With 6 of the past 7 weeks in the red, the markets have managed to string together a series of winning days. Daily gains both this week and last have ranged between 0.50% and 1.25%. Indeed, the Dow’s gains on Monday and Tuesday represent the first consecutive triple digit gain for the Industrials  since December 1- 2, 2010. This was the fourth triple digit rally since the April 29th highs.

Are we making a major turn? Has psychology become so bad its a contrary indicator? Has the 200 day moving average proved to be inviolable?

Perhaps any of those explanations might prove to be the case, although I have my suspicions otherwise. I suspect it is simply a case of funds marking up stocks into the close of the 2nd quarter.

What data supports this thesis? I would point to 2 things: Psychology and Trading Volume. Most metrics are showing psychology is either neutral or optimistic. This tends to be supportive of a short term trading bounce, and not a longer-lasting rally.

Second, the volume has been anemic, even by the unusually low levels we have seen all year. The overall volume on Monday was well below the 30-day average on both NYSE and Nasdaq. Tuesday was even lower. Rallies on increasingly lighter volume are not signs of aggressive institutional buying. Rather, it supports the Window dressing thesis.


Explaining the short term noise is often a Fool’s Errand,. In my experience, it tends to reveal more about the speaker’s book than it says about the market conditions. But in the present case, I cannot help but be concerned that the long side trade is a bit of a suckers bet much beyond June 30th . . .

Category: Contrary Indicators, Markets, Technical Analysis, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

22 Responses to “Window Dressing Proceeds Apace”

  1. ab initio says:

    Your explanation is as good as any. Signal to noise.

    Wouldn’t we need to get a serious downdraft for The Bernank to come once again to the rescue just in time for Jackson Hole?

  2. Bruman says:

    In short, explaining noise is best understood as a Rorschach test, which is – I suppose – a test about explaining noise. ;-)

  3. Greg0658 says:

    I’ve been wondering where the stocks cash is coming from and going to in these saw tooth days (other than the bag pinch each trans) .. in a TBP sense … where do 401K appropriations go .. can they be used to M&A and buy back stock? … I no longer believe the system can fix it / other than a mass destruction fix it

  4. TLH says:

    My concern would be the back up in interest rates that we are seeing. With the end of QE2, could this be more than just a trading range fluctuation. If money comes out of bonds, it will go to other asset classes.

  5. Ted Kavadas says:

    RE: Has the 200 day moving average proved to be inviolable?

    I think it is highly possible that we will soon revisit the 200dma, as it seems as if the market is “bouncing” off this level.

    One thing (among many) that appears to be an issue with regard to overall market health is the “drooping” price action of various financial stocks. The stock of Goldman Sachs (GS) seems particularly notable in this regard.

  6. Mike in Nola says:

    The last few days have just been rather extreme examples of risk-on days. Treasuries down, dollar down, Euro, stocks and commodities up, all on pathetic volume. All on no good news, only rather bad, other than Greece which is not really good news even with the bailout. You have various factors – window dressing, stupidity abotu the Greek bailout solving something, and maybe even Bill Gross and allies staging a bear raid on treasuries so that they get low enough for him to be able to cover without too much continuing embarrassmant. Could also be some people trying to play the debt ceiling game but the Dem’s don’t have enough spine to call the Wingnuts’ bluff and blame them for letting old people and servicemen go without checks for a couple of weeks so the rich don’t have to pay taxes.

    Dont know if history will repeat or rhyme, but ZH pointed out the spike in the market last year after the first Greek bailout. Was followed a week or so later by a pretty good decline. May be a sell the news situation.

    In any case, once things start hitting the fan again, they’ll all be fleeing to treasuries.

  7. Jim67545 says:

    BR: The conference notice bars access to yesterday’s/earlier topics.


    BR: Weird, I don’t see that in Firefox.

    Regardless, ” « Older Entries” is always this URL


  8. rootless says:


    With the end of QE2, could this be more than just a trading range fluctuation. If money comes out of bonds, it will go to other asset classes.

    No, it won’t, because there is no money coming “out of bonds”, or any asset class, when they are sold, and there is no money going in “asset classes”. Every bond seller meets a bond buyer. The same amount of money, for which is sold, is invested for buying at the same time. To say money flows out of bonds is equally meaningless as to say bonds are flowing into money. Bonds and money only switch their owners. Or any other asset class and money, whatsoever. So there won’t be more money in the system available after the end of QE2, assuming bond prices are going down, to buy something else compared to before.

