Zak Mir on a trio of Hedge Fund Shorting Targets: Burberry, Sainsbury’s and WH Smith

It is a well know fact that most hedge funds are no more successful (many are significantly less successful) than normal funds. There are even many conventional buy and hold investors who can probably beat our Mayfair based friends. This is despite the contributions of the likes of George Soros and say, Man Group (EMG).

What is interesting about the way the financial press report hedge funds is that they give the impression these trading / gambling entities are invariably correct. Indeed, there is the added kicker of them robbing and / or destroying companies and the wealth of private investors with their shorting activities. The reality is perhaps less filled with Machiavellian intonations, and more with the more understandable concept of a bunch of people simply trying to make a buck like anyone else.

I was reminded of the issue of hedge funds and their activities with the news last week that GLG Partners, part of Man Group, had gone short of stock market newcomer Saga (SAGA). This was clearly not good news for “stags” of the over 50’s financial services provider who had bought at the IPO price of 185p and are currently nursing losses of c.6p per share.

Hedge funds continued to get coverage over the weekend from the Mail On Sunday, with the revelation that they were going to attack selected retailers on the short side. Therefore, it seems appropriate to take a look at the charting position here of this trio, to see whether the newsflow and the price action currently tie up.

Burberry (BRBY)

At Burberry (BRBY) I would have backed the idea of going short here in quite an aggressive fashion until relatively recently – 6 months to a year. However, my opinion has been swayed by the “problem” that while one of the main markets for the luxury group in China looks to be under pressure, this is still an economy growing by an alleged 7%. As long as this is the case it could very well be that bears of this FTSE 100 company could be disappointed.

From a charting perspective one can say that there could be mileage in chasing the floor of the recent 1,350p – 1,550p trading range. But nevertheless, one would be more comfortable waiting for at least an end of day close back below the blue 50 day moving average at 1,471p before taking the plunge on the short side.

Sainsbury (SBRY)

Perhaps surprisingly, it can be seen at Sainsbury’s (SBRY) that the 50 day moving average – now at 326p – is also in play, and we are in the aftermath of an intraday bear trap rebound from below this feature. The suggestion now is that at least while there is no end of day close back below the 50 day line / February converging triangle floor, one would be looking for further recovery potential. The favoured destination at this stage is seen as being the top of last month’s range towards 350p over the next 2-4 weeks.

WH Smith (SMWH)

Finally, we have WH Smith (SMWH) where the latest double rebound off the floor of a rising trend channel / 200 day moving average at 1,008p has us looking for recovery rather than collapse over the near term from a technical perspective. One would take the view that at least while there is no end of day close back below the 200 day line it is best to take the bull tack and a possible initial target towards April resistance through 1,120p as soon as the next 2-4 weeks.

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