Window "Undressing" May Be At Work

The headlines blared that stocks soared Wednesday in response to improvements in the trade war. Apparently, China was making noise about a new policy designed to increase access to the country's economy for foreign companies. Diving into the story, it certainly sounded like things were moving in the right direction. As such, stocks opened strong and rallied throughout the morning. By lunchtime, it felt like the tide might be turning and maybe, just maybe, Santa might make an appearance after all.

However, as has been the case lately, the improved mood didn't last too terribly long. Sellers and their computers hit the tape hard at around 1:15 pm EST and as you can see on the 1-min chart of the S&P 500 below, the index quickly gave up more than 1% and then wound up sinking into the close, finishing at the low of the day.

S&P 500 - Daily

(Click on image to enlarge)

As the closing bell rang, one of my colleagues pinged me. His message was short and to the point. He called the action, "Horrid, one of the worst tapes I've seen in a long time." I guess finishing 300 points off the high - again - will do that.

The bottom line is that any/all rallies are being sold into lately. This means that in addition to the scary down days investors have to deal with, even the good days quickly come under attack.

So what gives? Why all the selling? Why aren't stocks rebounding the way they "normally" do after a big decline?

Window Dressing Cuts Both Ways

Anyone who has been in the stock market game for a while knows about the practice of "window dressing." While technically illegal, the idea is that managers tend to bid up the prices of their biggest holdings at the end of reporting periods (think fiscal year-ends, quarters, and calendar years). The idea is to "dress up" your portfolio for the report you're going to write to investors.

However, this concept can go both ways, especially when there is a perceived shift in the market environment. And make no mistake about it; there is definitely a change happening in the current market.

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Disclosure: At the time of publication, Mr. Moenning held long positions in the following securities mentioned: none - Note that positions may change at any time.

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