MARKETS SPECTATOR: Month-end motivations

Individual stocks could see larger than usual end-of-month movement as low volumes exaggerate the effect of broker window dressing.

The market could see some interesting action on a stock specific level today as it is the last trading day of the month. Any stock specific moves could be more pronounced too, given the lack of definitive leads and very light volumes following the closure of US markets.

This could leave certain stocks wide open to month-end manipulation by those who will benefit from marking positions to market. This practice, commonly referred to as window dressing, usually occurs around month and quarter ends where the price of the security is increased or decreased significantly.

The premise and motivation behind window dressing, which is often attributed to fund managers, is to increase the price of securities which the fund has considerably exposure to. Fund performance is usually measured by the month-end closing price, so by doing this it improves the performance of their fund.

You can also see a situation where fund managers who have been underperforming their benchmark looks to sell the underperforming stocks and buy the top performing stocks so that when end-of-month or quarter reports are sent to clients, it looks like they owned the better stocks.

In other interesting price action, NAB shares are seeing selling pressure early after the bank missed earnings expectations this morning only a week after announcing that 2012 cash earnings would be broadly in line with a year ago.

The bank reported a full-year cash profit of $5.43 billion, versus market consensus forecasts of $5.475 billion. While it is only a tiny miss, it does very little for market confidence given they only issued guidance last week. The key takeaway from the result is that the bank's UK exposures continue to haunt it, although chief executive Cameron Clyne does believe the worst is behind it.

Related Articles