Led by some of the smartest people on earth, the hedge fund industry wields market-moving power. The industry’s assets grew by nearly $229 billion last year, to just over $2 trillion. #-ad_banner-#By following these behemoths of the financial world, investors can obtain an edge in creating their own market-beating returns. Without being an insider, how can individual investors know what hedge funds are buying or selling? The Security and Exchange Commission requires hedge fund managers who manage over $100 million to file a Form 13F every quarter. These documents quietly reveal what hedge funds and other large institutional investors are… Read More

Led by some of the smartest people on earth, the hedge fund industry wields market-moving power. The industry’s assets grew by nearly $229 billion last year, to just over $2 trillion. #-ad_banner-#By following these behemoths of the financial world, investors can obtain an edge in creating their own market-beating returns. Without being an insider, how can individual investors know what hedge funds are buying or selling? The Security and Exchange Commission requires hedge fund managers who manage over $100 million to file a Form 13F every quarter. These documents quietly reveal what hedge funds and other large institutional investors are buying and selling. One of my favorite investment tactics is to look for patterns in 13F filings. Companies that have attracted interest from multiple hedge funds can signal a great buying or selling opportunity. I call these buying and selling patterns hedge fund swarms. My basic definition of a hedge fund swarm is when three or more hedge funds buy or sell a particular stock during a single quarter. Obviously, the more funds in the swarm buying or selling, the more powerful the signal. I recently discovered a company that has attracted a swarm of hedge fund activity in the… Read More

From late December to mid-January, airline stocks made another move higher, thanks to expectations of another banner year in 2014. It’s been quite a run for the major carriers such as Delta Airlines (NYSE: DAL) and United Continental Holdings (NYSE: UAL), which have surged more than 600% and 900%, respectively, over the past five years. #-ad_banner-#Credit goes to an investor willingness to stop worrying about the next industry bankruptcy. These carriers are now much more financially stable, and the era of booms and busts has likely passed. Share prices no longer deserve to trade at four or five times trailing… Read More

From late December to mid-January, airline stocks made another move higher, thanks to expectations of another banner year in 2014. It’s been quite a run for the major carriers such as Delta Airlines (NYSE: DAL) and United Continental Holdings (NYSE: UAL), which have surged more than 600% and 900%, respectively, over the past five years. #-ad_banner-#Credit goes to an investor willingness to stop worrying about the next industry bankruptcy. These carriers are now much more financially stable, and the era of booms and busts has likely passed. Share prices no longer deserve to trade at four or five times trailing earnings, which had often historically been the case. Both of these carriers now trade for more than 10 times this year’s earnings. Yet headwinds are beginning to gather for this industry, and United is especially vulnerable. In recent weeks, analysts have been trimming their profit forecasts for the company, mostly due to a large number of flight cancellations as the nation endured a deep freeze. Three months ago, analysts had assumed that UAL would lose $0.36 a share in the current quarter, which is seasonally weak. But the carrier told investors that bad weather has had a deep impact, and… Read More

There’s no doubt about it, so far in 2014, the market has been more than a little turbulent. Stocks in most of the major S&P industry groups faltered mightily in January, only to come roaring back in February. Now that we’ve entered March, many traders are positioning themselves for more volatility on the both the upside and the downside. During near-schizophrenic conditions such as we’ve seen so far this year, I try to look at industry groups, as well as individual stocks and commodities, that are positioned to do well but haven’t quite kept pace with some of their peers.#-ad_banner-#… Read More

There’s no doubt about it, so far in 2014, the market has been more than a little turbulent. Stocks in most of the major S&P industry groups faltered mightily in January, only to come roaring back in February. Now that we’ve entered March, many traders are positioning themselves for more volatility on the both the upside and the downside. During near-schizophrenic conditions such as we’ve seen so far this year, I try to look at industry groups, as well as individual stocks and commodities, that are positioned to do well but haven’t quite kept pace with some of their peers.#-ad_banner-# In the current market, the Industrial Select Sector SPDR (NYSE: XLI) fits that bill. The fund’s holdings include stalwart firms from industries such as aerospace and defense, industrial conglomerates, machinery, railroad, and construction and engineering, to name just a few. Its top five holdings are General Electric (NYSE: GE), United Technologies (NYSE: UTX), Boeing (NYSE: BA), Union Pacific (NYSE: UNP) and 3M (NYSE: MMM). As a group, the industrials have not kept pace so far in 2014, and XLI is up only about 1.7%. That makes sense when you consider that the market has been led higher by the mid… Read More

While the broad stock market keeps hope alive for the bulls, the financial sector is not pulling its weight. And within the group, stock and commodity exchanges are not only lagging but are starting to break down. The IntercontinentalExchange Group (NYSE: ICE) appears to have peaked in early January, shortly after completing its acquisition of NYSE Euronext in November. After a steep drop in January and a rebound in February, ICE looks ready to fall some more. #-ad_banner-#On the charts, the most important feature now under attack is the rising trendline from December 2012. That was just after… Read More

