March Madness: The Quarter-End Bender
Money managers are getting squeezed.
The quarter-end bender is upon us, with everyone and their sister expecting strength into month-end and April inflows thereafter. While I've tapped the tape a few times this year (read: tested the short side), I certainly haven't been fighting it, so I have no ax to grind. While we've spoken to the price points that matter through a technical lens, there are two determinants of profitability: price, of course, and time.
This is my 23rd year of trading—I'm shaking my head in disbelief—and while my crystal ball is in the shop, I will offer that there is an nonsensical tendency for the quarter-end mark-up to stall (or reverse) a few days prior to month-end. Looking at my calendar, with a nod to Good Friday, this would suggest the upside window could extend another nine sessions (of course, it need not be a straight line).
IF that window happens to coincide with our S&P (INDEXSP:.INX)1580 price point—and the fact that I'll be away from the fray those few days taking my family to Disney for the first time—the stars, as they say, would seemingly align. Much like Turnaround Tuesday, the “Out-of-Office” indicator is right up there with the “Sleep-O-Meter” and the “First Move is the False Move” (after the FOMC) phenomena.
Now, that and $2.75 will get you one ride on the subway, and when trading, much like in life, the destination we arrive at pales in comparison to the path we take to get there. So file the above vibe in a corner of your crowded keppe as we continue to take our journey one stair-step at a time. We don't need to know where the market will be in nine days—we don't even need to know where it will be later today—we simply need to manage risk, as the mechanics of our swing always trump the results of the at-bat.
In sum, and with sentiment levels as they are, we must remain conscious of hidden trap doors that can—and would—catch market players off-sides. With fund managers in catch-up mode and expecting a rally through quarter-end (they have performance anxiety that would make Bob Dole blush)—the tape is ripe for a yellow flag (read: off-sides) as the world climbs hand over fist for results.
- What’s performance anxiety, you ask? The Dow Jones Industrial Average (INDEXDJX:.DJI) is up a snazzy 10% and anyone not on par with that performance is a stress ball. Remember, in the fakakta world of Wall Street, it's OK to lose money if others lose more but anathema to make money if others make more.
- Consistent with my Monday column, Buying BlackBerry (NASDAQ:BBRY) for a Trade, I continue to trade around the smartphone maker. This puppy is up 20% this week, so I am most certainly factoring that into my approach, as detailed in real-time on our Buzz & Banter (click here for a free trial).
- While on the webcast with Bob Prechter Tuesday night (we’ll have that for you tomorrow), I found myself nodding in agreement with many of the views he expressed. By the end of the interview, and in an effort to see both sides, I asked, "What if we're wrong? What if the chasm between perception and reality—the same chasm that existed the last time the Dow was at all-time highs—doesn't reconcile?" Bob said something that should be old hat for Minyans: The dynamic is cumulative.
- Jeff Cooper penned an excellent article, Is This 1987 All Over Again? Take the time to chew through that dew, please.
- This is the type of upside grind that not only shakes out the shorts, but punishes the long volatility types. It's hard to tell how long it will last--from a time perspective; we have a (perceived) bead on the price point--but I will say this: When the tape turns, there will be precious few who are positioned to prosper (there is a difference between being short and being bearish) and that will paradoxically cause the downdraft to be more severe (no shorts means one less layer of demand.
- As an active trader, the big picture noise is just that—noise. It's a distraction; it flies in the face of the maxim to "never let an opinion get in the way of making money." That is why it is so very important to sync your time horizon with your risk profile.
As a PM or PWM, however, it very much matters, as those folks are feeling the heat from clients who aren't keeping up with the Dow Joneses. I had that exact conversation with a buddy the other night; he was ready to fire his broker for being too cautious. I pulled up the chart below and reminded him of the repeated pattern of investors getting punished at tops and savers being screwed at bottoms.
- There are no blanket answers, but if I were a broker, I would educate my clients to see both sides—that for each and every unit of reward, there is incremental risk—and let THE decision rest with them. Teach them about trailing stops and other methods of managing risk (there are many) vs. chasing rewards. And perhaps, you can show them the chart above and point to each cusp and ask them how they felt at the time (over the last fifteen years). Odds are, they weren't bullish and/or bearish at the right time (few were).
- Anyway, it's tough out there--all-time highs notwithstanding—so remember to be good to others and better to yourself. Once upon a time, in a bubble long, long ago, I wrote about "The Long Hard Road" that would be the financial industry; not just trading, per se, but the process. The good news—and yes, there is good news—is that we had to go through it to get through it, and we're going through it now.
As always, I hope this finds you well.
Disclosure: Minyanville has a business relationship with BlackBerry.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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