You know the story. Investors need predictors. People have a way of putting things in perspective by who has it right, and right now, analysts from Wall Street have again stepped up to the plate.
And they predict… stocks will see volatility this year.
For years, we saw this prediction parroted throughout the Financial media by pundits and analysts like Mike Mears of CNBC. A decade or so ago, CNBC would incessantly employ this methodology. At that time, volatility was lower, therefore less pronounced. Today, markets may not necessarily be more volatile, but markets are definitely being more choppy. And yet, CNBC stocks will see more volatility.
And guess what? So do the stocks of the hedge funds. That’s right. It is the hedge funds that miss the rest of Wall Street, most of the time. And in the last month, the hedge funds are about as accurate as the markets themselves, including us, which isn’t great!
Enter the hedge funds with their own prediction models. This is the reality of what happened on April 24th, which was DIA on Thursday and MPX on Friday.
Futures for the CBOE Volatility Index (or the “VIX” for short) predicted on April 25th was a 14.00 or 14.50. As of Friday, when they were up more than 19%, market leaders were Hedge Fund Action Alerts PLUS holding Micron Technology (MU) , more than the S&P 500, and UnitedHealth Group (UNH) – Financial stocks.
Friday’s predictions on the other hand were for a relatively benign 14.50. Now let’s take a look at what happened on Monday.
Back to Hedge Funds. It was probably not their finest moment.
Early Monday morning, the VIX jumped to over 20, which is over what they had predicted all week. Traders expected a rally after a drop of 3.74%. That is the period from Monday afternoon to Tuesday morning, when the S&P 500 was down over 1% and the VIX was up over 23%.
If we look at Friday’s predictions we see a consensus among the hedge funds and the hedge funds stood up to the charge. No panic…only anticipating more of the same.
Heck…heck even one Wall Street legend pushed back.
Tim Moore is a General Partner of Jensen Investment Management in Rye, NY, and recommends watching their top positions in his “Top Trading Ideas for May”. For a copy of Tim’s newest Ideas and Herve Lamothe’s “Top Trades for May”, click here.