This was a great interview with Maria and Eric but it got buried at 4:30 on a Summer Friday.
They talked – a billion Android phones, the cloud, Facebook IPO, the cloud again, New York start ups (w00t!), mobile, Steve Jobs and $AAPL and the four horsemen of technology – $AAPL, $GOOG, $AMZN & $FB.
Worth the watch:
Its not just the Jamie Dimon story.
There’s a myth on Wall Street that may have once been true.
That there was this thing called The Smart Money. Big guys, hedge funds, institutions that have more money than other traders and investors, more resources, more experience, better information and that they somehow only made money.
Yeah, guys like Goldman’s Global Alpha Fund (remember them?), Madoff, Dimon etc…
The myth went on that if you knew what they were doing then you might have some advantage over the market and an implication was that there was also lots of dumb money out there.
Well hedge fund performance for the past 18 months flies in the face of this myth amid a difficult market and the continuation this morning of the $JPM saga.
Sure there are guys that make money and guys that lose money. Some of each group are large and small, pro and retail, high profile, low profile.
But let’s face it, the myth is dead. And thats a great thing.
The guys who make money come in all shapes and sizes. They share some attributes I am sure. Theyre smart, knowledgable, control risk well and have a great eye at the plate – taking bad pitches and swinging hard at juicy 3 ball 1 strike offerings.
The social finance web is making this fact even more clear to anyone who is paying attention. A scrappy bunch of ball players from across the spectrum are proving it everyday on StockTwits.
Guys like @traderstewie and @biggercapital and @harmongreg and @bluefielder to name only a small fraction and the list is growing.
The Smart Money Is Dead. Long Live The Smart Money!
Its been wild watching Arena Pharmaceuticals ($ARNA) over the past 5 months as both the $ARNA stream on StockTwits and the price of the stock have exploded.
Social momentum as measured by message volume has increased by over 5000% on StockTwits over 4+ months while the price of the stock increased by 5 fold before today and it looks bid up 30% plus after reopening for trading on the FDA approval news just a little while ago.
This is an amazing chart we created last week which shows message volume on StockTwits overlayed with price of $ARNA stock.
It shows social momentum on StockTwits leading price momentum and it looks like our community nailed it.
Note the message volume spikes in red preceeding the rapid increase in price and then a drop off in message volume as the price actually rose to its high before dropping back earlier this week below 10.
This week (not on the chart) has been a frenzy with $ARNA message volume rising to record highs again presaging this ramp on the news that we are seeing now.
In addition, preliminary sentiment analysis from the brilliant and geeky Noah Pepper over at Lucky Sort indicates “steady positive social signal” in the StockTwits stream that has been increasing since March!
So, if you were monitoring StockTwits closely you would have picked up on this as Lucky Sort and I did and as more and more of our members did also who got involved.
Its impossible for me to be certain whether there is a causal relationship here but I do have a theory as to what is going on and it has to do with the efficiency with which information spreads on StockTwits and across the social web.
There was an excitement around Arena that built and spread and beneath such virality, importantly, there was a kernel of reality to the bigness of it all.
An obesity drug approved by the FDA in a nation of rapidly expanding waste lines is a big deal.
Most recently, over perhaps the past week, it has seemed to me, and this is a qualitative judgment, like a speculative frenzy has ensued with the quality of many of the messages deteriorating as their volume reached record highs and as the FDA decision moved closer and closer.
I view this as overreaction and classic Keynesian animal spirits.
I have no idea whether the price of the stock will hold up and extend or fade as message volume in the name has reached a fever pitch.
I do know though that the trade occured before the FDA news and that it played out live and in real time on StockTwits.
A special shout out to our partners at Gnip who are working hard with us to shine light on this incredible data and to Lucky Sort for their wonderful analytic contributions mentioned above.
Earlier this week I wrote a piece about Arena Pharmaceuticals and social momentum which focused on the unprecedented increase in discussion of $ARNA, a biotech stock with an expiremntal obesity drug, on StockTwits and its relationship to price and trading volume over the course of 2012.
