Weighing The Week Ahead: A Blank Slate For The New Year?

We have another short week, a government shutdown as partisan lines are redrawn, and also some important new data. Many will plan to take the week off, but some will be making last-minute position adjustments on Monday. I expect many market participants to happily turn the calendar page, enjoying a blank slate for the New Year.

Last Week Recap

In my last edition of WTWA I made some suggestions about planning for uncharted waters. That was more important than I could have known. Few have charts for the market moves we saw. Even the punditry struggled to find anything substantive beyond murmuring “oversold” and “short-covering.”

My thoughts? The moves continued to involve all sectors and stocks. It was definitely not a time for short-term stock pickers. This was true on the downside in recent weeks and also accurate for last week’s rallies. Thursday’s spectacular last-hour move was fascinating. Most observers just expressed amazement. Program trades from any source can generate big moves in a thin trading environment. We had some orders working above the market and were amazed when we got filled.

CNBC’s Bob Pisani offered an explanation the next morning: Portfolio rebalancing by a big fund. In this type of trade, the fund buys stocks and sells bonds. Here is his evidence, a synchronized move of stocks and bonds.

This was an 800-point Dow move in an hour or so. One fund, unless we think a number got together to trade at this time. I expect similar decisions from various pension funds and balanced funds. I did not think it would happen until investment committees met, probably in another week or so. These participants are not traders. Organizational decision making can be slow. We can expect to see more support from these sources in early January.

In an effort to provide some mid-week enlightenment, I wrote The Trepidation Trap

Alan Steel provided another helpful view from across the pond. Read the entire post the fun and all of the key points. He included this chart followed by his own interpretation.

Admittedly, it’s easy to get caught up in it, particularly when the lunatics are running the asylum with:

  • Algorithms (millions of little robots that make investment decisions based on market reports) that change price direction based on the same perspective-less information we see in the headlines
  • Biased and commercially driven reporting that help drive the decisions of all those little robots
  • Politicians in charge of project managing a separation between the UK and European Union who have no such experience or qualifications to do so 
  • A megalomania-afflicted White House surrounded by a Washington DC-sized swamp of self-interest, and
  • The usual geopolitical examples of the unconcerned, unrelenting and unhinged.  

Little wonder then that the consensus of opinion of investors about the stock markets are breaking negative sentiment records.

And that’s why wealth tends to avoid crowds.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski. She includes a lot of relevant information in a single picture – worth more than a thousand words. Read the full post for more great charts and background analysis.

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Disclosure: [If you are interested in finding inexpensive stocks with great potential, I hope this is helpful. We all want to have the holdings that will respond best in a rebound. Feel free to ...

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