I am always willing to listen to other people’s opinions. Over the years I have learned that in trading, it is important to make sure you always keep your mind open to others’ points of view.
However when this guy sent me an email yesterday, I was a little worried.
He was all excited because it was soon to be Tuesday. You see, he has come up with a “can’t lose strategy.” He was going to get aggressively long S&Ps because it was Tuesday.
He was quick to highlight that the last 7 Tuesdays have been up. In fact, since the start of 2014, Tuesdays have dramatically outperformed all the other days of the week.
SPY ETF Returns by day of the week in 2014</a> </div>
There is no doubt that Tuesdays have been a terrific day to buy equities. But when my “scuba friend” is sending me notes about day of the week seasonality in the S&P 500, I know the end of this trend is near.
At the risk of looking like just as much a fool as my “scuba friend”, I am going to take the other side of the “Tuesdays are always up” crowd. I have a feeling that this trade has gotten a little too much attention for it to continue to work…
Ira Sohn Conference
The much talked about Ira Sohn conference was held yesterday. This charitable event gets a lot of attention because some really big names in the hedge fund community make presentations of their favourite trades. It is a chance to hear what some of the biggest hedge fund managers in the world are thinking.
Although it is interesting, I would caution against blindly tagging along with their ideas. Trading is about a lot more than picking one stock and holding it for a year.
Zerohedge compiled a list of the returns from the last Ira Sohn conference:
There were some really famous hedge fund managers who made some really terrible calls. Jim Chanos’ short went 24% against him. Jeff Gundlach did even worse with his short as it rallied 38%. Kyle Bass’ long went down 44%. David Einhorn and Bill Ackman’s longs rallied a little, but considering that these guys are supposed gurus, that performance is mediocre.
I would argue that dealing with the new information as it comes in, and adjusting their positions to account for the risks, is how many of these hedge fund managers create their alpha. Much of their actual stock picking is hit and miss.
Therefore be careful when you are running out to buy XYZ stock because Joe Blow hedge fund manager talked it up at the Ira Sohn conference. What you don’t realize is that the hedge fund manager is just as likely to pitch that stock two weeks later when some data shows him that his thesis is working out as planned. When he does sell it, he isn’t going to issue an Ira Sohn audience update.
Remember these words of wisdom from one of the greatest hedge fund managers out there today:
“It doesn’t make sense to blindly follow me or anyone else into a stock,” said Einhorn, president and co-founder of the $8.8 billion hedge fund Greenlight Capital. “Do your own work.”
I have been hesitant to climb aboard the short Canada bandwagon. It is not out of some sort of misguided patriotic loyalty. I was more worried about the fact that the trade seemed crowded.
Although the spec short position is still large, since the beginning of the year, it has fallen from over 100k contracts to just over 60k:
CAD Spec Shorts CME</a> </div>
Last year, CAD had been in a steady downtrend (up in terms of USDCAD), but it has gone sideways for the last few months:
This sideways action where we clean out some of the speculative shorts is the exact sort of consolidation that is required before we can head lower (higher USDCAD).
We are also entering into a period that has traditionally being weak for the Loonie. Have a look at this chart of the USDCAD rate over the last four years:
Starting at the beginning of May and lasting until the middle of June, there has been CAD weakness in all the last four years. I don’t see any reason why this can’t also come to pass this year.
I am going to give the CAD a try on the short side (buying USDCAD).
Even though I am a Canadian, and the son of an investment bank research director whose idea of a blue chip stock was something that had rallied over $1 and moved from the Vancouver to the Toronto Stock Exchange, I am not a huge fan of speculative penny stocks. But I am going to make an exception and talk about a name that I recently bought.
I came across this research piece from famed gold bug Eric Sprott that mentioned Crocodile Gold. The name immediately rang a bell. I remembered my father mentioning this name a few months back. Even though he is retired, his idea of toning down the risk means not using any leverage when he buys these speculative stocks.
I phoned him up and sure enough, this stock that Eric had written up was the very one that my father had been buying 30% earlier.
As I listened to the story, I was sucked in.
I am not going to bother going through the whole story. They are a high cost gold miner that is being run by a good operator. Sprott recently bought a slug at $0.26 (with warrants) through a private placement. Management has recently being on Bay street telling the story and the stock is behaving well. Here is the presentation in case you are interested.
CRK CN Equity</a> </div>
I was looking for an extremely long term call option on the price of gold and CRK definitely fits the bill.
I am buying a piece, with the idea that it is either going to zero or to the moon.
Today’s post is getting long, but I wanted to update one more position before I sign off. Yesterday I returned to my short Eurostoxx trade. I will write it up further tomorrow, but the main rationale for the trade is that the ECB will continue to be too tight.
Eurostoxx index</a> </div></p>