Wednesday, September 28, 2011

Do we get some window dressing?

     At the end of every quarter on wall street there exists a phenomenon called "window dressing".  This is where portfolio managers and traders buy up stocks  that have done well in the quarter and sell the ones that have done bad to make their portfolio's look better to their investors.  Generally this is a time when stocks rise as money is put to work to make the quarter look better than it really was.  If you look at the end of the last quarter in June, you can see a good example of it.  Stocks really rose at the end of June.

     We are coming to another end of quarter and after last weeks drubbing, markets are looking for any reason to rally.  As such, stocks are once again up today nearly 100 points on the DJIA in the early going and the SNP and NASDAQ are up as well.   We gave back 150 pts of gain on the DJIA yesterday and today we may get it all back!  The headlines will say we are up on "European hopes" but we know better...it's because of window dressing!

     After flying yesterday, European stocks have settled down a bit mostly in the red by modest amounts.  London was down almost 1%, Frankfurt was up with a marginal gain and Paris was down by .4%.  Gold remains near yesterday's closing price and seems to be stabilizing and silver is down a small amount.  Oil is down almost 1%.  The euro is rallying once again up a third of a percent.

     Across South America, the Brazilian Bovespa is up over 1% and the Argentina Merval is not open but was up 2% yesterday.  Asian shares were mixed with Tokyo up and Hong Kong down.



Economic Data
     In a bit of good news on the economic front, durable goods orders came in worse than expected but internals were nice.  The Commerce Department said durable goods orders dropped .1% in August on slower sales of automobiles.  Economists had expected durable goods orders to remain unchanged from July.

     Meanwhile business spending was higher in August easing fears that the economy will fall off a cliff.

     "Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, increased 1.1 percent last month after a 0.2 percent fall in July," said a Reuters article.

Market Recap
     Well, we didn't get any window dressing today!  Early on the markets were up over 100 pts on the DJIA but sold off all day and finished down 180 pts.  This action is very bearish.  This market is being driven by headlines and any bad news out of Europe causes the market to go down and any good news causes the market to go up.  Today, we got bad news in the form of dithering about a Greek bailout payment.  Apparently, the Greeks are not meeting their budget cutting targets which is irritating the German's to no end.

From Yahoo Daily Ticker...

     "Ultimately, they're looking to build a 'ring of fire' around Greece," says Axel Merk, president and CIO of Merk Investments and manager of the Merk Funds. "They'll do whatever it takes — they'll give free money at some point -- but it has to be on German terms and they're not coming easily."

     Further, governments and bondholders(european banks) are arguing over who going to take the bigger hit.  Right now, the bondholders have agreed to take a 21% hit on their Greek bond holdings but with market prices for Greek bonds implying a much bigger haircut, governments want the banks to renegotiate their terms to reflect the current market values of Greek bonds more accurately.

     Apple is holding above my stop right now and hopefully we get a bounce soon.  It is the end of the quarter markup time and with AAPL up 18% this year, portfolio managers want to show AAPL in their portfolios.  As such, AAPL was outperforming the market today down only .5% when the NASDAQ was down 2%.

     I went ahead and put on a spec trade with XLE today at the end of the day.  I saw XLE drop into the 50's recently and thought the drop was way overdone.  It turned out to be true as it bounced back almost 10% over the past two days back to 63.  Today, it sold off hard again down below 60 so I decided to put on a quick trade with XLE and set a stop just below the recent lows.  Commodities including oil, gold and copper have been hammered recently contributing to the underperformance of energy and materials stocks compared to the overall market.  I believe that people are throwing the baby out with the bathwater and these stocks are way undervalued.  We'll see what happens...
I picked some up near the lows of the day today at 59.70 and set a stop at 57.80 near the recent low.  I will sell on another pop to 63-65. 


    

    

Disclaimer: Nothing in this blog should be construed as a recommendation to buy or sell any securities! Please do your own due dilligence before buying any stocks or bonds!

22 comments:

  1. I learn something new every day thanks to this blog. I'd never heard of window dressing before, seems a smart idea to make quarters look better.

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  2. Window dressing.. That makes sense. It's an investment on the future, basically.

    Also, regarding the group, sorry to hear. Stuff happens, we move on. I geddit.

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  3. dude is there any way i could contact you more privately? i need some info on the sources of these data for my future posts..

    Contact me @ my e-mail.

    Regards.

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  4. Window dressing I have never heard such a thing until now .

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  5. Being a stock trader must be depressing and a real challenge in this time, not only do you need to have sources, you must have real knowledge and a good feel for things, all of that red in the top left corner of your blog looks spooky. I'm learning bit by bit :).

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  6. So sell now, buy when they understand that it was all window dressing?

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  7. this makes me want to be a stock broker :$

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  8. @Yeamie Waffles

    Yes they want to get their performance bonuses at the end of the quarter.

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  9. @Michael Westside

    A lot of people do that. Sometimes it works out, sometimes it doesn't.

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  10. @neatfit

    Actually, this is the best time to be a trader with huge swings in the market up and down. Good traders can make a ton of coin in times like these. Unfortunately, I am not a good trader :(

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  11. I know this is unrelated, but have you heard the buzz around the supposed trader that talked on BBC news yesterday hoping for disastrous outcomes? It looks like he is a member of Yes Men. As soon as i heard that i wondered if you were going to talk about it.

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  12. wow, can tell stock traders are a sneaky bunch.

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  13. Did you see the video of the guy talking about how the European markets are going to crash? It went viral.

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  14. wow great insight, makes a ton of sense. good time to buy i suppose?

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  15. Good information.
    Very informative my friend.
    I'm looking forward for the next post.

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  16. I'm gonna remember this window dressing thing. Really cool stuff! :)

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  17. But if everyone does it to look better...doesn't that like, stop working after a while?

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