By Roberto Pedone
WINDERMERE, Florida (
) -- The month of September has historically been one of the worst times to be long stocks in the market. In fact, since 1929, September has delivered the worst monthly returns, with the
index dropping 0.6% on average. The average September return for the
Dow Jones Industrial Average
is a decline of just over 1% in the past 113 years.
But this September has defied the odds and is so far looking like one of the best months to have owned stocks for 2010. The major equity indices have soared so far, with the S&P 500 up 8.15% and the
up a whopping 11.14%.
So why has September been such a horrible time to own stocks, excluding this year? Well, One reason September has been such a horrible time to own stocks historically is that many mutual funds' fiscal year ends in October, so money managers are eager to dump their losing positions. It also marks a time of the year when many managers see a seasonal slowdown of cash flowing into stocks, which leaves them with fewer dollars on hand to boost buying power.
But considering how strong this year has been, the rest of this month should offer traders a chance to take advantage of mutual fund window dressing. Window dressing is a strategy used by mutual fund and institutional money managers near the year or quarter end to improve the appearance of their fund performance before presenting it to clients or shareholders.
Basically, fund managers will sell stocks with big losses and buy the high flying stocks near the quarter end. These securities will then show up on their fund's holdings, and clients will be happy to see that the manager owned the best names. Of course, window dressing might make a fund look more attractive, but in the long run, it won't hide the poor performance of a manger.
Including today, there are only about six trading sessions left for market players to take advantage of this little talked about phenomenon called window dressing. I believe that this sets up some great trading opportunities for those who are looking to make some fast money and understand how to manage risk. These trading ideas are very short-term in nature, so market players should use tight stops and not get too greedy.
Here 's a look at a number of stocks that could be
dress up their portfolios before the end of the quarter, these stocks could see some big runs.
One stock that I think is going to run right into the end of the quarter and see lots of window-dressing buying pressure is computer and gadget maker
. Apple has been en fuego for the entire month of September, trading up close to 20%. Shares of Apple recently broke out above some overhead resistance at around $279 a share, so even the technical-based traders have jumped in to ride this name higher this month.
I wouldn't be surprised to see Apple print $300 a share or even higher before the end of the quarter. Traders willing to take on some risk could buy call options on Apple to try to capture a quick move higher in the stock.
Another name that could see buying pressure pick up is online travel company
. This high flyer is up more than 17% this month, having run from around $300 a share to its current price at around $341.
I think a reasonable target for Priceline -- if window dressing takes place -- is probably around $350 a share, possibly even higher. The probability for this happening will dramatically go up if the stock can manage to hold some near term support at around $335.
Keep in mind that over 6.7% of tradable float of 47 million shares on Pricline.com is sold short as of Aug. 31. This combination of a high short interest and small float could be just the rocket fuel that traders need to short squeeze this stock into the quarter's end.
If you're looking for one of the hottest stocks of September, look no further than Internet travel and entertainment company
. This too-hot-to-touch stock has soared more than 38% this month, from around $20 a share to its current price of $25.
Travelzoo could easily have another 5 points in it before all the window dressing comes to an end. This stock is also heavily shorted with over 18% of the 16 million tradable float in the control of the bear as of Aug 31.
Another hot September stock is Chinese Internet search king
. Shares of Baidu have exploded by 20% from around $80 a share to its current price of close to $94. As I write this, Baidu is printing new all-time highs as the stock continues to catch fire. My target on this stock is $100 before the end of the quarter.
U.S.-based search giant
has been just as hot as its top competitor Baidu this September. The stock has ripped higher by 15%, from around $460 a share to its current price of $517. Look for shares of Google to hit $525 to $530 before the window dressing is over.
Last but not least is online movie rental subscription service company
. This stock has absolutely soared this year, with shares up a whopping 28%, from around $130 a share to its current price of $161. The bears seem to love shorting this stock, and more than 31% of the tradable float of 52 million shares is currently sold short. These bears might have a great case in the longer term, but right now, shorting such a hot name has been a losing trading strategy.
Look for Netflix to hit $170 or possibly even higher as the window-dressing crowd races in to get this name on the books before the end of the quarter.
To see more window dressing stock plays like
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At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.
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