NCAA, Nor'easter Stella Translates to Thin Markets That Can Only Go Higher

Edward Kim  |

The NCAA College Hoop Tourney sucks productivity out of our economy every year in March, but this year you have a Nor'easter that will send the "B" Team Traders and back ups to the portfolios across the globe. What this means to market liquidity is sneaky and you need to pay attention. First know, that Nor'easters occur every 2-3 years, and the NCAA happens every year in March and if you do a y-o-y check you will find that market always squeezes higher climbing a "wall of worry."

But the real reason is the 2nd team of portfolio managers trade less, and this removes depth from US markets and creates higher volatility in single stocks -specifically the high priced mega caps (AMZN, GOOGL, NFLX, FB) - so prep for volatility.

Equities had staff on the ground at several conferences around the US, doing the rounds simultaneously at the Roth Conference in Dana Point, The Futures Industry Association (FIA) in Boca, and the PDAC in Toronto. One thing we saw was many portfolio managers in attendance after exiting NYC to warmer weather and taking the family before the 2017 Version (Stella) made its pass.

I looked back on what happens to pricing and valuations around large storms, and markets went higher into the end of the quarter 70% of the time. This makes perfect sense because "quiet markets always go up," and there are a bunch of fill-ins manning the desk planning on not doing a damned thing except watching the NCAA on the iPad.

A quant on a trading desk is running around trying to get someone to listen and buy some call volatility in FANG, but no one ever listens to him so he will compile the notes on the same iPad and go back to watching the games. But this year you have a huge storm so make sure you are also long DISH Calls. Never take too much risk, and buying calls that expire in 2 weeks is a perfect way to manage risk. Equities Research also believes trading smaller stocks as markets rotate is great way to manage portfolio risk.

Below is a list of Nor'easters shamelessly stolen (also photo attribute) from Wikipedia.

Cover photo attribute PixaBay via Literary Traveler Holden Caulfield in Manhattan piece.

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