End of Quarter Window 'Un-dressing'

by: Jeffrey Saut

Excerpt from Raymond James strategist Jeffrey Saut's latest essay:

...[W]e said in Friday morning’s verbal strategy comments that quarter-end “window dressing” had turned into an “undressing” that caused the D-J Industrial Average (DJIA/11346.51) to break below both its January and March “lows.” We further opined that selling stampedes rarely bottom on a Friday as participants tend to brood about their losses over the weekend and return on Monday in “sell mode.” And that is why the mantra of “Never on a Friday” also hangs on our wall; implying that markets seldom bottom on a Friday! Therefore, we “sit and wait,” attempting to calculate the next move for trading accounts, for as General George S. Patton said, “Take calculated risks. That is quite different from being rash!” 

As for the investing side of the portfolio, we continue to like our recent dividend-yielding recommendations of: Alaska Communications (NASDAQ:ALSK); Embarq (EQ); Linn Energy (LINE); Magellan Midstream Holdings L.P. (MGG); Schering Plough’s convertible preferred “B” shares (SGP+B); and Wyeth (WYE); for further information on Schering-Plough and Wyeth, please see the research from our research affiliate Credit Suisse.


The call for this week: In this business when you’re wrong you say you’re wrong; at least that’s what the pros do. Clearly, we were wrong in trying to catch a “falling knife” over the past two weeks! And that wrong-footed strategy was punctuated by last Thursday’s Dow Dive, which stopped us out of our “long” index recommendations. Said dive turned out to be another 90% Downside Day (the second since the May highs). That is, Points Lost equaled 93.5% of the sum of Points Gained plus Points Lost: AND, Downside Volume equaled 91.2% of the sum of Upside Volume. 

Usually following a 90% Downside Day there is an automatic rally lasting two to seven sessions. The fact that the market didn’t rally last Friday is not a good omen, but I’ll say it again, “Never on a Friday!” Interestingly, while the DJIA fell to new yearly lows last week, the D-J Transports are nowhere close to doing the same. Likewise, the NYSE, S&P 400, S&P 600, Russell 2000, NASDAQ, Wilshire 5000, etc. are ALL above their respective March 2008 “lows,” causing one old Wall Street wag to exclaim, “Can you spell downside non-confirmation?!” 

Meanwhile, Monday was day 29 in the “selling stampede;” and over the past 38 years, I can count on one hand the number of times when such skeins have lasted more than 30 sessions! Plainly, “concern” has morphed into “fear” as the word “crisis” has begun to echo down the canyons of Wall Street. But remember, the Japanese kanji symbol for “crisis” is made up of two characters. The first character represents DANGER. The second – OPPORTUNITY! We continue to invest accordingly.