Look out for end of quarter volatility this week

06/24/2013 7:55 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

I wouldn’t be surprised to see a bounce—or at least an attempt at a bounce—in the second half of this week.

It’s also quite possible that some of the stuff that has sold off most dramatically in the last two weeks will sell off even more in the second half of the week.

Why such opposite potential moves?

Remember that Friday is the last trading day of the month and the quarter. You’ll have lots of institutional players trying to move the market one way or the other. You’ll have lots of folks exiting trades and dressing up portfolios. You’ll have lots of institutional managers wanting their end of the quarter reports to look as good as possible and to raise as few questions as possible with investors.

The action over the next few days won’t mean much of anything for the longer term. (Where “longer term” means more than a week.) But there should be plenty of action.

Normally at the end of quarter I’d expect a bounce or an attempt at a bounce when the preceding days have marked out a downtrend. Traders and portfolio managers would try to generate a bounce—are you shocked that Wall Street would try to goose prices at the end of a quarter?—by bidding shares up a few pennies to generate an upward trend that might entice some less cautious money in from the sidelines. Seems like a very obvious ploy but it works often enough to make it worth a try.

This week might be different, though, because as anxious as portfolio managers might be to show a bit of extra return, they’re likely to be even more focused on making sure that they finish the quarter NOT owning stuff that’s taken the worst beating recently. Think about it this way, Is it more important to push performance up 1% in the last days of the quarter (when performance is going to be so terrible for the quarter no matter what happens in the next couple of days) or to show that you didn’t own Vale (VALE), down 16.6% in the last month or Gol (GOL) down 40.1% in the last month.

I’m pretty confident in saying that you’d rather dump losers than try to goose a bit of extra performance.

Whichever trend wins out, don’t read too much into it. This market has taken a lot of damage. A large number of market leaders have broken below their 50-day and 200-day support. Cummins, for example, broke below its 200-day moving average at $107.94 today. Next major low was back in October 2012 at $86.49.  It will take more than a bounce or two to put some foundation under prices and to restore a bit of investor confidence in this market.

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