Wednesday, March 30, 2011

1st Quarter Window Dressing

One of the more consistent tendencies for the stock market as of late has been end of quarter Window Dressing. This is when fund managers “dress up” their portfolios by grabbing some winners and letting go of losers into the end of the last month of the quarter in order to boost the appearance that the fund is positioned well. Performance for the funds may also catch a rise, as long as the stronger performing stocks maintain their strength into the end of the manager’s dress up time zone. While it may seem like this practice is just a form of manipulation (and it’s hard to argue that it isn’t), it is an accepted standard on the street and we should use it to our advantage.

Despite what some might lead you to believe, Window Dressing is the farthest thing from a “lock”. That shouldn’t surprise you, as the stock market doesn’t have sure things. The strategy is not foolproof and can often back-fire, especially if you get greedy or your timing is off. I like to use the tendency to help put baskets of stocks together to watch for late quarter pushes. I usually follow the stock charts for the triggers, but a time of the month strategy may also be used.

For this quarter, I ran a best performing stock scan using a filter of at least $10 and volume over 300k average. Here is the small list of stocks that came in the top percentile of the scan:

SRZ
SGI
ALJ
GMCR
BSFT
IPGP
PANL
MERC
WTW
SD
AH
WWWW
FTO
MTW
JAZZ
My personal favorite parabolic monster (just because of the fast rise) TZOO

Some of these stocks have patterns that should be watched for the next few days, while others don’t have quantifiable patterns or in what I call the “nosebleed” area, and I would likely steer clear from those stocks. Of course, some of the stocks I put in the nosebleed category will still move higher, but they will do so without me.

A common question I received many times when teaching the Window Dressing techniques was “what about shorting the stocks after the start of the new quarter”? The question is a good one. If these stocks are just being propped up for Window Dressing, then shouldn’t they fall hard at the start of the new quarter? Well, not exactly. I’m not a big fan of shorting stocks that are in a strong uptrend, and usually, these stocks are in just that. There may be an opportunity in some stocks that are fading before the end of the quarter. These stocks may offer trades from the short side, but as always, wait for a pattern to setup.

As a final note, Window Dressing can work in other markets besides stocks. Watch crude oil, gold, silver and currencies for Window Dressing to kick in as well.

If you have any questions, feel free to contact me.

Trade well,

Michael “tiny” Saul

Tinymjs at gmail dot com

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