As the clock ticks closer to the 2:15 FOMC announcement, I am starting to see volume dry up even more (if that's possible) and spreads are beginning to widen. Even without the FOMC today I would guess that things would be pretty much the same. Both the buy and sell side seem quiet and very few people are coming up with new ideas to put to work.
With the end of the year right around the corner I doubt people are willing to take on extra risk that would put their performance in jeopardy. Remember, this game is all about risk/reward folks. That's it. If you were up 25% this year would you be putting yourself at more risk into year's end? In my opinion, that's the main engine driving this tape. Without taking risk we lose volume. Without volume we are left with a choppy trading environment where it is easy to lose conviction and get burned. Read yesterday's Snack to see!
One exercise I did this morning, at the suggestion of someone close to me, was to go through the indexes I review everyday and look at the percentage moves YTD. The top five sector percentage moves are SOX (Philly Semi) +72.63%, XBD (Amex broker/Dealer) + 52%, XAU (Gold/Silver) + 44.64%, GSO (software) + 42.80%, and the CYC (Cyclical) + 41.64%.
First off I want to get one thing out of the way: just because something is up a large percentage does not mean it cannot move much much higher. With that being said one can imagine that after hefty moves like this, people are bound to take some money off the page. This could be one reason tech names have stalled recently. The XAU (Gold/Silver) is a bit of an exception because metals certainly act differently and have different catalysts which drive them. Now let's take a look at the leaders of the past week or so: OSX (Oil service) + 4%, XOI (Amex Oil) +15%, the DRG (Pharma) + 8%.
With that in mind are we beginning to see a roll out of tech and into "defensive" based names? Nothing is for certain but it is something to watch carefully with the market at critical levels, the end of the year coming, and many other catalysts that could shake an already shaky tape. We will watch these moves together over the coming weeks.
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