Hedge Fund Havoc Day

What you saw yesterday was an example of hedge fund havoc day.

4 of the 5 biggest gainers on Tuesday in the S&P 500 were stocks which had dropped over 25% in the past three months. And the largest % losers came mostly from lower volatility stocks which have risen over the same period. The hedge funds were covering their shorts and selling their longs as they were unwinding positions triggered first from events in China and then from Greece. As a whole, there was no US economic event that set-off a 1% down opening. It was simply following money that began moving hours earlier in Asia and then Europe.

As you can see from the NASDAQ, there still appears to be a lot of money that’s ready to be deployed, especially into the higher beta stocks. This money is looking to chase returns over the next three weeks. A fund that is charging 2 and 20 is not going to make large returns trading higher quality, lower volatility returns in 16 trading days. They need to chase movement which means expect to see more out-sized moves in the higher volatility stocks.

The major indexes are now neutral/slightly oversold. Watch the NASDAQ (QQQ) closely through year-end because they’ll move into and out of those stocks first.

Today’s Potential Opportunities on Further Pullbacks: