We May Now Have a Game Changer

NYSE Trader
NYSE Trader

Deja vu: on the surface, today's trading looks a lot like the markets a week or so ago-but things have changed since then.

Recall that at the beginning of last week, stocks had just completed a big, two week rally that took the S&P 500 up 11 percent-in two weeks!

At that time, the market was overbought, the news flow was still choppy, and traders decided it was time for the markets to take a break.

For five days, they made attempts to drop the markets midday--and failed.

Now we have the same situation-overbought conditions, choppy news flow. But the failure of shorts last time has sucked in a lot of new, real money buyers, and that may be a game changer.

Call a trading desk, and you will hear the phrase "plain vanilla buyers." These are mutual funds, who are being forced into the market because they cannot afford to miss rallies of the type we saw in July.

Why not?

Because with the S&P up 8 percent in July, if you were not fully invested and up, say, only 6 percent for the month, that is enough of an underperformance to get you into serious trouble if you are a trader or fund manager.

As a result, traders are now talking about dips as opportunities to buy stocks at lower prices. This puts some kind of floor on stock prices, and is far different talk than the market dropping and staying down because the news flow (earnings commentary, economic news) is poor.

Still, stocks are likely to have some serious competition this week--in the form of IPOs and secondaries. According to Dealogic, there are over $11 billion worth of IPOs and secondaries that have filed in the last few months, but not priced yet.

There are 4 IPOs that may price this week, the most in a while, with a value of about $1.2 billion, and secondaries also worth about $1.5 billion that may price this week.

Of course, all this depends on market conditions, but with stocks on a roll, that backlog of IPOs and secondaries is going to grow rapidly.



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