A Technical Look At Some Top Hedge Fund Holdings cont.
If you’re unfamiliar with him, then here’s what you need to know. Soros’ recent portfolio action has been highly concentrated in a few names, and in particular, Potash (POT). He was out adding heavily to the position and it is now his 2nd largest holding at 9.4% of his portfolio. Let’s check out Potash’s chart to get a better look at things. Focusing on a 1 year timeframe, we see that POT has sold off heavily throughout 2008 just like many other commodity related plays (and the market in general). It has started to slowly build a base and form higher highs and higher lows in a channel, which is constructive.
Zooming in to the 6 month timeframe on POT, we see that there is some near-term resistance around $95, illustrated by the red horizontal line. It is trending higher by building higher highs and higher lows, as noted by the green trendline. However, it is definitely not one of the strongest looking trends out there, which is concerning. If you agreed with Soros and wanted to get long the name, the safe play would be to abide by the technicals for the short-term and to respect the market action. If it breaks that trendline to the downside, it would most likely head even lower. You’ll also notice that the thin red line at the top of the chart (the 200 day moving average) is looming and slowly sloping downwards. Its almost as if the current price action is wedging in towards that moving average where they will meet and POT’s next big move will be decided.
Lastly, we’ll turn to Stephen Mandel’s Lone Pine Capital, whom you can learn more about here. In their latest portfolio update, we noted that they had increased their position in Visa (V) by 81%, bringing it up to their 3rd largest holding at 7.2% of their portfolio. The thesis with this name has been the global transition from paying with cash to paying with plastic credit/debit cards. They are purely a transaction processor and don’t bear any credit risk; the perfect middle man. And, Lone Pine isn’t the only major hedge fund in this name either. We’ve noted numerous hedge funds accumulating shares in V and thought it would be an appropriate name to look at consider the buying interest over the past few quarters.
Starting with a 1 year chart, you’ll note that V hit the market when it IPO’d back in March of 2008. Over the past year, it has been a wild ride but it now trades pretty close to where it IPO’d. Initially, V ran up to around $85 and it hasn’t seen those levels since. The downward sloping green line shows the overall negative trend surrounding V shares. Each time shares ‘kiss’ that trendline, they retreat lower. A breakout above that downward trendline would be pretty bullish for shares. Also, you’ll notice that the dark green horizontal line represents an area of support for V. The range of $41-43 represents an area where buyers have repeatedly come in. A break to the downside of this support level would be bearish for V.
Now, zooming in to the 6 month chart, we see that V has been trading sideways in a channel. The upper range of the channel (resistance) lies around $57.50 as noted by the horizontal red line, while the lower range of the channel (support) sits around $42.50 and the horizontal green line. So, you could simply buy at $42.50, sell at $57.50, rinse and repeat. Conversely, you could short at resistance and cover down at support. Either way, the channel gives you a pretty clear area in terms of stops. Stop out of a long below the support range; stop out of a short above the resistance range. Easy as that.
One thing worth noting is that the stochastics are slowly reaching oversold levels, while shares of V still trade up near resistance, which is intriguing. Additionally, it gapped higher on strong volume in early February around $50. Many technicians like to play the ‘gap-fill,’ where they assume that shares will drift down and re-test the area of the intial gap, thus ‘filling’ in the gap. So, it should be interesting to watch this all play out.
These charts illustrate the price action in some of the major positions at prominent hedge funds. We track their portfolios in our hedge fund tracking series to get a better idea as to what they are investing in since they control a lot of the capital these days. While they often make a decision based on fundamentals, monitoring the price action is always a great tool to have in the investment arsenal. When deciding to start or exit a position, the fundamentals can determine the ‘why?’ while the technicals can determine the ‘when?’ and the ‘how?’ So, combining the two methodologies really paints a complete picture.
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