3 months and 40% later, major markets are up without a hiccup. Late-believing money managers are scratching their heads and frantically filling out buy tickets, not wanting to be caught with an empty long position summary for the second quarter which ends June 30th.
Jesse Livermore observed that professionals had the greatest success in raising capital and distributing stocks by first marking them up on light volume, then selling the bulk of their holdings when the prices went down. Their reasoning was straight-forward: the public (that is, those unaware) were eager to get into stocks going up, and looked at the dip or pullback as an opportunity, not realizing they were giving the pros the window they needed to get out of their positions.
Hedge funds and money managers can’t get in and out of large positions whenever they want. They move when they can. They need high volume so their trading doesn’t distort markets. Higher prices attract the volume they need.
There are many companies that have been issuing huge amounts of stock recently, especially financial institutions. This money is for buttressing balance sheets, not business expansion. I wonder what the buyers of that stock have been doing.
Investors and traders have been faced with large amounts of issuance, both equity and debt. The market can absorb a finite amount in any fixed time period before it has to digest and recalibrate it portfolio balance and risk/return profile.
Watch for a rollover in the financial indexes (XLF, BKX, KRE) for a 10 to 20 % pullback in the near future.
Remember that Jesse gave back the great fortune he made in the ’29 Crash when he got back in the market too early. He should have listened to his own advice.