The eight down days in the Dow Industrials since the July 20th high was enough to cause many analysts to question the validity of the rally from the late June lows. Their focus had turned to the historically weak performance of stocks in August.
According to AAII the bullish % of individual investors has declined for four weeks in a row. A Seeking Alpha survey before Friday's job report indicated that only 3.5% were looking for big gains in employment while 27.9% were expecting a "downside surprise after June?s blowout number".
Needless to say the 255,000 surge in nonfarm payrolls caught many by surprise as those who ventured on the short side scrambled to cover their positions. The major averages gapped higher on the opening Monday and several were quickly at new highs.
Another push higher in the stock market is likely to add to the pains of the hedge fund industry. Since my July 2014 article ?The Week Ahead: One Bubble Starting to Burst?? I have felt that the hedge fund bubble was bursting. As noted in a May CNN article it looks like the industry is now facing up to this reality.
As they noted "A barometer of hedge fund performance, called the HFRI Fund Weighted Composite Index, has generated an annualized gain of just 1.7% over the past five years. Compared to that, the S&P 500's average annualized return for the same period was 11%."
The majority of the hedge funds apparently rely on fundamental analysis to guide their investment decisions though some claim to use technical analysis for their timing. The current bull market may turn out to be the best argument in favor of technical analysis. The fundamental opinion was very negative at the correction lows in 2010, 2011, 2012 as well as February and it was the action of the A/D lines that signaled it was now the time to fight the tide and buy.
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