While the broad stock market keeps hope alive for the bulls, the financial sector is not pulling its weight. And within the group, stock and commodity exchanges are not only lagging but are starting to break down. The IntercontinentalExchange Group (NYSE: ICE) appears to have peaked in early January, shortly after completing its acquisition of NYSE Euronext in November. After a steep drop in January and a rebound in February, ICE looks ready to fall some more. #-ad_banner-#On the charts, the most important feature now under attack is the rising trendline from December 2012. That was just after the NYSE Euronext merger was announced, and the stock found its ultimate low within a week’s time. It then embarked on a one-year rally taking it from roughly $123 to $229, which is no slouch in anyone’s book.   The line was tested in January and did provide support. However, the bounce was short-lived as ICE failed to move back above its 50-day moving average. And now it is once again testing the trendline and even traded marginally below it Thursday. Relative performance versus the market is clearly lagging. And momentum indicators have flattened out to tell us the power… Read More

After the market closed for trading on Wednesday, Feb. 26, short sellers quickly scanned the latest short interest data (which had just been released for the two weeks ended Feb. 15). These shorts know that if a company they are targeting is also being targeted by many others as well, they can get badly burned in a short squeeze ensues. #-ad_banner-#The fact that the short interest in struggling retailer J.C. Penney (NYSE: JCP) had just spiked another 10 million shares in just two weeks (to 128.5 million shares, representing 43% of the trading float) was a… Read More

After the market closed for trading on Wednesday, Feb. 26, short sellers quickly scanned the latest short interest data (which had just been released for the two weeks ended Feb. 15). These shorts know that if a company they are targeting is also being targeted by many others as well, they can get badly burned in a short squeeze ensues. #-ad_banner-#The fact that the short interest in struggling retailer J.C. Penney (NYSE: JCP) had just spiked another 10 million shares in just two weeks (to 128.5 million shares, representing 43% of the trading float) was a cause for concern. The morning after the fresh short interest data came out, shares were squeezed a stunning 25% higher. Management’s prediction that J.C. Penney would not run out of money any time soon was not wanted short sellers were hoping to hear. At this point, both the shorts — as well as the company’s bulls — are wondering: What’s next for this stock? Let’s take a closer look at each argument. Going Terminal? Short sellers love to target stocks that they believe will eventually fall to zero, known as a “terminal short.” And at first glance, J.C. Penney… Read More

I haven’t been this excited about a “guru” trade in a while… Last week, my system identified an opportunity I’ve only seen a handful of times since I designed it. Specifically, it found a stock with a perfect 10 “guru score.” Achieving a perfect score under my system isn’t easy. In fact, I can probably count the number of times I’ve actually seen it done. Micron Technology (Nasdaq: MU), a current “Guru Trader Portfolio” holding, is an example of a stock that had a perfect rating when we added it, and it’s up 45% in the… Read More

I haven’t been this excited about a “guru” trade in a while… Last week, my system identified an opportunity I’ve only seen a handful of times since I designed it. Specifically, it found a stock with a perfect 10 “guru score.” Achieving a perfect score under my system isn’t easy. In fact, I can probably count the number of times I’ve actually seen it done. Micron Technology (Nasdaq: MU), a current “Guru Trader Portfolio” holding, is an example of a stock that had a perfect rating when we added it, and it’s up 45% in the past four months. Let me explain why it’s so difficult to have a perfect 10 rating… #-ad_banner-#My system relies on two specific indicators to identify a potential stock pick: relative strength and cash flow growth. Relative strength shows how a stock is performing “relative” to the market. The higher the relative strength, the more a company’s stock price is rising in relation to its peers. This indicator is important because it identifies stocks that are outperforming today. After all, if you want to make money the fastest way possible, you want to buy stocks that are already on… Read More

Nothing feels worse for investors than missing the boat, and I’m sure there’s plenty of regret to go around these days. Stung by huge losses during the financial crisis, so many investors abandoned equities completely and stayed on the sidelines during what has been one of the most impressive stock market rebounds in decades. #-ad_banner-#But one of the things I’ve always liked about the stock market is it usually gives lots of second chances. They come in the form of corrections, declines of 10% or more.  Like many market watchers (like my colleague David Sterman, who gave his macroeconomic outlook… Read More

Nothing feels worse for investors than missing the boat, and I’m sure there’s plenty of regret to go around these days. Stung by huge losses during the financial crisis, so many investors abandoned equities completely and stayed on the sidelines during what has been one of the most impressive stock market rebounds in decades. #-ad_banner-#But one of the things I’ve always liked about the stock market is it usually gives lots of second chances. They come in the form of corrections, declines of 10% or more.  Like many market watchers (like my colleague David Sterman, who gave his macroeconomic outlook earlier this month), I strongly suspect we’re overdue for a correction because of things like overblown price-to-earnings (P/E) ratios, ongoing economic uncertainty domestically and abroad, and continued investor skittishness. Plus, the market has been showing the kind of increased volatility it often displays right before a major pullback. If the market does undergo a correction, I encourage investors to see it as a second chance — possibly a really good one — to get back into equities. With the level of mistrust in the stock market still so high, a typical sell-off could easily turn into a major rout. Indeed,… Read More

