ANYBODY INTO WINDOW UNDRESSING?
It's not window dressing, it's window undressing. That's what has the potential to do the greatest damage to the markets as we move into the weekend.
It's the end of the quarter. Very simply, this means that fund managers holdings suddenly become fully transparent, as they are required to report them via 13F filings every quarter. Since a majority of fund managers are eating bear scrotum this quarter, you can imagine that the anxiety is high going into the last couple days before the end of the quarter.
As a fund manager, there is absolutely nothing more humiliating than releasing your 13F to the watchful eyes of investors and having a bunch of names on there that are down 20, 30 or 40 percent from their highs a few months ago. In order to perform damage control to an already skeptical and frightened audience of investors, fund managers are being forced to reduce their worst performing positions into the end of the quarter.
This very simply means that the big losers turn into even bigger losers. It also means that there is opportunity as the markets have the potential to become artificially compressed over the next couple of days.
I mentioned last night that there was a good chance that we would sell-off following the disappointing last hour of trading on Tuesday. The momentum to the downside may continue right into Friday, irrespective of a positive vote out of Germany, which I think will be the case.
I am eagerly looking forward to buying this dip if it does occur. I have a 25% allocation of cash I would like to put to work in order to be fully invested. If we don't get the dip, I will be happy with the 75% allocation in TMV, DZZ and FAS. This isn't a market to even think about chasing up.
The bottomline is this: You don't want to try to get too cute here. Catching the bottom tick or waiting for a specific price point in the S&P just isn't smart. We're very close to an important intermediate term turning point in the markets that could yield significant upside results over the next 4-6 weeks. It's not something that is worth missing because you wanted to time the market to the day, hour and minute of the last tick down.
Two things I am sure of are 1) The structure of the range is one that suggests an upside reversal NOT a continuation to the downside 2) The sentiment confirms that only under the most grievous of economic scenarios will we breakdown significantly from here. In other words, an anomalous situation must take place to see a substantial move to the downside from here.
2008 was an anomaly. While funds that bet on "black swan" events in the market have been popularized due to the sudden increase in black swan type events, betting on an anomaly to take place from here simply isn't prudent. Especially when you have everybody else betting alongside you that an outlier is imminent based on their experiences with the previous outlier in 2008.
