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By: Chris Rowe — April 6, 2015

A Healthy Young Blonde Market

~ By Chris Rowe - CEO, True Market Insiders

Chris Rowe True Market Insiders Chris Rowe, CEO

This morning I was sitting at a traffic light, as the sun rose in Boca Raton, sipping coffee from a thermos when something caught my eye.

Across the street, a slow-walking man wearing jeans and an untucked shirt, clearly not in a hurry at 6:45 a.m..  With the red hand blinking, he was nearly across the street.

Just as I began to wonder what this sluggish 40 something-year-old man was doing at this time of the day, I see a twenty-something blonde girl jogging up behind him in the neon pink shirt wearing ear buds.

All I could think about, as she closed the gap between them, passing him and leaping up the curb, was the power of relative strength stocks, or relative strength sectors in an up market.

Just as I realized how sadly obsessed I was (with fast moving sectors and blondes), I realized the left-turn green arrow allowing the cars next to me to make the left turn.  Again, a slow moving Toyota Corolla cuts a left turn as the left-turn arrow turns yellow, with a fast and loud mustang chug chug chugging up behind the Corolla, closing the gap and passing the guy in front of them.

I should probably get out more, or at least fight my obsession by writing about something completely different today. Perhaps venting a little to you will get it out of my system. But you see, it's that time of the year again. The time where I watch what huge investors are doing with their investment capital, at the turn of the quarter.  I look for clues on where to  reallocate my clients invested capital, or maybe signs that I shouldn't change things at all.

The price behavior at this time of the year can be very telling.  Lots of funds make scheduled contributions at the turn of the quarter.  And while scheduled contributions may seem like a clumsy way to invest (as opposed to buying the dips), many of these funds more than make up for lack of market timing by focusing their investments on the strongest areas of the stock market.

Why do so many funds make scheduled contributions at this time of the year?

Some funds make contributions bi-weekly.  Others make contributions monthly.  Others, still, make contributions quarterly.  And all of those make contributions in the first week of the quarter.  So if you see declining prices when the quarter changes (a few days before and a few days after), that's not a good sign, considering stocks should have had the support of all those scheduled contributions.

The financial media will tell you that stocks or sectors are advancing leading up to the quarter change due to window dressing (fund, who report their holdings to their investors each quarter decide do buy the winning stocks that quarter to show their investors they owned the big popular names).  While there is some truth to that, it's only a small part of the truth.

The fact is institutions know that those scheduled contributions are about to take place and they tend to front-run what they believe other institutions are about to do when the quarter turns. Basically, they want to make a quick gain on whatever prices the large institutions are going to push with their scheduled contributions.   This partially explains the activity leading up to the end of the quarter.  Add to that, all the options expiring on quadruple witching and it can be a very noisy and confusing time.

Nothing is perfect in the financial market analysis.  Attempting to use current price behavior to positions yourself in future winners is truly an art and not a science.  That's why risk management is the absolute most important aspect of investing.

I'll bet dollars to doughnuts that the healthy blonde will continue to be in better shape than the fourty-something, at least for the foreseeable future.  But who knows - maybe she was running because she was snorting meth and the guy was merely taking a break after a 10 mile sprint, in jeans.

I like to rebalance and reposition my clients money into what I believe are likely to be the strongest major sectors, sub-sectors, U.S. equity styles (mid-cap growth, etc.), international equity markets and fixed income.

But unlike the traders who speculate and front run the actions of the scheduled contributors, or the institutions themselves, I prefer to make my investment decisions (or draw my investment conclusions) in hind sight, in the first or second week of the quarter.

I tend to spend in the upper tens of thousands per year on raw market data and then developing tools that I use to identify market strength.  But that's just an attempt to squeeze every last percentage point I can out of the market.  Sometimes it works and sometimes it doesn't.  But we do what we can to manage our downside risk.

But anyone can implement versions of what I do with free tools on the interwebs.

If you're interested in learning how, you can use this link to an article I wrote/revised/updated from about 6 months ago.  I hope you make lots of money this quarter.  Enjoy.

***Disclaimer: Rowe Wealth Management is NOT a part of True Market Insiders. They are two separate companies, in different locations, with different management and employees.  Rowe Wealth can't answer any questions about True Market Insiders or its programs, and True Market Insiders can't answer any questions about Rowe Wealth Management.  True Market Insiders is not a registered investment advisor.

 

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