Friday, October 14, 2011

In this low quality macro environment, high quality stocks is not the answer. More Pain

In this low quality macro environment, high quality stocks is not the answer.  More Pain

One quick look at how this market has unfolded to get to this spot has been the constant selling of low quality names and hiding in Gold/Bonds/Utilities.  PFG is building a basket of crap names that are very out of favor which potentially could provide very out-sized returns in the short term.  Building on our thesis of going long financials early this week, we start by looking at the data

1. DIA/IWM


2. XLU/XLF



In spite of calling for a rally after reviewing all the risk metrics.  This market has moved quicker then we anticipated.  We believe the market will take a small dip and then raise quickly higher, however based on not going long high quality, but rather on low quality, momentum names.  This is probably the most unexpected of all market outcomes and probably leaves most people in shock and awe at year end.

Search Criteria
“I wouldn’t touch that stock”
“They have huge competition”
“That business model is dead”
“That country is fucked”

These are types of reactions we are looking for in our basket of names. We believe this basket can perform and pay a very quick 10%-15% still after this current rally, will look to enter on dips.


RIMM
BAC
C
GS
EEM
EWZ
NFLX
RSX
SLV
FXI
XLE


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