Any guesses why we fall every afternoon?

[Art G]

It looks to me like large hedge funds are dumping at the close. I met with a fund manager of a very large mutual fund yesterday, and he too was shocked that the regulations allow the hedge funds the freedom they do.
I have no idea what it's going to take to fix this issue, but until it is fixed, I just can't see how the market moves forward. JMO

 

[FinanceDude]

Hedge funds are in a world of hurt. Last I read, something like $130 BILLION has been pulled from them. They are selling as fast as they can for redemptions. Volume doesn't seem to be super high, so maybe the hedge funds are doing most of the selling, and the MF folks are kind of nibbling............

 

[audreyh1]

That's right. The market won't go anywhere until the desperate selling is finished. Let's just let it get over and done with.

There is no "issue" to be "fixed".

I don't understand the question of regulations? What regulations? People can sell any time they want to during market hours and sell on close orders are used all the time - especially by mutual funds who by then know what redemptions they have that day. Margin calls to hedge funds also come in late and forces selling which has to be done by market close. If buyers decide to step away during that time and let it happen - that's their right too.

They have relaxed regulations to allow companies to buy back stock during the last 30 mins, but the selling swamps that plus companies are hoarding their cash too.

Audrey

 

[Art G]

Audrey, the regulations are those that allow hedge funds to act like brokerages. They need to be changed, and are supposedly being amended currently.
Another problem we may be seeing going into the end of the year is that many mutual funds may be carrying large cap gains from long term holdings. Clients getting hit for cap gains this year are gonna be pissed, so we should be seeing a bunch of mutual funds selling off losses to balance things, thus causing many down stocks to fall further.

 

[NW-Bound]

To give me another chance to buy to rebalance?

 

[OAG]

Someone already mentioned Mutual Funds have to "forward sell" in order to have funds for redemption amounts anticipated the next day. You can sell MF all day but the actual amount you will get depends on the 4 pm closing prices.

 

[Bestwifeever]

These explanations make more sense than my initial reaction--because people still in the market see it improving and say, today's the day I'm getting out

 

[Art G]

Someone already mentioned Mutual Funds have to "forward sell" in order to have funds for redemption amounts anticipated the next day. You can sell MF all day but the actual amount you will get depends on the 4 pm closing prices.

Well that's not exactly so. The mutual funds may be priced at the end of the day, but the stock they sell usually is listed as executed. Not always though. A mutual fund isn't listed in the DOW.

 

[dmpi]

Well that's not exactly so. The mutual funds may be priced at the end of the day, but the stock they sell usually is listed as executed. Not always though. A mutual fund isn't listed in the DOW.

In my 401K they let you cancel your order anytime before 4:00PM. My thinking is they queue the orders until 4:00. Blance sell vs. buy orders and then execute as close to 4:00 as possible.
And back to the hedge funds topic. Hedge funds are both long and short on the market, so it's hard to say if selling out will make the market go up or down. However I suspect that there is a bias for them to go long.
Also I find it a bit amusing that they have been "trapped" this long from selling out. I'm sure they wanted to pull their money out weeks ago.

 

[audreyh1]

Audrey, the regulations are those that allow hedge funds to act like brokerages. They need to be changed, and are supposedly being amended currently.
Another problem we may be seeing going into the end of the year is that many mutual funds may be carrying large cap gains from long term holdings. Clients getting hit for cap gains this year are gonna be pissed, so we should be seeing a bunch of mutual funds selling off losses to balance things, thus causing many down stocks to fall further.

Well this all just tells me that this is a great buying opportunity. I will be [-]pissed[/-] annoyed if I get any cap gains distributions so I hope my mutual fund managers are managing the sales with tax consequences in mind.

And I don't understand the significance of "regulations .. that allow hedge funds to act like brokerages". How does that make a difference?

Audrey

 

[Art G]

Audrey, if you really care. Find my other posts regarding hedge funds.
dmpi, I think you're confusing the issue as to the funds price vs. the shares themselves trading.

