- Posted December 14, 2012 by
Is Market Neutral Investing Growing?
For years sophisticated investors have invested in hedge funds that are market neutral. This often involved in being long a stock like Home Depot and short a stock like Lowes at the same time. The theory being that the long stock position will go up and the short will not go up as much, if at all. This of course has the risk of both stocks doing exactly the opposite as forecast and putting the investor at greater risk.
The benefit is that there is almost no head line market risk from something the president says or a similar influencing factor.
Now with technical analysis, one can take this theory to the next level. One firm is trying it with strong verses weak stocks with incredible success in their testing so far.
Others are more focused. They are using specific technical analysis systems to scan the markets. When the same system calls for a long and a short in the same sector, further examination ensues.
An example of this last summer was posted here on Ireport http://ireport.cnn.com/docs/DOC-816772
Today you can see another example when it comes to the financial sector, in the chart above.
Full disclosure.........this writer has positions in this also.