Customer Service 1 (888) 261-2693
Advanced Search

The Puke Effect

By Jeff Clark
Tuesday, July 1, 2008

"The cruise was going along just fine."
 
Captain Bill was describing the worst sailing trip he had ever chartered. "We were about halfway to the island when one of the passengers started to get sick...
 
"He didn't quite make it all the way to the railing and he threw up on a bunch of the passengers who were sitting right there on the starboard side of the boat."
 
Captain Bill then went on to describe how the passengers who had been puked upon started vomiting as well. Some of them managed to vomit over the side of the boat. But they were throwing up into the wind, and a good portion of "breakfast shrapnel" blew back into the boat, soaking the clothes, hair, and faces of anyone standing nearby.
 
"Pretty soon," Bill continued, "everyone was puking. The stench was so bad, even my crew members were blowing chow."
 
I first heard this story about 15 years ago, when I was learning to sail. I now recall it at the end of just about every quarter. On Wall Street, they call it "portfolio window dressing." I call it the puke effect.
 
At the end of every quarter, portfolio managers dress up their accounts by purging stocks that haven't performed well. After all, who wants to show shareholders they've been hanging on to the worst-performing stocks in the market?
 
So, one by one, the portfolio managers jettison the equities overboard. As the selling pressure mounts and the losses deepen, more and more managers feel the need to purge. Eventually, even the most experienced money managers are throwing up stocks at bargain-basement prices.
 
It happens every quarter. But this time, it seems more pronounced.
 
I can't recall ever seeing so many high-quality, blue-chip names trading at such depressed levels. That is the nature of a bear market. And prices will likely fall even farther over the course of the year.
 
But just as stocks don't go straight up in a bull market, they don't go straight down when the bear is in charge. Last week's puke effect has created a lot of genuine bargains that will bounce back sharply once the end of the quarter "window dressing" is out of the way.
 
Take a look at a list of all the stocks making new lows over the past week. You're bound to find a few bargains that will generate fast gains over the next several days.
 
Best regards and good trading,
 
Jeff Clark




Market Notes
The boom in oil services continues... Halliburton, Hercules Offshore, Canadian Superior, and the oil-service ETF hit new highs.
 
Insurance crumples... W.R. Berkley, Horace Mann, and AIG make new lows.
 
Food producers crushed by soaring energy prices... ConAgra, Del Monte Foods, and J.M. Smucker at 52-week lows.
 
Earnings today... Schnitzer Steel, Apollo Group.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%

Recent Articles