Professional short sellers often like to work alone — at least until they’ve built a sizable short position in a stock.  They realize that a large short interest from other short sellers can create real trouble. Heavily-shorted stocks (also known as “crowded shorts”) can lead to a massive short squeeze that creates havoc for all short sellers as they all start to cover their positions at once.  Case in point: Radio Shack (NYSE: RSH), the beleaguered electronics retailer, which had a 40 million short sale wager against it as of Jan. 31. That short position represents more than 40% of… Read More

Professional short sellers often like to work alone — at least until they’ve built a sizable short position in a stock.  They realize that a large short interest from other short sellers can create real trouble. Heavily-shorted stocks (also known as “crowded shorts”) can lead to a massive short squeeze that creates havoc for all short sellers as they all start to cover their positions at once.  Case in point: Radio Shack (NYSE: RSH), the beleaguered electronics retailer, which had a 40 million short sale wager against it as of Jan. 31. That short position represents more than 40% of the trading float and the equivalent of 12 days’ worth of trading volume (known as “days to cover”). #-ad_banner-#Yet for every RadioShack that causes headaches for short sellers due to a short squeeze, many other heavily-shorted stocks turn into big paydays for short sellers. As an example, I noted a very large short position in Uni-Pixel (Nasdaq: UNXL) back in October, and shares have plunged 47% since then. The key takeway is that heavily shorted stocks often have a binary outcome. So it pays to look at the most heavily shorted stocks on a regular basis and pursue… Read More

What a way to start 2014! Gloom and doom have struck the stock market with a roughly 1,000-point decline in the Dow Jones Industrial Average. #-ad_banner-#The Federal Reserve’s dialing back of its massive bond buying program, emerging-market weakness and several economic indicators turning downward are some of the culprits of the heavy selling in the first month of the year. While many supposed stock market experts and perma-bears are claiming that the selling is signaling much more downside to come, I wholeheartedly disagree. This selling is nothing more than simple profit-taking after the incredible bull market of 2013. One very… Read More

What a way to start 2014! Gloom and doom have struck the stock market with a roughly 1,000-point decline in the Dow Jones Industrial Average. #-ad_banner-#The Federal Reserve’s dialing back of its massive bond buying program, emerging-market weakness and several economic indicators turning downward are some of the culprits of the heavy selling in the first month of the year. While many supposed stock market experts and perma-bears are claiming that the selling is signaling much more downside to come, I wholeheartedly disagree. This selling is nothing more than simple profit-taking after the incredible bull market of 2013. One very practical reason is that investors wanted to delay paying taxes on their capital gains. This caused many to wait until 2014 to take profits. Another obvious reason is the fact that markets never travel in a straight line for long. There is always selling after a move higher, and this time that selling took longer, so it was more severe. I am confident in the stock market and think this pullback is a great time to find bargains. While many stocks sold off during January, a few bucked the downward trend. In fact, I located a stock that gained 8%… Read More

One of the unremarked themes of the great bull market of 2013 was investors’ surging appetite for risk.#-ad_banner-# Stocks that were already trading at rich valuations caught fire, sometimes pushing their valuations into nosebleed territory. Case in point: Twitter (NYSE: TWTR), which surged from $40 in late November to more than $70 a month later.  Who would have the nerve to go against such a powerful run by selling shares short? Plenty of investors, as it turns out. According to short interest data released Jan. 10, the short interest in Twitter surged 24% in the two weeks that ended Dec. Read More

One of the unremarked themes of the great bull market of 2013 was investors’ surging appetite for risk.#-ad_banner-# Stocks that were already trading at rich valuations caught fire, sometimes pushing their valuations into nosebleed territory. Case in point: Twitter (NYSE: TWTR), which surged from $40 in late November to more than $70 a month later.  Who would have the nerve to go against such a powerful run by selling shares short? Plenty of investors, as it turns out. According to short interest data released Jan. 10, the short interest in Twitter surged 24% in the two weeks that ended Dec. 31, to 29.4 million shares.  The fact that shares have already plunged more than 20% since Christmas has likely emboldened short sellers to hike their positions further. Ratings downgrades from Morgan Stanley and Cantor Fitzgerald, along with bearish new coverage from Cowen, surely helped the short sellers with their cause. But these shorts are likely stepping up their positions for another reason: In a matter of weeks, Twitter will deliver fourth-quarter earnings and issue a 2014 outlook. The company is facing an extremely high set of expectations, and anything less than a blowout may lead still-bullish investors to take profits. Read More