Since then (Tuesday, June 19), the level of interest in the name has continued to accelerate.
As of this morning, the 90 day increase in message volume has reached 5308% from 4231% as measured Tuesday while the stock price has added another 19%.
Wow!
On the StockTwits Social Heatmap this morning, $ARNA now shows more messages than $AAPL by a wide margin.
Next Wednesday, the FDA will make a big decision on Lorcaserin, $ARNA’s obesity drug.
As Greg Harmon points out, those who are taking bets ahead of the event are gambling as trading off of FDA decisions is difficult even for experts.
On the one hand, this may turn out to be a watershed moment in the treatment of obesity, an epidemic in the U.S, while on the other hand, there may be bloodshed for those who bought this stock most recently amid the parabolic price move.
For those who are interested in market psychology though, $ARNA is an incredible example of how excitement spreads and affects investor attention and price.
This is what momentum looks like, concentrated and bottled.
I am not trading $ARNA but if I were, I would be thinking through the implications of how a story like this and the increase in attention leads to overreaction.
My guess is that the smart speculators who were in this name early and who made a ton of money will be exiting before or on Wednesday’s news even if that news is good.
Wildfire…
Here’s some quick observations on $YHOO.
I have been long this stock for almost a year and have been taking advantage of this massive consolidation by selling near dated premium on both sides on occasions in which there have been outsized moves in either direction due to either market conditions or noise events (Jack Ma rumors, CEO shake up etc.).
You can read more about my basic strategy in that regard here and here.
RaginCajun posted this chart on his blog Monday:
The Cajun wrote: “Tight range for months, I sense a breakout in the very near future.”
Great timing posting this chart. The narrowing range implies that something must break here soon and so I am watching closely.
Regardless of the narrowing range, I still plan to write near dated calls on 1/3 to 1/2 of my position on significant moves highers and near dated puts on significant moves lower. You can watch my StockTwits stream for real time entries and exits.
My personal impression is that Levinsohn will be named permanent CEO, that that is a good thing for the company and that he might be the best CEO they have ever had (which is admittedly not saying all that much).
I also believe Loeb is on the right trail and have been in the position as a special situation since before he announced his position. There’s more value in their assets than being assigned presently and they still have monster traffic which if monetized more efficiently might lead to much higher earnings. These things take time.
One other note: @mojoris1977 has been playing the narrowing range beautifully also exploiting theta but more aggressively. He is must follow I think if you are in $YHOO or interested in trading this name.
Over the past 3 months, social volume has increased by 4231% in Arena Pharmaceuticals. This is by far the largest increase over this period and one of the highest levels of social momentum that we have seen since we began tracking the metric.
$ARNA continues to dominate discussion in the Healthcare sector as evidenced by the 24 Hour Social Heatmap which visualizes the discussion level relative to other tickers in the Healthcare sector.
Here’s a weekly StockTwits message volume chart for $ARNA over the past 5 months showing the large increase in $ARNA message volume beginning with a February bump, followed by a March spike, continued increased volume and then a humongous spike the first weeks of May.
So social interest in the stock was not only increasing over the first half of the year but that increase accelerated through May before leveling off more recently at a higher level, by orders of magnitude, than we observed over the first 2 months of the year.
Investors and traders are incredibly interested in $ARNA and focused on every detail related to the company, its expiremental drug pipeline as well as its price performance.
Finally, here is the $ARNA 5 month price and volume chart. Since January, the price of the stock has increased 6 fold from 1.65 to the 9.9 spot as of 10AM June 19th, 2012.
Clearly, there’s something happening here as a striking positive correlation exists between social momentum and price momentum.
Even though social momentum has led price momentum it is impossible to determine a causal relationship but the message volume data appears to be a leading indicator and perhaps an operative variable of a positive feedback loop involving social interest, price and volume.
Forget about smart money.
