HEDGEfolios year-to-date stock performance for 2008 (through 11/28/08 close) was up 28.76%.

Over the same time period, the S&P 500 index was down -38.95%.

At the end of November, the HEDGEfolios universe consisted of 3,303 stocks.

Commentary: HEDGEfolios declined during November by approximately 3.8% while the S&P 500 index fell 7.5%.  I cannot remember a worse monthly performance for HEDGEfolios during the past 6 years.  Not only was I “early”, but the consequences for being early and wrong and long were especially brutal.  While the last week of the month provided part of the rally I have been expecting, 60% of all HEDGEfolios signals are losers.  I started the month at 67% UP signals, peaked at 87% UP on November 3rd and then pulled back a bit to end the month at 73% UP.  Needless to say, being bullish has not been rewarding.  The best thing I can say for the month is that all this destruction and dislocation of markets has provided tremendous learning opportunities.  I’ll only know whether my observations and analytical refinements were correct the next time we go through something like this.  While I’d prefer that doesn’t happen, I fully expect that it will.   In the short term, I am still bullish….in the long term, I am looking for an S&P that is significantly lower than today.

Here is the chart of 2008 HEDGEfolios performance versus the S&P 500:

Prior Years’ Performance:

• 2007, HEDGEfolios performance was +21.78% vs. + 3.55% for the S&P 500 index
• 2006, HEDGEfolios performance was +25.54% vs. +13.62% for the S&P 500 index
• 2005, HEDGEfolios performance was +19.99% vs. + 3.00% for the S&P 500 index
• 2004, HEDGEfolios performance was +31.19% vs. + 9.00% for the S&P 500 index

Disclaimer: Nothing in my performance quoting is intended as an advertisement or in any other way meant to encourage anyone to subscribe to HEDGEfolios. These performance figures have not been audited or verified by an outside party and are NOT in compliance with the CFA’s AIMR Performance Presentation Standards. They don’t net out any transaction costs such as commissions or management fees and are not a total return calculation as I do not include dividend yields or any compounding factor. These performance figures cover a hypothetical portfolio of the entire HEDGEfolios stock universe with an equal weighting of each security. The calculation is simply the cumulative total of all gains and losses from the signals during the period in question.

Last week put the biggest hit (about 6%) on HEDGEfolios that I can ever remember.   It has been painful to be bullish for the past month and while I wish I had maintained my negativity on the signals, I am doing what I always do by TRUSTING my analytics.    Those tools are the same ones that turned me negative before many selloffs in the past and I trusted them.   I have to do the same thing now.

Due to the market action, I had expected to become significantly less bullish over the weekend.  In fact, I did have to give a bunch of new DOWN signals.

Yes….. there is a “but” coming.   Despite all that, I am personally more bullish about a short term rally than I have been for a long time.  This is just my opinion….don’t let it affect your own.   And remember, I said “short term”.   In the long term, I expect the market to be substantially lower than it is now.

I trust myself.  I don’t want you to trust me.   I want you to trust yourself.  If your analysis tells you to do something, you should go with that.

My analysis this weekend showed a rally that is in a very precarious position.  Obviously, HEDGEfolios is heavily weighted toward the bullish situation but I feel like we are at a significant pivot point and I am watching very closely.   Many charts are heading higher in a condition that I refer to as “flotation.”   Imagine that the stock is a balloon that is lacking a full volume of helium but is temporarily able to float around.   Several key elements of the technical analysis I use are missing for over half the UP signals in the HEDGEfolios Universe.  That’s not enough info to change a signal, but it’s enough to cause concern.   It’s possible that the stocks will float regardless of me not seeing what I’d like to see.  It’s also possible that these factors will start materializing and provide a more sturdy justification for continued advances.  And yet, it’s also possible that the absence of these components will eventually cause this flotation to succumb.   As a result, I am being very hesitant to get even more bullish than I have been lately despite the higher number of new UPs again this week.   Last week’s big rally made a lot of stocks rise and start to look good.  But looking good and being good are often two very different things.  I wish I could be more definitive on the likely direction but the best I can do right now is encourage you to be very vigilant.

HEDGEfolios year-to-date stock performance for 2008 (through 10/31/08 close) was up 33.83%.

Over the same time period, the S&P 500 index was down -34.01%.

At the end of October, the HEDGEfolios universe consisted of 3,329 stocks.

Commentary: HEDGEfolios was able to advance approximately 5% during a month that saw the S&P decline 16.9%, the worst monthly performance for the index since the October 1987 crash.  In the middle of the month, I went from a largely bearish position of 69% DOWN signals and ended October with 67% UP signals.  Initially, this bullish position was painful but in the last week, it started to pay off.

Prior Years’ Performance:

• 2007, HEDGEfolios performance was +21.78% vs. + 3.55% for the S&P 500 index
• 2006, HEDGEfolios performance was +25.54% vs. +13.62% for the S&P 500 index
• 2005, HEDGEfolios performance was +19.99% vs. + 3.00% for the S&P 500 index
• 2004, HEDGEfolios performance was +31.19% vs. + 9.00% for the S&P 500 index

Disclaimer: Nothing in my performance quoting is intended as an advertisement or in any other way meant to encourage anyone to subscribe to HEDGEfolios. These performance figures have not been audited or verified by an outside party and are NOT in compliance with the CFA’s AIMR Performance Presentation Standards. They don’t net out any transaction costs such as commissions or management fees and are not a total return calculation as I do not include dividend yields or any compounding factor. These performance figures cover a hypothetical portfolio of the entire HEDGEfolios stock universe with an equal weighting of each security. The calculation is simply the cumulative total of all gains and losses from the signals during the period in question.