Zak Mir on Following The Hedge Funds Short? Ashmore and Asos

Although hedge funds can get it wrong – shock, horror! – you would normally take the view that following the weight of hedge fund money in medium to small companies would be something of a self fulfilling prophecy, especially on the short side. The theory is that it does not take much to shake private investors out of their holdings, especially away from the blue chips zone.

We were treated to great examples of this with the likes of Blinkx (BLNX), Monitise (MONI) and Quindell (QPP). The question can be asked, did they fall or were they pushed? I would venture to suggest that given the way that one of the attractions of being on the stock market is to be able to issue paper to finance growth / acquisitions, once the bears get on the front foot even the best business plan can be scuppered.

Sometime the results can be terminal. Would all of the companies that have gone under of late have done so without a little push from paid for sell side research, attacks in the blogosphere and hedge funds? Perhaps most, but certainly not all. Even the cleanest of company will have some “dirt behind the fridge” or simply vulnerable points in both its business plan and in the economic cycle.

What will be interesting to see for the rest of 2015 is whether the stocks I have picked out will all survive the present batch of hedge fund shorting interest. As is my habit, we are focusing on the technical angle here.

First up is Ashmore (ASHM) where the shares have put in a lower high for February to date, below the former November resistance, and the 200 day moving average at 321p. This would suggest that at least while below the 200 day line there is the chance of the bears winning from the present zone. This is particularly the case given the multiple RSI failures towards 70 – the overbought number. At least on the basis of the oscillator and the failure below the 200 day moving average one would call the stock down towards the initial February 284p gap floor over the next 2-4 weeks.

ASOS (ASC) the online retailer has been in the crosshairs of the bears on a long term basis, but it has only been in the relatively recent past that they managed to prevail. The worst period for the stock price was between January last year and October with a decline from 7,000p to under 2,000p. As is often the case after chunky decline a company can then become perceived as being vulnerable to a takeover. So far this appears to be wishful thinking. But at least we have a relatively rounded basing formation on the daily chart from the autumn, something which could offer intermediate upside.

The favoured destination at this point is the top of a rising June price channel at 4,000p over the next 1-2 months. This is anticipated even if the doomsters get back in charge after that. The stop loss on the buy argument currently is seen as being an end of day close back below the 20 day moving average at 2,968p. A break back below this feature would actually also be the first credible shorting point in terms of even beginning to cancel out the idea of any new leg higher to the top of last year’s channel.