HSKAX is a market neutral quant hedge fund from JP Morgan. It's one of the few such funds that the public can track, and therefore it serves to represent an entire industry. Since JP Morgan is part of the Federal Reserve complex, it's not a bad representative.
The market neutral quant funds are at the top of the liquidity food chain. With their high frequency trading model, they more they trade, the more money they make. When HSKAX starts to lose money, it's a sign that liquidity is drying from the market. The less the market neutral quants are supplying the volume, the more the volume is supplied by the position players.
That's a dangerous situation for investors. It can lead to huge bid-ask spreads, failed trades, flash crashes, etc.
ZeroHedge has written several articles about price declines in HSKAX being predictive of market corrections or crashes. I learned about HSKAX from ZeroHedge, and studied the patterns. Here's what I found:
When HSKAX first breaks to a fresh 2+ month low in price, the market has a good probability of a correction or a crash starting within the next 0 to 5 days.
This signal has worked 6 times since January 2006 (August 2010 not shown). It has given three false positives (December 2006, August 2009, September 2010). No signal was given on two 7+% down moves (May 2006, May 2008). The signal was late on a down move once (February 2009).
This signal has worked 6 times since January 2006 (August 2010 not shown). It has given three false positives (December 2006, August 2009, September 2010). No signal was given on two 7+% down moves (May 2006, May 2008). The signal was late on a down move once (February 2009).
Here are the charts. HSKAX is in black. The S&P is in red. When the blue horizontal 2+ month support line is violated, a blue vertical line marks the date. Focus on what the the red S&P line does after the blue horizontal line.
July 2007
October 2007
September 2008
October 2009
April 2010
All of which brings me to today's action in HSKAX, where we broke to fresh 34 month lows!
Consider yourself warned.
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Great stuff Parker
ReplyDeleteHi Parker,
ReplyDeleteI'm still learning about T-Theory from available literature. Would you say the drop in HSKAX is in agreement with, or rather, support your forecast?
Thanks!
Good question, Barracuda.
ReplyDeleteIt would seem to confirm the forecast that November 2010 was the end of T13, since we got an HSKAX warning at the end of T12 in October 2007.
I'm not sure how it reconciles with the Money Flow Ts. But I wanted to bring it to everyone's attention.
Thanks Parker.
ReplyDeleteThanks Parker. Great info.
ReplyDeleteInteresting - Thanks.
ReplyDeleteGreat info thanx!
ReplyDeleteParker how does this influence your trading(nearterm) for S&P, do you rely on the MFTs or the 0 to 5 days warning,or are you on the sideline?
Just curious how you are dealing with this "tradingwise"?
Parker, the reason I posted my question yesterday about your talking to Terry about the high/low projections for Dec was my concern about whether the 4 yr cycle was coming into play as Terry quoted Orville as saying it might Sunday. Your findings on this hedge fund's behavior could be another factor that the 4 yr could be involved. Would you agree that the MF high for early Dec. could be just the end and not necessarily a significant high? Good findings on this fund.
ReplyDeleteRodd
ReplyDeleteTrying to figure it out. I was really expecting this signal to come, but in early December.
Cycleguy
Possibly
"It's one of the few such funds that the public can track, and therefore it serves to represent an entire industry..."
ReplyDeleteCouldn't disagree more with this statement.
Granted, JPM is a Primary Dealer, but to suggest this fund is representative of the entire hedge fund industry is mind boggling IMO...or even representative of Delta Neutral hedge funds.
Do some homework.
http://timeandcycles.blogspot.com/2010/11/us-dollar-cits.html
ReplyDeleteThe US Dollar is often Inverse related to the US Stockmarkets.
http://3.bp.blogspot.com/_OSfvk1xrysQ/TOv_abjjCII/AAAAAAAAF5M/ybri-hgpCYs/s1600/Dollar+Daily.gif
Here are some recent and future Dollar CITs: 11/16, 11/22, 11/30, 12/9 and 12/17/10.
The 11/16 double CIT was a Dollar High and a Stock market Low. The 11/22 CIT was a Dollar short term Low and a stockmarket short term High.
Let's see how the future CITs, 11/30, 12/9 and 12/17/10 works.
For today, 11/23, I have both a Geometric and Solar CIT in the SPX Markets, suggesting a Low and reversal is closeby, be alert.
would you say a big Monday or Tuesday smackdown next week ?
ReplyDeletewalker
ReplyDeleteActually, if we close nominally below 1178 tomorrow, it will likely set up a bullish divergence pattern on both the Parker Oscillator (10-day EMA of NY Advance Decline divided by Put Call Ratio) as well as the T Theory Volume Oscillator.
This bullish divergence could be the springboard of a rally to the Money Flow T target end date of ~December 6.
I still expect the big down move to start the week of December 6, 8-10 trading days after the HSKAX warning.
Just my opinion.
if some other things including astrology I follow may point to low on dec 6 instade of top.
ReplyDeletewill be interesting to see how is trend going into dec 6 area.
it will be difficult to close below 1178 now today so either this is start of rally alrady that parker is looking towards dec 6 or this is just bounce and start of decline monday as walker mentioned.
ReplyDeletenormally towards end of month till 6th of next month are come with all important lows starting march 6.
The Next Financial Crisis: http://www.youtube.com/watch?v=4ECi6WJpbzE&feature=player_embedded#!
ReplyDeleteParker:
ReplyDeleteCould you pl. clarify the stats for the HSKAX. Of the total occurrences how many times was it accurate, and how many times inaccurate.
Thanks,
the other Yash
Yash
ReplyDeleteIt's given 9 signals since 2006. 6 have resulted in significant corrections or crashes.