 

[al_bundy]

Bill O'Neill said in his book that most institutional investors like Fidelity, the big pension funds and other large mutual funds do their trading in the afternoon. maybe the hedge funds are looking for buyers while they sell so as not to push the price down too far?

 

[Art G]

Al, from the fund managers I've asked, it really depends a lot on what type of stir (or lack of stir) they wish to make. If you have many millions of shares to sell, it's not always possible to wait until afternoon. And while the shares traded sometimes gets reported after the bell, this would have no effect on the share price at the end of the day.

 

[OAG]

Well that's not exactly so. The mutual funds may be priced at the end of the day, but the stock they sell usually is listed as executed. Not always though. A mutual fund isn't listed in the DOW.

Guess I should have said pricing of the "underlying stock" which is contained within the particular MF.

 

[ziggy29]

It often seems like a race to see who starts trading first in the last hour: the hedgies and the fund redemptions or the short squeezers. Whichever gets going first seems to be controlling the action.

The markets are beginning to feel a little less volatile, at least. That would suggest to me that the most furious and desperate selling has already been done.

 

[Art G]

I'm seeing an interesting chart development. The last few weeks have been higher highs and lower lows. Not quite sure which direction we're headed yet. I'd like to think we've found a base, but I'm certainly not convinced. A few more insurance companies taking it in the shorts today.

 

[al_bundy]

my trading newsletter still says below the October 10th lows and last night's issue even made a case of the SP rallying to 1050 before we fall

they have a bunch of videos on the website for subscribers with some of them going back to the 1980's. they are mostly online classes type thing. Watched one today while working where Bob Prechter spoke October 2007 at an investment conference and predicted a huge stock market fall within a year or two. and they showed their predictions from a few years ago when oil fell to $40 how oil was going to rally to $90 and probably higher.

for now they say we are either forming a triangle if we fall from here or if we rally to 1050 then it will be a flat. both are patterns on the final wave up or down. since we are in a bear we should have a final wave down after this consolidation is done. as i type this i think 1050 on the SP is the most likely scenario, but it seems everyone is afraid at the moment. another minus for the rally is they mentioned that each lower high in the last few weeks was made on lower NYSE breadth. and if you follow the price of oil compared to the stock market you'll see the charts are almost exactly the same. energy and materials are what is driving the market now. and then there is the pesky Dow Theory. Transports made a new low, but the Industrials haven't. The fact that both have to confirm each other goes back a long time

also watched another video from around 1984 when Bob Prechter gave a training class and used cocoa futures as an example. he used the bear market in cocoa futures to teach the class. The prices ran up by some amazing amount ending in the late 1970's and collapsed. he even posted some news stories at the top and the bottom. at the top everyone was predicting they would keep going up. at the bottom everyone predicted they would keep on dropping and no one understood why they they shot up from the early 1980's low. he said the point was that is was useless to follow the news in making investment decisions.

 

[audreyh1]

The markets are beginning to feel a little less volatile, at least. That would suggest to me that the most furious and desperate selling has already been done.

It "feels" less volatile because it is less volatile. The VIX closed at mid-sixties this today whereas it peaked at 90 (a historical record) a week ago.

 

[REWahoo]

Three reasons for "The Final Bell Stampede":

1. Mutual fund redemptions
2. Hedge fund deleveraging
3. Margin calls

 

[jIMOh]

The markets are beginning to feel a little less volatile, at least. That would suggest to me that the most furious and desperate selling has already been done.

I do agree it "appears" less volatile

that is today and tommorrow is a new day. Next week is a new week.

the volatility is good if you are a buyer
not as good if you are selling (which indicates you need the money).

 

[riskadverse]

. . . I will be [-]pissed[/-] annoyed if I get any cap gains distributions so I hope my mutual fund managers are managing the sales with tax consequences in mind. . . .

Audrey

I have heard that this is going to be the double whammy delivered to mutual fund holders at the end of the year (huge losses along with taxable distributions). If your mutual funds are held in a taxable account, you might want to sell before the distribution and buy an equivalent fund or ETF, at least for 31 days.