It does not exist anymore. And if it does, it isn’t hedge funds who are twisting in the wind everywhere…
A couple of broad statistics:
In 2011, the average hedge fund dropped 4.8% while the $SPX closed flat on the year.
In 2012, through May, hedge funds are up .88% while the $SPX has been higher by 4.2%.
So there’s 1.7 Trillion $ being put to work attempting to generate positive uncorrelated returns and failing.
Managers charging considerable fees who also have their own capital and reputations tied up are under incredible pressure to perform and they are not.
Meanwhile, nothing fosters irrational investor behavior more than losses.
Loss aversion is a funny thing too, highly subjective and dependent upon the situation. A manager might be net positive on the year yet underperforming a benchmark alters his reference point or the level at which he perceives he is breaking even.
There’s a reflexive aspect to it, managers are underperforming, experience loss aversion (or tilt) and respond with market behaviors that are irrational including holding or pressing losers, chasing popular stocks, overtrading, selling winners too soon, veering away from discipline and risk management strategies etc.
Such irrational (and costly) behaviors across multiple managers and substantial AUM in turn affect the behavior of assets, increasing volatility, choppiness, erratic movements etc.
This in turn puts more pressure on the managers
A nasty cycle…
Collectively, hedge fund manager tilt is adding to the apparent choppiness and seemingly erratic behavior of broad indices as well as individual names.
Its not the only factor. For sure, HFT and an incredibly tenuous and complicated global macro environment play a roll – but they are talked about daily while hedge fund tilt is not.
Whats not to love about this?
Yesterday, I asked StockTwits members to share their favorite charts.
There’s so much talent and variety on the stream I figured a Friday afternoon was the perfect time to query for fresh ideas going into the weekend.
I received dozens of good responses and here’s just a few and some charts to go with them.
Under Armour
@doozio likes $AU “because its $CMG back in Sept of 2010.”
On Chartly, @IndianTrader has it as “one of his 5 breakout stocks for next week.”
…while @dangerrangers sees an inverted head and shoulders…
WalMart
Both @harmongreg and @chip mentioned $WMT. Greg likes it “due to upside break out of a consolidation channel” and Chip notes that its “closing in on all time high on good volume.”
I wrote about the stock in December presenting the annual as the mystery chart and many in the comments were bullish and on the money…
Here’s a video by @PaulyB who takes a contrary opinion seeing the “linear regression channel maxing out on all three time frames.” Nice work Pauly…
Note: $WMT has been charted several times on Chartly over the past week from many vantages on multiple time frames and for those who are especially interested in studying the name, I suggest going back and looking at the Chartly Stream for additional perspectives.
Pharmacyclics
@Traderstewie mentioned $PCYC saying “one of the BEST looking charts I have seen in a long time and esp[ecially in this market” but added that it needs “a pullback and consolidation badly. very extended.”
@ACInvestorBlog charted $PCYC on Chartly and is in agreement with Stewie on it being extended noting that it “closed the week with a new all time high over 40. Chart is bullish but a pullback would be nice.”
There ya go kids, a few names to check out for yourself over the weekend…
Woke up at 5 this morning to play hoops with some friends. It felt great and now I am zoned in…
I have been reading Altucher since TheStreet.com days and more days than not I still read his latest incarnation which is more spiritual than market focused.
He provides a lot of lessons and advice but I don’t get much that way though I love hisstories, humor and novel view of the world.
I don’t get much from advice/self help stuff in general.
My sense is we know what to do and good advice is cheap while its the follow through that is key and more dependent upon where we are in the world, the choices we make and what we are willing to do rather than just reading something.
I’m also probably a little jaded by my knowledge of human change processes that came with my studies in psychology.
Nevertheless, one phrase from an old Altucher blog post (I cant even find it anymore on his blog) has stuck with me and inspired.
“Shock your body everyday.”
I’m not even sure that I am getting the quote exactly right but its how I remember it. I don’t take it in the purely physical sense either as my mind is a part of my body.
I have been shocking my body a lot, pushing myself hard for a while and it feels killer.