    Yours is a common misunderstanding of what is going on when assets are being sold and bought. Assets aren’t containers into which money is poured or from which money is drained. This is important. The misunderstanding leads to wrong conclusions.

  9. TLH says:

    I agree with your general principle, but leverage is in play in all markets. How does that change the equation?

  10. joinvestor says:

    If you look carefully at volume, it really started dropping in late March to late April for most markets — maybe based on the “the sell in May and go away”-theory? I don’t know. Other technical indicators seem to be flashing a cautious buy. (I got back into the market on the 13th and 23rd this month after getting out a bit prematurely in early January.) This may just be a short-term updraft, but the spread in interest rates globally seems to point to a longer-term (i.e. 6 mo+) uptrend.

  11. manhattanguy says:

    At the start of a new trend people are always skeptical..I think this is the uptrend that will put S&P close to 1400 by year end. Will we have bumps along the road? yes.

  12. rootless says:


    It changes the equation only with respect to that there is a third party involved, the creditor who provides a part, perhaps the largest part of the money for buying the asset, or who gets a part or all of the proceeds from selling the asset. It doesn’t change anything about that the flow of money is not from one asset class to another one, but from the buyer/creditor to the seller/creditor (with an inverse flow of assets at the same time), and that there isn’t any more (or less) money available in the whole system after the trade (or after QE2) compared to before due to trading the assets. Only the owners both of money and assets have changed.

  13. I’m at 40% cash in my gold positions as we are coming off the summer bottom a bit early this year (agree that it could also be window dressing). We could see another dip going into July.

    I’m thinking also that, in gold at least, big players are beginning to position themselves for the fall. Gold is also closely connected to the currency market and, with the currency drama queens having saved the day in Europe again, this is adding support to the trade. That turbo button on the presses sure has come in handy since they installed it

  14. rootless says:


    At the start of a new trend people are always skeptical..I think this is the uptrend that will put S&P close to 1400 by year end.

    Doesn’t your reasoning presume that there must have been a downtrend first? When I look at the 2-year chart of the S&P500 I don’t see any. If the S&P500 goes up to 1400 from here the recent two month will only have been a wobble within a longer-term uptrend. And the last few days can’t have been the beginning of a new trend. People can’t have been skeptical about the “new trend”, then. Somehow, your reasoning is flawed.

    On the other hand, if the cyclical bull has topped and the S&P500 continues to go down from much more, the recent two month will have been the beginning of a new downtrend, after more than two years of an uptrend. At the start of a new trend people are always skeptical, and they come up with all sort of rationalizations why the old trend was going to continue after a temporary wobble.

    This is not a prediction where the stock market is going from here. I don’t know where it is going from here.

  15. nofoulsontheplayground says:

    BR, I’m curious if you are able to factor in volume on BATS and other exchanges when looking at the volume of individual issues or even Dow components. Currently only about 30% of the equity volume actually traded is on the big boards. The remainder goes on behind the curtains.

    So far we’ve had a nice start to the oversold bounce out of the 1258 SPX lows.

  16. manhattanguy says:

    @rootless When I said downtrend, I was referring to the bear market we saw in the last 6 weeks. I think 200 ma proved as a successful test (twice). My bet is that we will see 1400 (or close to) by year end. I don’t see the market has started a new downtrend as you implied in your posting.

  17. wally says:

    Short term, I’m still very curious to see the effect of sharply lower gasoline prices. I think cheaper fuel means both more consumer spending and higher profit margins – a win-win. I think the US ‘recovery’ is locked in a dance of death with oil. Two go in, only one comes out.
    A bit longer term, I’m curious if the Strategic Reserve becomes an actual economic stimulus weapon (ie: political tool to get re-elected).

  18. wtcombs says:

    at this point, it’s risk on, or at least for me. Earnings will be fine, the greek noise will quiet and continue for a while further, and timing a selloff will be difficult. the market will start to rise and scare people into owning it before the train leaves station.

    Also, i think that war in Libya could end with an appropriately placed cruise missile, which could send oil down and the market higher, but that’s a long shot.

  19. Mike in Nola says:

    Here’s a link to the OECD figures. You can re-sort the chart by clicking on the headings.


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  21. RandyClayton says:

    After Friday me thinks this is starting to look like something more than window dressing. Sigh. I’m on the wrong side of this move and I am getting my @#$ fed to me right now.

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