Weekly Market Assessment
Everyone has a plan until you get punched in the face! Mike Tyson said this before a fight and it holds true in many areas outside the ring. This week CNBC hosted a conference of some of the largest hedge fund managers in the World, to get their views on the market and their holdings. Stanley Druckenmiller, who famously "broke the Bank of England" by going short the pound, had one presentation I found very interesting with a common outlook that many money managers share about our current monetary policies. "I am fearful that today our obsession with what will happen to markets and the economy in the near term is causing us to misjudge the accumulation of much greater long term risks to our economy," He goes on to state that he's not seeing a 2008-09 market correction however expresses that our monetary policies should not be being used in this fashion five years into a recovery!
The saying goes don't fight the Fed! Meaning, with the low interest rates pledge, its harder to make money in more conservative investments and it forces money into more riskier assets, aka equities. The Federal Reserve's plan is in place and everyone is trying to figure out how these once-in-a-century emergency measures are going to affect our markets over the long term. Keeping rates low for the foreseeable future to maximize employment and maintain price stability, is the Feds current strategy. However, any unforeseeable event or a simple action of raising the Feds Funds Rate could be that punch that screws up the plan. Druckenmiller goes on to state, that a miscalculation in it's plan and it's expected outcome that "the Fed, if they're wrong, cannot get out. I can get out in a week!" This is his main concern! He has taken down the Bank of England and is now expressing his outlook over the Federal Reserves policies and their inability to be able to exit an investment that goes against the plan!
Making the Watchlist: Below are the stocks that I will be looking at over the coming months. I will provide the the current stock price and why I am watching them. I will comment on them as I continue to keep an eye on them. You will be able to see and follow their growth and/or decline. Chart links may be attached.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk:
S&P 500 (SPX) -I bought straight weekly "PUTS" at 1965 to protect my long positions. After the 160+ point sell off on Thursday due to downing of the Malaysia flight over Ukraine, I was able to exit this hedged position with a 5% gain. I have now sold a Vertical "CALL" Spread at 1985/1990, as this looks to be resistance and its former 52 week high.
Rackspace (RAX)- I have purchased more common shares of RAX. It has fallen ~20% since the hiring of Morgan Stanley to seek out a potential strategic partnership or acquirer for its business. It is also below all its major averages with an earning date a few weeks away, along with an increased in short interest. The risk vs reward remains alot better at this price with a 20% discount.