Window Dressing is an Excuse

Stocks closed sharply higher Thursday in a surprisingly strong showing. TICKscore closed at +42, cumulative TICK +77,000. Equity put/call ratio closed at a relatively high .75, sending the 10-day moving average higher. Volatility indexes all closed under their respective lower bollinger bands, and  the VIX/VXV Ratio closed under .90, only the fourth time since the VXV’s launch that we’ve seen a reading this low.

VIX: VXV Ratio Closes Under 0.90
06/25/09… S&P ???
08/21/08… S&P -1.8% one month later, -26.4% two months later
05/12/08… S&P -3.2% one month later, -11.3% two months later
12/20/07… S&P -10.3% one month later, -6.9% two months later

Three cases isn’t much to work with, but the CBOE’s research paper on the VXV indicates low readings from this ratio are generally associated with subpar market performance over the intermediate-term. This also fits with the elevated NASDAQ/NYSE Volume Ratio, which continues to reflect a highly speculative environment.

Volume remained light, with just under 1.2 billion shares trading hands on the NYSE, still below the 20-day average. Lots of talk about ‘window dressing’ after today’s run-up, but there’s little evidence of any real end-of-quarter effect. Below is a quick review of the S&P500′s performance during the final five sessions of each quarter. Note that over the last 30 quarters, the S&P rallied slightly less than half of the time. If there really was some sort of end-of-quarter effect, we would see limited downside potential in this time frame. But note from the table below that the S&P has actually been more likely to drop 1%+ (11 occurrences) rather than rally 1%+ (5 occurrences).

S&P500 Performance Last Five Days of Quarter
Jun ’09… S&P500 +2.8% (open – ends Tuesday)
Mar ’09… S&P500 -1.0%
Dec ’08… S&P500 +4.6%
Sep ’08… S&P500 -1.8%
Jun ’08… S&P500 -2.9%
Mar ’08… S&P500 -2.0%
Dec ’07… S&P500 -1.1%
Sep ’07… S&P500 +0.1%
Jun ’07… S&P500 +0.0%
Mar ’07… S&P500 -1.1%
Dec ’06… S&P500 -0.0%
Sep ’06… S&P500 +1.6%
Jun ’06… S&P500 +2.1%
Mar ’06… S&P500 -0.6%
Dec ’05… S&P500 -1.6%
Sep ’05… S&P500 +1.1%
Jun ’05… S&P500 -0.8%
Mar ’05… S&P500 +0.7%
Dec ’04… S&P500 +0.2%
Sep ’04… S&P500 +0.6%
Jun ’04… S&P500 -0.3%
Mar ’04… S&P500 +3.2%
Dec ’03… S&P500 +1.5%
Sep ’03… S&P500 -3.2%
Jun ’03… S&P500 -0.7%
Mar ’03… S&P500 -1.9%
Dec ’02… S&P500 -2.0%
Sep ’02… S&P500 -2.2%
Jun ’02… S&P500 +0.1%
Mar ’02… S&P500 -0.5%
Dec ’01… S&P500 +0.3%

BKX underperformed for most of Thursday’s session but caught a late bid, settling up nearly 2%. When the Bank Index has rallied 1% or more immediately following an FOMC announcement day, it’s typically represented a head-fake rather than the start of a sustained rally. There have been a total of nineteen instances since 1998, all of which are noted in the table below along with the performance of the Bank Index over the next week. Note that two-thirds of the time, the BKX was lower five trading days later, and in only two cases did the BKX manage a gain of more than 1.5%. It lost more than 1.5% nine times…

BKX +1% FOllowing FOMC Announcement Day
06/25/09… BKX ??? one week later
05/01/08… BKX -5.6% one week later
01/31/08… BKX -4.5% one week later
08/08/07… BKX -7.9% one week later
05/04/05… BKX -1.4% one week later
03/17/04… BKX -3.2% one week later
06/26/03… BKX -0.1% one week later
03/19/03… BKX -0.4% one week later
09/25/02… BKX +0.5% one week later
08/14/02… BKX +2.3% one week later (*)
06/27/02… BKX +0.4% one week later
05/08/02… BKX +1.5% one week later
01/31/02… BKX -6.5% one week later
06/28/01… BKX -2.1% one week later
05/16/01… BKX +1.4% one week later
03/22/00… BKX +1.7% one week later (*)
10/06/99… BKX -5.7% one week later
05/19/99… BKX -4.2% one week later
12/23/98… BKX -0.7% one week later
05/20/98… BKX -3.2% one week later

Categories : Archived EOD Commentary, End-of-Day Commentary

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