Window UnDressing

This month end has added importance as it is also the fiscal year end for most mutual funds. Since mutual funds are generally long only it is unambiguous which way they want to see the market go. In a vacuum that is a positive for the market.

It seemed too obvious to me that the market would go up into QEII without a correction but sometimes the obvious becomes a self fulfilling prophecy. The chances of a sell the news reaction would be extremely high if that turns out to be the case.

There is also an effect known as Window (Un)Dressing where mutual funds dump their losers before year end. Some say it is to receive the tax loss and the more skeptical might say that they don't want to show that they were caught in a dog.  Regardless of the reason stocks near 52 week lows tend to outperform from November to January according to a nice piece of research put out by the quantitative group at Credit Suisse. The end of this week might be the time to buy the dogs.

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