James Simons former military Cold War I code-breakerand founder of quantitative h edge fund Renaissance is signaling volatility ahead. James Simons sees a significant risk of “a correction” in prices, the quantitative trader is forecasting volatility ahead.

Indeed, with a sea of red on the screen, it would be comforting to call early February’s rout (selloff) in stocks as a well overdue correction, after all, the healthy long-term bull market corrects itself with small short-term bear markets. But calling this recent sell-off in risk assets a correction would be the best case scenario. If investors lose their nerve, crack and scramble out of risk assets on mass and the stock market circuit breaker are triggered by trading temporary suspended then standby for the mother of all crashes.

“James Simons former military Cold War I code-breaker and founder of quantitative hedge fund Renaissance is signaling volatility ahead.”

RAY DALIO

But what says Renaissance?
Grit your teeth, James Simons is forecasting volatility ahead.

Renaissance, which relies on algorithmic or systematic strategies for implementing its trading decisions has a habit of having a heads up on where the market is heading next.

James Simons’ fund currently holds the world’s heavyweight champion title. Renaissance is the most profitable hedge fund in the world.

The pro business-friendly Trump administration’s US tax plan to repatriate offshore profits, a stockpile of $2.6 trillion of US corporate profits is great news for risk asset prices, particularly US stocks. But the market has already factored that in January, according to James Simons.

Put another way the rapid January stock rise driven by investor euphoria is already baked in. Last month stocks already outperformed some Wall Street target for year-end and more are at risk, with the S&P 500 up nearly 5 percent so far this year.

“James Simons’ fund currently holds the world’s heavyweight champion title. Renaissance is the most profitable hedge fund in the world”

 

So it was greed, the fear of missing out, that meant every investor and his dog got off the sideline and went all in this market. Moreover, Billionaire hedge fund manager Ray Dalio kept the champaign flowing when he got on stage during the World Economic Forum in Davos last month and suggested that a market surge was ahead: ‘If you’re holding cash, you’re going to feel pretty stupid’. “We are in this Goldilocks period right now. Inflation isn’t a problem. Growth is good, everything is pretty good with a big jolt of stimulation coming from changes in tax laws” said Ray Dalio.

But there is an old saying in investing don’t be the first to jump on a trend and don’t be the last.

In the next, days and months we are going to see the battle of views play out. The optimists (the bulls) and the pessimists (bears) are fighting it out in no man’s land. It is unknown whether this is a correction or a major crash.

That is perhaps why James Simons is forecasting volatility ahead. The bear, a strong beast with raiser sharp claws and teeth has come out of hibernation and is on the offensive. The majestic bull, also a strong and fearless beast has been caught in an ambush, it has been clawed and mauled by the bear. The bull is bleeding in shock, in fear and is now retreating. The smaller bulls are running for their lives.

“We are in this Goldilocks period right now. Inflation isn’t a problem. Growth is good, everything is pretty good with a big jolt of stimulation coming from changes in tax laws” – Ray Dalio

Where is the Fed (the bull is thinking)?
But for now, the fed seems content to let the bears take ground. At some point ( this is where your technical analysis will help you as a trader) the bulls will regroup and mount a counter attack. The optimists (bulls), driven by greed will buy the bottom and the bears will fight them again and again and again.

If the Fed stands back and lets greed(bull) and fear (bear) fight it out we are going to see wild swings and a lot of volatility. Eventually, one beast (emotion) will dominate the market. If it is the bears then it will be the end of the longest secular bull market in living memory and the beginning of a new secular bear trend.

“The past couple of days are only the beginning of what could be still a substantive bear market in stocks” – Dennis Gartman

What is the main feature of the end of a secular market?
In a word, it is volatility and that could be why James Simons is forecasting volatility ahead.

But traders (short-term speculators) thrive on volatility, it is how they make profits.

So this is likely to be a traders market going forward. Moreover, it is those traders who are schooled in technical analysis that will probably do very well in this turbulent market environment. If we are seeing the beginning of a new secular bear market then that means the buy and hold strategy, which severed investors so well during the Fed’s massive monetary easing policy will no longer work go forward.

How this will all end is unclear. “The past couple of days are only the beginning of what could be still a substantive bear market in stocks,” says veteran market pundit Dennis Gartman.

The veteran pundit may or may not be right but in this current battle playing out, one thing is certain James Simons is forecasting volatility ahead and that seems like a fairly safe call.

Meanwhile, the battlefield is getting bloody. As I write this piece dow futures is 300 points off, volatility is sparking a global selloff.

At what point will the politicised Fed step in?

TRADING SOFTWARE

Dan Loeb targets Sony. Dan Loeb is an activist investor and founder of Third Point, which oversees about $14.5 billion in assets.

Last year the activist investor viewed Campbell soup as a bargain when Third point reported that the soup maker could fetch a takeover value of $52 to $58 per share.

A year later and the activist investor Dan Loeb targets Sony

Dan Loeb's activist hedge fund Third Point is raising an investment vehicle to generate between $500 million and $1 billion so it can continue to buy Sony shares, according to a recent report in Reuters.