Monday, October 12, 2009

Monday Morning Musings: Performance Anxiety?

The market is higher for a sixth straight day, which would be the first time this year it has accomplished such a feat. The driver? No news. There are no major economic reports this morning, nor are there any major earnings announcements. And Asian markets were slightly lower overnight.

So what is behind the enthusiasm? Hard to say, but I would not discount the fact that we are in Q4, which is a strong seasonal period for stocks. Also, mutual funds fiscal year ends are mostly in October, so there could be some buying pressure from fund managers. Last, I have no doubt that the performance anxiety among hedge fund managers is kicking into high gear. Those who were betting on a big pullback in October, and got short the market, have likely been forced to cover and are now scrambling on the long side to make up for lost profits.

The dollar is also weaker again today, driving the same commodity excitement it has been lately. Oil prices hit levels near $73.50, while gold futures touched new highs at $1060 before pulling back slightly.

All of the major economic sectors are participating today, with energy leading the pack, as well as semiconductor stocks. Broker dealers are one group that I see lagging so far.

The S&P 500 hit a high this year at 1080 on Sept. 23rd, and it is currently only 1 point away from that level. The Nasdaq is about 12 points below its Sept. highs.

Trading comment: Famed investor Jesse Livermore once said that it wasn't his trading that made him the most money, it was sitting on his hands. That means there were times when even though he felt like pulling the trigger and selling to take profits, he let them ride. That has been the winning formula for the last few months, even as it has been difficult to do so. But sometimes doing nothing is the best trade.

That said, I did take some partial profits on a couple of semi stocks (STAR, TSRA) this morning, lol. These stocks have had big bounces, and I am just trying to add value by trading around our positions, selling on spikes higher, and buying back on pullbacks. It's certainly a more active strategy, and probably only suitable for professional traders, as these stocks move quickly.

Earning season heats up this week in a big way, and as such I expect to see some increased volatility in the market and individual stocks relative to the last few weeks.



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