Any Market Surprises Coming At The End Of Quarter Three?

Includes: SPY
by: Ralph Shell

How many times do we get end of the quarter moves in markets simply because it is the end of an accounting period? A money manager who is paid a performance bonus computed at the end of the quarter might be tempted to add to winning positions, buying as high as possible near the close to enhance the value of his positions, and his bonus.

This tactic has been around for years. I can remember being told to do this early in my trading career when I was filling orders in the Kansas City wheat pit. Near the close, my boss in New York would call and instruct me to run the market up on the close, but not to buy very much. Before I could respond, he would hang up, leaving me with a frustrating task. Now with electronic trading, it is probably easier to "paint the tape" if you have different participants all going the same way.

There are other traders that only get their bonus on trades that have been closed. Consequently, there may also be some profit taking as we end the week.

The seasonal sell in May and go away did not work this year. Those who sold in May, fearful of being left out of the bull move, probably paid up to get back in. No one is more bullish than a sold out bull. The S&P 500 fooled many people as it staged a summer rally to 1468. Now as the unsettled conditions in Europe get more attention, the global markets are retreating. Is it possible there will be profit taking later this week?

Of the major world economies -- Europe, the U.S., China and Japan -- only the U.S. appears to be muddling through. Come next week, the market will start to worry about another poor Non-Farm Payroll Report.

Yes, China's growth rate is now forecast at 7% or 8%, but can we trust the numbers, and how severe are the banking problems? Has the Zombie Bank franchise moved into China?

The Japanese economy has been slowing. The current Chinese-Japanese dispute over ownership of islands in the East China Sea, if it continues, will not be good for business in either country. Yes, there might be some oil or gas near these uninhabited islands, but the markets might get very queasy if the dispute grows. Remember, the U.S. military is supposed to protect the Japanese interest.

In Europe, Merkel says that "Europe must stay the course," as the demonstrations continue in Greece, Spain and Portugal. This "stay the course" advice may play well in Germany, but with 10% to 25% unemployment from Greece to Portugal, best not venture to the Club Med countries and speak German.

Spanish bonds again topped 6% for 10-year maturity today. To the dismay of the Germans, Spanish PM Rajoy has yet to make the formal request for a bailout. Some say he wants to wait until Italy is in trouble so they can approach the Germans together and hope for better austerity terms.

Others believe Rajoy knows the bailout would be the end of his political career. Meanwhile, the PM was at the UN today, pleading for this esteemed body to examine the 1713 Treaty of Utrecht, which gave Gibraltar to the British. It is great to have a leader with proper priorities. No doubt it is also great to be away from the Madrid riots today and enjoy some fine New York dining without having rocks thrown at the window.

Octobers past have produced some hefty bear moves. Perhaps 2012 will not give us one, but is there any good reason to be long? (S&P 500)

We will have some month-end comments on currencies tomorrow.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.