I wasn’t planning on turning this into ‘Halloween Mutual Fund’ week, but I’ve gotten more questions since Monday about this than anything. So, let me go back to basics. In yesterday’s piece, I discussed the “why” behind the mutual fund year end occurring on October 31. In Monday’s piece, I made reference to it. Now, what I need to do is discuss why this can potentially be important. Window dressing is a practice put on at the end of the year by many entities but many mutual funds to this day quietly implement it at the end of October. For those that don’t know, many mutual funds have historically tried to improve the overall look of a year’s performance by selling stocks with large losses and buying stocks with good performance. The performance numbers aren’t sent out for awhile as these funds “account for their performance,” but investors sure do see which stocks are in the funds. Thus, a holder of Mutual Fund A may not know that his fund underperformed in a given year, but sure will see on November 1 that his fund owns shares of things like AAPL. This effect has the potential for even more exaggeration this year with many funds underperforming the benchmark indexes as they are forced to play catch-up what with several stocks accounting for much of the gains in an index such as the S&P 500. Along with the weak dollar, this is a primary factor in the exacerbation of stock moves in things such as the top performers of the year much less in select random microcaps that can artificially inflate performance on a mark-to-market basis such as CDTID. So, expect volatility to pick up on a case-by-case basis as we wind up the next three days…with the next fun game to occur next week- gaming the election cycle!
Markets were mixed throughout the world with Tokyo flat but Hong Kong down sharply 1.9%. In Europe, Frankfurt was up 0.2% with London down 0.4%. Commodities are lower with gold down ½% and oil down 1%. The dollar is marginally stronger against the euro and yen. Bonds are a little higher. New Home Sales (295,000) are out at 10AM with Crude Inventories out at 10:30AM. Durable Goods came in mixed with the overall number better than expected, but weaker than expected when excluding Transports. Futures are down slightly on the dollar strength. It’s the same thing once again- the dollar will be the key factor today along with the reactions of individual stocks to earnings. Focus on the many earnings plays out, the cloud computing sector, the rumored takeover stocks, and the big cap techs.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
CML- decent earnings
BRCM- good earnings
FFIV- good earnings; CRM, CTXS, VMW may move with it
ILMN- decent earnings
MCK- great earnings
AFL- decent earnings
NTGR- decent earnings
OII- great earnings
NVLS- decent earnings
WU- decent earnings
DWA- decent earnings
DV- decent earnings
EQIX- good earnings outlook
FORM- decent earnings
LIFE- decent earnings
SIMG- good earnings
JDAS- decent earnings
MIPS- closed near a high after posting great earnings
RCII- closed near a high after posting great earnings
COH- closed near a high after posting great earnings
BIDU- closed near a high
MCP- closed near a high
LVS- closed near a high
FCX- closed near a high
MOS- closed near a high
LNG- closed near a high
OVTI- closed near a high
NFLX- closed near a high amid vague takeover rumors
USB- featured on “Mad Money” last night
WHR- decent earnings
ADP- decent earnings
IP- decent earnings
PG- decent earnings
RDWR- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
JKS- share offering
MEE- poor earnings
CENX- terrible earnings
CHRW- poor earnings
BWLD- terrible earnings
PNRA- bad earnings
PPDI- poor earnings
MYL- poor earnings
KMB- closed near a low after posting bad earnings
LXK- closed near a low after posting bad earnings
UIS- closed near a low after posting bad earnings
BXS- closed near a low after posting bad earnings
RCI- closed near a low after posting bad earnings
COG- closed near a low after posting bad earnings
TNP- share offering
PFCB- poor earnings
JNY- poor earnings
S- poor earnings
Earnings:
WED OCT 27 BEFORE
ADP AVY AYE
BWA CMCSA COP
CP DPS EAT
ELN FBC GD
HES IACI IP
JNY LM MWV
NOC OC ODFL
PFCB PG PX
RDWR S SEE
SLAB SVVS TMO
WHR
WED OCT 27 AFTER
AEM AFFX ALL
AMP AVB BEC
BYI CAVM CCI
CYH EFX EQR
ESRX FLEX FLS
FMC FTI HLX
IDCC NSC OI
ORLY OTEX PLXS
RRC RYL SKX
SPN SYMC TER
TMK TRN UHS
V WLL
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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