Indexes supported yesterday’s rebound. The key isn’t if we are up or down a quarter percent, but if there are sufficient buyers to hold current levels and fewer profit-takers pressuring prices. Consolidations have been more modest in recent months and that trend is continuing here.
A change in market character is coming because this one is getting a bit stale. We need to be on the lookout because often the market changes personalities with each new quarter, something to be aware of with the current quarter ending next week.
I expect the market will transition to either a more consistent grind higher, or alternately a selloff. Grind higher seems more likely due to all the investors underweight this market, but if fear of being left behind doesn’t kick in with the reluctant crowd, buying will dry up and we’ll head lower.
This current balance between buyers and sellers is quite bullish given how many traders are fearful of these new heights. With most stock owners demonstrating a willingness to hold, the pressure remains on those watching from the outside.
We are approaching the quarter’s end, which is important because fund managers are judged almost exclusively by their performance. Given how many are trailing their benchmarks, we will most likely see buying continue through next week as they attempt to spin their portfolio in the best possible light. Right now that means buying what is hot so they don’t look like the fool who missed the rally when their books are opened up to investors.
Of course the thing to be careful of is this big push into quarter’s end on climaxes on Friday. After that fund managers’ clocks resets and they have three months left to catch their benchmarks leading into the all-important year-end. The pressure will still be on because annual performance is even more important than quarterly performance, but the three-month window gives them some breathing room.
We could see a dip early next quarter, but with so many lagging managers, they will be quick to buy anything at a discount in an attempt to salvage this year. Don’t expect their buying to be rational when their jobs are on the line, and many funds will reach for performance regardless of what it takes.
Same as it’s been for a while, keep doing what is working, but be ready to take worthwhile profits of 20 to 25%. We might be in the early stages of secular bull, but there are still pullbacks, corrections, and bear markets in secular bulls. The market is very stingy when giving out money, so always be willing to take the few gifts it is willing to hand out. Wait too long and the market will take everything back and then some.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.