
Elliot Wave Trends points out that the S&P has fallen into a fractal patten that may be repeating the behavior of the great drop of ’08, right here, right now. Of course patterns do SEEM to repeat themselves all the time – until they don’t – but it will be interesting this week and next to see if we follow-through with a flatline, followed by a drop to 1,000 from which we falsely back to 1,050 and then plunge to our doom as Santa foresakes us and we run all the way back down to our lows.
That’s where they lose me. Charts are fun and all but I see no basis for going back to our lows as our lows were ridiculous and caused by panic-selling in a doomsday scenario. Hard to imagine things will fall apart that badly between now and Jan earnings although I do believe we will have a rough time — just not that rough!
Barron’s surveyed Money Managers this weekend and they don’t seem to think things will be rough at all. 52% of those surveyed think there is NO WAY we will have a double dip recession. 76% believe that the decline in corporate profits has ended and 68% believe our GDP wil grow more than 2.5% in Q4 while just 10% believe it is possible for commodity pricing to fall in the next 6 months. You know what they say about when everyone is on the same side of a bet of course!
These are the people we give our money to – the biggest and "brightest" of hedge fund managers who control over $1Tn of assets under management. Favorite stocks in the group are: MSFT, ABT, BAC, BRK.A, CVS, GE, GS, LEG and QCOM. Stocks that are considered overvalued are: AIG, AAPL, GOOG, CAT, AMZN, C, GE, GMCR, VZ and YHOO. Ony 7% think Asian stocks are heading lowed, just 1% less than 8% who feel oil is going down; 92% don’t feel oil will go down.
Everybody likes Tech (just 0.9% think it will be the worst performing sector) and nobody likes the Financials (22.5% think it will be the worst performing sector) followed by Consumer Cyclicals (20.7%) and, oddly, Utilities (15.3%). The sectors picked as the best performers for the next 6-12 months are Tech (18.9%), Energy (17.1%) and Health Care (17.1%). Only…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.
