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The big boys rebalancing can make us "fall down"...



March 27, 2014 – Comments (13) | RELATED TICKERS: IBB , BIB , XBI


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. 



13 Comments – Post Your Own

#1) On March 27, 2014 at 11:19 PM, awallejr (33.35) wrote:

Actually I like this kind of market. I don't mind rotations since it cleanses.  There still is a lack of alternatives to the market.  I stay in yield since if I yield 10% for the year people would say bravo. There are many beaten down yielders like SDRL, AINV, NCT.  Buy the suckers or get .003% in a money market account.

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#2) On March 28, 2014 at 10:46 AM, Teacherman1 (< 20) wrote:

Good morning TSIF and awallejer. I see you were "thinking out loud" with this post and appreciate your "clarity" of investing strategy.:)

I will respond to your replies later today, just because I am in a replyng mood.

I have been "out of pocket" this week, having taken my wife in for hip replacement surgery at "zero dark thirty" Monday morning. I guess surgeons like to get their cutting out of the way before they wake up.

Since she tends to get confused and scared when she is on vast quantities of drugs, I stayed with her for all but a couple of hours for the past 4 days, so I am operating on a grand total of about 6 hours of sleep over that time.

The surgery went well, but there was more internal bleeding than expected, so they kept her to put a little extra blood back in.

She is home now and requires me to be a "home care nurse", and keep her from deciding to suddenly jump up and destroy all of the hard work the surgeon put in, so will pop in for short periods from time to time for the next few days.

Keep making these great posts, otherwise people will think CAPS has shut down. :)

Remember, in the immortal words of Joe Q Investor, "The market goes up, the market goes down", just keep a close eye on the drain and hold onto the safety harness.


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#3) On March 28, 2014 at 10:56 AM, TSIF (99.97) wrote:

Thanks for checking in Teacherman1!  I suspected you were out of pocket the last few days and was thinking about your wifes surgery when I added my OPTT pitch.

I'm glad things went well.  Hopefully the extra blood they put back in will intermingle nicely and do the trick!

I sometimes do think CAPS has shutdown, and I think I should just turn out the lights.

Based on blog quanity/quality, and pitch recs/comments it's pretty lonely around here. 

  - TSIF 

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#4) On March 28, 2014 at 2:58 PM, awallejr (33.35) wrote:

Glad the surgery went well Teach.

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#5) On March 28, 2014 at 8:10 PM, HarryCaraysGhost (57.40) wrote:

 it's pretty lonely around here. 

 I can't believe it but, the other day I was thinking to myself that I actually miss Alstry. At least he kept the blogs flowing.

Not much more I can blog about, how many ways can I say I like dividends and compounding. So I'm glad your posting TSIF. Always a great read.

Glad the surgery went well Teacherman, and give your wife my regards. 


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#6) On March 28, 2014 at 8:16 PM, awallejr (33.35) wrote:

I would take Alstry over Inthemoneystock any day of the week.  At least Alstry never tried to convince people that they should buy or sell anything specific because he knew we all knew he sucked at prognosticating heheh.

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#7) On March 28, 2014 at 10:56 PM, TSIF (99.97) wrote:

Hi Harry, I realized I didn't blog in 2013 AT ALL.  I actually lost my "pitch" feather even though I am third in pitch recs.... :)

(I don't mind being behind zzlangerhans, he earned it, but star wars pajama boy and his five imaginary star wars friends......

I got a little tired of the Motley Fool Paid  bloggers turning my short term retrace calls into "poised to" articles.

 I agree with you and awallejr, (who appears to have kept the faith), Alstry is missed, even though he turned it into a vehicle for his cow website....and was linking to sell stuff...K-rations, and survivor kits, I think..... I guess the zombies finally got him.

I miss  hypnotoad as well, espeically his french 'good mornings'....I think when they banned him it was a turning point....down....

I don't know why I started blogging again...but good to see a few of the folks are still lingering.  I sense something about  to happen......ummm....just my wife telling me it's her turn for the computer....guess I'd better fix hers this weekend...... 


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#8) On March 28, 2014 at 10:58 PM, TSIF (99.97) wrote:

I'm over 8 recs again..lights appear to still be on, not that I'm a rec monger, quite the contraire, but it's nice to know I'm not talking to myself...actually...talking to myself is okay, it's when I argue with myself that it's a problem....

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#9) On March 29, 2014 at 12:05 PM, HarryCaraysGhost (57.40) wrote:

TSIF- do you remember this conversation-

Welp I actually found a silver quarter in my daily change.


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#10) On March 29, 2014 at 1:00 PM, TSIF (99.97) wrote:

I think the ice cream man found many silver dimes/quarters soon after we started collecting them in parents accused us of using theitr change dish on the ice cream truck, but we never did without their permission.  I think Dad was upset with himself that he didn't front run the coins sooner, but silver spiked in 1973 and made it worth it...apparently it spiked so fast, no one saw it coming.

Someone must have found their parents cookie jar for you to find one now!  I had stopped looking once I got tired of collecting the "state quarters"..... 

Maybe those Pandora folks should thank you for the advertising.... 

How many pennies to a pound are you reselling.  :)

Thanks for the reminder.... :) 

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#11) On March 30, 2014 at 1:31 AM, jiltin (47.42) wrote:

TSIF, Nice post. It is not only BIOPHARMA, but TECH sector too. Attached the image from newspapers (Mar 24, 2014). 

Most of the times institutional investors make big UPs and DOWNs. However, we can not discount correction.

Correction comes two ways: One money flow restrictions (MBS Printing money) and interest rate hike. 

I have seen two recessions/corrections when rates are increased. we (individuals) must have proper strategy to protect the money/values.

It can be beginning or next year or middle of next year. I am still confused what is the best strategy. 


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#12) On March 30, 2014 at 4:57 PM, TSIF (99.97) wrote:

Hi Jiltin, good points,

Yes, the redistribution was more broad based than bios, but they appear to me to have been hit first, harder and boader.  Some techs are up this week, and some bounced down and back up.

The techs that appear to have gotten hit the hardest were the internet based stocks, with high forward valuations.

Interesting to me were the broad small cap selloff.  This could be a signal of thngs to come. I'll start a fresh blog in a day or so with some more thoughts on the subject.  Thanks! 

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#13) On March 30, 2014 at 10:54 PM, jiltin (47.42) wrote:

To add more info, big banks started lay off when MBS reduction is announced. 


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