The big boys rebalancing can make us "fall down"...
There are a few posts and comments on mini-flash crashes the last few days.
Most of the dumping the last few days appears to me to be the big boy institutional investors rebalancing/rotating. They could have caused some mini-crashes or tremors.
I've seen this before, and failed to find a good way to profit from it. It tends to hit sectors, in this case BIOPHARMS got hit hard, as did some of the smaller caps and it tends to pull down some of the riskier stocks.
Funds do this on occasion to rebalance. The Indexes will be doing some rebalancing the end of the quarter. After a "good year" such as last year, there is a tendency to try to protect what you have and find the "next big thing". It would be nice to know where they are planning on rotating the cash to and front run them, but it's hard to tell.
It's hard to see patterns when there are so many active variables, a weaker China, Russia/Ukraine, sanctions, Yellen, yelling, interest rate shuffles, and on and on.
Institutional redistribution can be seen by large block sells, tripping limits, attracting computers, attracting retail investors, etc. Causing a large drop and without enough retail buyers, a small bounce, and instability as the newly released shares are passed to weaker hands who have short attention spans, or expect a bounce that doesn't come, or who get worried they missed something, or who see something shiny further down the field.
When you get a bounce that fades and the stock closes near the intraday low, it's a tossup whether it will rebound. the institution may have more shares to let go or another one may take a turn.
Yes, they are losing money by dumping large blocks, but they can see the order queue and try to time things. They can't move big lots without some effect and all the lots they want to move are by nature large. Sometimes they actually trade with another brokerage house tick for tack. Basically they just don't care if they lose some, it's usually not their money....and they have no other way out of their calls.
One can argue the Biotech retreat was due to Congress messing with drug costs, but in effect it was broad based and many companies that don't sell anything yet dropped hard as well. Also, it was widely surmised that Congress's attention would have little if any effect on real life.
I blogged a few days ago that I suspect Lower Highs and Lower Lows for some time in the Biopharms. The Index might be tradable, but I don’t think it’s time to buy back in. There have been multiple 10-20% pullbacks in the index, this one could go deeper.
The Bios have had a nice two year run. They include a lot of risk in development stage, patent expirations and generics in the retail stage, and fear of competition. In addition to marketing and reimbursement rates.
Of course, I don’t know anything. I sit here with my Sentimeter, (TM, Patent Pending) and I watched it go negative today. Of course I’ve dropped it (intentionally) a few times (well maybe more like throwing it), since it was calibrated last. There are often people predicting bubbles, market tops, etc, and they almost always end up missing out on possible gains. I’m definitely guilty of PTIS (Post Traumatic Investing Syndrome) living through 2008-2009 cycle and often keep too much on the sidelines. It’s great to daydream about having predicted the 2008 crash, selling in April of 2008, maybe even putting or shorting the banks, until March 8th, and then buying with everything you have and holding tight. But those who tried trading it generally did worse than people who just rode through it. I try to find a balance, but I’d rather have it in the bank than have it in play sometimes, and when the Sentimeter bobbles, I get more conservative.
I had really thought the markets were just consolidating. I see little reason for a broad based correction, but the institutional investors could trip things if their timing is wrong. Or any number of smaller excuses could wake up enough bears. Overall, I’m going to bargain shop, but wait for a turn in a stock that took a dump, probably a week or more later, before buying anything. I’ve tried the falling knife routine before, and I still have scars! Buy and hold investors will keep doing well, ignoring the dips, and using them to dollar cost in. If you think it too much it can give you a headache. The trading and optimizing, even when I'm wrong is part of the "hobby" for me. Time to watch the cash pile, smart or not.
Disclosure, If I knew what I was doing, I wouldn’t be here!
The Sky is not falling today, but there are some hailstorms around some stocks.