Another Round Of Window Dressing

We saw some window dressing in the last hour yesterday and we’re seeing some more today.  Volume’s light so pushing around stocks isn’t too difficult for those traders still on the floor.  For those of you who’ve heard of window dressing but don’t know what it is, it’s basically making a portfolio look better for the end of the quarter by a fund manager.  Here’s the way it works.  Mutual funds send out their holdings typically in their semi-annual and annual reports.  When these reports go out, do you think they want their investors to know they own General Motors, AIG, Fannie Mae, etc.?  So, what happens is the last few days of the quarter, the fund manager will sell off his losers and buy some winners.  The result is the companies that have been doing well lately get pushed up even higher.  Add that to a low volume day and you get exaggerated moves.

I think when the volume returns next week we could see a reasonably good rally based on the upbeat feeling of “change”  (A.K.A. Obama) coming whether it means anything or not.  As always, I’ll be monitoring that rally to see if it has legs.  If it doesn’t, we’ll have to get more defensive.  If it does, I’ll be adding some long positions.  We’re at a fork in the road where the stock market has been making lower highs and higher lows.  So, you’re getting this wedge as they call it.  We’ll break out one way or the other.  We’ll see next week.

Have a great new year.


1 Response to “Another Round Of Window Dressing”

  1. 1 hedgefundofone December 31, 2008 at 5:10 pm

    Thanks for your informative blog Karl,
    I see that TBT (UltraShort 20+ year Treasury ETF) made a nice 5% up move today. Might be a signal that the treasury bubble is about to pop.

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