BSD Theory… or how to explain everything LOL

On May 2, 2008, Pingdave posted the following:

I am thinking now cup with high shallow handle for our coming chart pattern.

I’ll be adding on any dips.

I could be very wrong, but I think if you wait for the handle to form and try and time the dip, it might be somewhere within 10 bucks of here either way. The market could easily trade down hard and AAPL might go back to the 200 DMA. So don’t trade on my advice. But I think support is going to be higher than that, for the following reason, bear with me, this is a bit long winded:

I’ve been doing more thinking and research on our theory that the hedge funds were heavily weakened in several ways when Bear Stearns blew up. (again kudos to alsi and maverick_rich)

They are getting less credit and whomever they trade through is probably forcing them to use less margin out of fear of blow ups.
Bear Stearns worked with a lot hedge funds. Shady ones IMHO. JPM is a lot more of an “old school” wall street firm. They probably aren’t getting that level of “evil” good service that Bear Stearns provided … and may have had to move elsewhere.
After the Bear Stearns blow up (and probably even before then. Hedge funds have been getting bad press and having problems for almost a year now), they got a lot of calls from big money clients saying “I want my money back, ASAP”

So they are being hit 3 different ways. Four if you want to count that the fed is probably done easing, the dollar is going to climb probably, and commodities may have peaked. Hedge funds trade heavily long on commodities. The short equities / go long commodities trade has been very popular for a long time. It is a crowded trade and is unwinding now.

Another interesting tidbit:

A LOT of hedge funds are of the type called 2/20, with a 45 day redemption notice. Meaning they take 2% of your money annually, and 20% of any profits you make AND you have to notify them 45 days prior to the end of the QTR if you want your money back, or pay a monster penalty.

Bear Stearns blew up after the most current hedge fund redemption day had past. For the QTR ending Mar 31, you had to have notified them by Feb 15. That means many hedge funds haven’t had to return people’s money if they got frightened by Bear Stearns. They’ll have to at the end of this month. What do you bet after Bear Stearns blew up through May 15 (the last hedge fund redemption date for the QTR ending this June) they got a LOT of phone calls from people saying cut me a check?

That means they’ve had to liquidate positions and anticipate cutting a lot of checks in about 4 weeks. That probably means even more trouble: they can’t take really risky bets with that little time left.

I’ll call the day, BSD “Bear Stearns Day”

Anyway, that is what I think explains everything I’ve been puzzled about lately.

The light volume on both up and down days since BSD.
The lighter ETF and Options volume since BSD.
Decrease in volatility.
Lack of FUD & obvious lighter manipulation.

etc

All things I think hedge funds did heavily.

Did they all go away? Of course not. Is Wall Street full of crooks still? You betcha. Will we still see instances of heavy ETF volume, Options volume, Volatility, FUD and manipulation? Yes. I think we’ll just see less of it for a while. .. and maybe even a little less permanently if “hedge fund fever” is over, and people go back to regular mutual funds in larger numbers.

Anyway, that is my working theory. I’ll just refer to it short hand if I bring it up again as “BSD theory”. lol

It does explain everything puzzling I have been seeing very neatly. I’ll stick with the “BSD theory” til I am proven wrong. If you read news on hedge funds (just search Google news for “hedge fund”) you see a LOT of bad news. Closings, investigations, investors wanting out, them lowering fees to lure people back, etc.

Thanks again Alsi and Maverick_Rich and everyone on the board. What a smart group.

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