|
PureBytes Links
Trading Reference Links
|
|
Michael-
How about this explanation?
======================
5/15/05 - From
Charles Meyer
Take a look at BMNIX in FastTrack. That fund invests 50% of it's portfolio in
long positions and 50% of it's portfolio in short positions which translates
into pretty much of a market neutral/non-directional posture.
The idea is that when the market is strong the stocks in
which they are 50% long will rise MORE than the purported weak stocks in which
they are 50% short. And when the market is weak; they believe the stocks
in which they are 50% short will decline more than the purported strong stocks
in which they are 50% long.
However; look at their performance during April and May. As can be seen the fund has been
declining in price in spite of the fact 50% of the dollars are in
short positions? How can this be so?
Quite simply; it's the nature of a bear market. While there may be
individual stocks which appear attractive to hold and may even be demonstrating
strength relative to the overall list; the bulls are anxious to protect profits
when those stocks start to fall with the market. This leads to a domino
effect where mutual funds--faced with liquidations--are also forced to sell
stocks: even the attractive ones. You will note that BMNIX tends to
do well when the general market is fairing poorly. But; there comes a
point to where the stocks in which they are long decline more than do the stocks
in which they are short. I'm not
sure this is a good or even an adequate explanation of why this occurs; but the
end result is that even perfect hedging market neutral will lose money in a bear
market. For related reasons; of course all those hedge funds will have an
adverse effect on stocks in a game which can be likened to musical chairs where
too much money is attempting to exploit similar strategies and system edges.
Just my 2 cents.
=================
----- Original Message -----
Sent: Tuesday, May 31, 2005 4:34 PM
Subject: Re: [RT] Parallel moves
I am aware of the phenomenon. What I am hoping for is some
fundamental insight as to *why* the two markets behave that way. Being an
option trader, measuring correlations is part of my routine. And the said
correlation has been unusually strong lately, in several time
frames.
Although I never trade on fundamentals alone, I would still be
interested in the economical basis for this occurrence, and would be grateful
if someone could come up with a fundamentally-oriented
explanation.
Best regards,
Michael Suesserott
Ron
Cernokus wrote:
> These two markets often turn together. Look at
March, April and may.
>
>
>
----- Original Message -----
> *From:* Michael
S. <mailto:MikeSuesserott@xxxxxxxxxxx>
>
*To:* realtraders@xxxxxxxxxxxxxxx
<mailto:realtraders@xxxxxxxxxxxxxxx>
>
*Sent:* Tuesday, May 31, 2005 4:13 PM
>
*Subject:* [RT] Parallel moves
>
> For
some time now, SPY and XLE (Energy Select Spyder)have
been
> moving in tandem, even on 5min. charts.
Any ideas as to the
> fundamental reason behind
this phenomenon? Shouldn't these markets
> be
inversely correlated, if at all? I.e., shouldn't stocks go
down
> when energy becomes more
expensive?
>
> Best
regards,
> Michael suesserott
>
Yahoo! Groups Links
|
No virus found in this outgoing message.
Checked by AVG Anti-Virus.
Version: 7.0.322 / Virus Database: 267.3.0 - Release Date: 5/30/2005
|