Hedge Funds Chase For Performance

Down The Stretch They Come – S&P 500’s Big Breakout

Why A Very Minor  Bear Turned Major Bull On The S&P 500

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What the heck is going on? That is want to know. I have been writing for days, saying the market was going lower, potentially as low as 2,500, a mere 3 percent pullback.  Even last week I was cautious saying I would not be a believe the rally until the S&P got over 2,595. Apparently, the market felt that 1.5 percent pullback in the S&P 500 was sufficient and it was time take things higher. Because today the S&P 500 went through 2595, and now rest just at barely below 2,600. We can see the psychological level of 2,600 put the brakes on things for today. I’d think that gets taken out in tomorrow’s trading session.

Hedge Funds Chase Performance

What driving today’s rally and likely the rally until years end is the chase for performance with just five weeks left in the trading year. In fact, according to Eurkeahedge Hedge Fund Index is up 6.93 percent by the end of October, versus an S&P 500 which is now up over 16 percent.  It gets even worse when looking at the Eurkeahedge North America Hedge Fund Index, which is up only 4.66 percent. Ouch!

The S&P 500 has now broken out; there is no doubt about it. In fact, my thought and hopes had been for a pullback and leading to an end of year rally. I wanted to avoid having to witness a total market melt-up. It would seem a melt-up scenario could now be very likely.

With today’s breakout, it seems investors no longer want to take a chance on missing an opportunity to get into the market and instead took it up.

The S&P 500 blew right through 2 resistance level as if they didn’t even exist.

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S&P 500 Hedge Funds Chase For Performance

The #FAANG stocks plus Tesla ($TSLA) easily outperformed the broader S&P 500 today. Netflix ($NFLX) shares were the worse performing, and they were up about 1 percent.

NFLX Price Chart

NFLX Price data by YCharts

Could we see an S&P 500 rise to 2,700 before years end, very possible? Especially with such lousy levels of performance by the hedge funds, it would seem they need to add some performance to their returns.

In fact, a chase for performance could push the S&P 500 into that purple box I have drawn in, to a range of 2,650 to 2,700, but I would lean more to 2,700.

Now, I know what you are thinking, this guy has been writing for a week that the S&P 500 was going to fall to 2,500, now he is flipping. Yeah, I’m flipping because of my first rule, always realize when you are wrong and most important, admit it. We aren’t going to be right all the time. Besides I wasn’t entirely wrong, I got the direction right; I just overestimated the pullback, by 1.5 percent.

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 Technology

Technology ($XLK) have completely broken out as well, just like the S&P 500.

Technology

Apple shares also broke out today of its recent downtrend.  It seems the stock could potentially move back to $180.

Microsoft ($MSFT) shares broke out as well.

One stock that did not break out was Amazon ($AMZN), with the stock getting right back to resistance. Surely interesting. What it means, not entirely sure. But we shall watch.

Discretionaries broke out a while ago.

Hedge funds chase performance

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At this point and only five weeks left in trading one has to one what the potential catalyst will be for the market not to continue to rise. Earnings season is over; the Fed is expected to raise rates, the tax reform seems as though it should get done. Barring a collapse of tax reform or a geopolitical event, it would seem unlikely for a major catalyst to form.

The VIX Index closed below ten today.

Good Night.

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Michael Kramer and the Clients of Mott Capital owns shares of NFLX, TSLA, GOOGL

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.

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Tags: #SP500 #Technology #Microsoft #Amazon #APPLE #Discreationary #Stocks