It's Time for Window Dressing

 | Dec 27, 2011 | 8:43 AM EST  | Comments
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"If I'd had some set idea of a finish line, don't you think I would have crossed it years ago?" --Bill Gates

The trading in the days between the Christmas holiday and New Year's is always very thin and challenging. Many market players are finished for the year and enjoying some time off, and the rest are mostly making administrative moves that often have little to do with the relative merits of stocks.

Not only do we have the standard end-of-quarter of window dressing to consider, we also have selling for tax reasons and for positioning to start the new year. With the indices around flat for the year, there isn't likely to be as many tax moves as a year with big gains or losses, but there is always some pressure in that regard no matter what the market has done for the year.

On the other hand, with the indices around flat there is probably more pressure on money managers to nudge their performance numbers into the green, if they can. That should give us some window dressing pressure as things wind down.

In a market environment like this the macro concerns that have dominated so much this year just don't matter much. Window dressing and tax selling are what is going to move things and if we want to trade, we have to look for opportunities in those areas.

The conventional wisdom says stocks that have been strong tend to stay strong, since money managers will forego selling for tax purposes and they want key holdings marked up as much as possible. But getting losers off the books and locking in losses tends to keep weak stocks pinned down.

Those with a contrarian bent may look to buy some of those names beaten down by tax-loss selling and/or shorting those names that are being held up artificially into the end of the year. The timing isn't always easy and we'll often see some selling of winners before the end of the year as some traders try to get a jump on others.

As you'd expect, it is very quiet this morning with little movement. I'll be looking for some pockets of action, but I don't expect to see too much. We'll stay opportunistic and not force things.

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