Thursday, 29 December 2011

Back On Track

I laid out the case for continued uptrend in my last night’s report. And here we are, back on track to the cycle high sometime next week. ( )

Tomorrow is going to be bit iffy. On one hand, retail investors will sell their underperforming stocks to book capital loss; on the other hand many fund managers will attempt to buy stocks that have done well in order to make their balance sheet look pretty. I think there is a nice term for that kind of things; “window-dressing”.  For many of these managers, hanging on to their jobs is more important than the best interest of the unit holders. No wonder then that $135 billion have supposedly gone out of US Equity Mutual Funds. It seems 34 of the last 35 weeks have shown an outflow.

I personally think that the mutual funds have outlived their utility. They underperform the market and charge more to the unit holders. With the introduction of various ETFs, why would anyone put their money in mutual fund? May be ten year down the line, there will be no mutual funds. Good riddance!

I think tomorrow will still be a green day to end the year on a positive note.  Apart from my cycle analysis and other predictive tools, which indicate continuation of the uptrend, it has also to do with that “window dressing” effect.  You may be aware of something funny called the “Weekend Effect”.  The "weekend effect" is the name given to the phenomenon that U.S. stock prices are lower at market opening on Monday than they were at close of business on Friday. This is also known as the "Monday effect".  Kenneth R. French, currently the Carl E. and Catherine M. Heidt professor of finance at the Tuck School of Business at Dartmouth College, was one of the first economists to identify this phenomenon, in 1980. His research, published in the Journal of Financial Economics, showed that average returns for Mondays were lower than those for the rest of the week, and were often negative. Much has changed between that research and now and it should be taken with a pinch of salt in the normal course. But we are talking of Santa rally which is a different thing altogether. All these form a part of behavioural finance and have been subject of many research papers over the years. Successful trading is a serious business.

I am waiting for TBT to make a good progress and may be that wishful thinking will be rewarded in January. The other major story for the day was the hammering in the price of gold. Zerohedge has been paddling gold vigorously for many months now and I wonder what kind of investment strategy they are following. I do not think we are done with selling in precious metal by any long shot.
That is the bottom line for today. Stay safe and stay focused. Thank you for your continued support and following. Please join me in Twitter (@BBFinanceblog) and invite your friends and family to join as well, if you think it will benefit them. Visit regularly to profit from the world of finance.