Day traders are the major participants during the sell-off and following rally. Individual investors also make some speculation trades with the cash on hand. The majority of market participants remain calm and wait for opportunity. There are still a lot of investors waiting for an ideal re-entry point to the market as the bottom of the dip is still above last market bottom and many investors cannot replenish the portfolio at the cost below the selling price when the portfolio is trimmed.
Market participants remain cautious and stay with significant cash on hand to wait for some kind of market collapse. Market manipulators previous selling strategy does not work well as market participants do not go into panic selling to create a wide gap for market manipulators to take profit.
The oscillation in market provides opportunity for speculative traders. Some individual investors are anxious with the mountain of cash on hand due to the extremely low return. As the confidence in equity stock market is still low and trades are crowded in blue-chip and high-dividend stocks, some capital goes into the commodities market on speculation.
Market exhibits little confidence in outlook. On the other hand, market participants are flooded with cash but thin on portfolio holding. Many investors are looking for a market collapse to find an entry point. There are different views on the support level which only the actual market will reveal. The next move of market manipulators may give a hint on market direction.
How to Rest Easy in a Crazy Market
If the market's roller-coaster ride has caused you a lot of heartburn, this might be a great time to do something about it, before another slide is just one too many.
With that in mind, here are seven pointers to calm your portfolio and your stomach:
Get real about your tolerance for pain.
When stocks are mostly going up, many investors believe they have the fortitude to tolerate a fair amount of risk. But as soon as prices sink, so does their gumption. They realize they really aren't willing to ride the roller coaster down as well as up.
Favor funds that cast a wider net.
The narrower the scope of your funds, the greater the risk of outsize losses during market downturns. Consider switching from some of your most narrowly focused funds to funds that hold a wider mix of stocks, or funds that combine stocks with other holdings, such as bonds.
Hire a pilot who charts a smoother ride.
In stock-picking or other strategies, some fund managers try to limit the downside risk. When they succeed, their funds can be easier to keep for the long term. Funds managed with an eye to reducing volatility won't deliver top-of-the-charts performance when the market is surging. But they can hold their own over time, because it's easier for a fund to recover from a modest drop than a steep one.
Another volatility-reducing tack is owning a fund that focuses on blue-chip, dividend-paying companies. Shares of such companies are viewed as safer bets during tough economic times, and they tend to fluctuate less than those of growth-oriented stocks.
Don't try to wager on where stocks are headed.
Investors have a bad record of calling market tops and market bottoms. But over many years, stock prices will appreciate as the economy grows.
If you're holding a lot of cash, you are giving up an opportunity to benefit from that long-term appreciation, says Constance Stone, a certified financial planner in Chagrin Falls, Ohio. But if jumping back into the market all at once might fray your nerves, do it gradually, she says.
Fine-tune your cash stash to your family's needs.
You'll rest more easily if you know you don't need to tap your stocks and stock funds when they are down in order to meet expenses. That's one reason advisers often suggest clients keep on hand cash or readily saleable assets equal to three to nine months of spending.
Don't assume that a stock-free portfolio is risk-free.
As stocks plummeted this summer, investors shifted a mountain of money from stocks into bank accounts and government bonds.
But returns on those two investments are very low. And you could actually lose money on bonds if interest rates—which move the opposite way as bond prices—were to shoot higher.
Don't be ashamed to seek help.
A financial adviser or planner can help you realistically assess your risk tolerance and tailor your investment strategy to it.
Advisers not only aid in creating a strategy, but will help you avoid shooting yourself in the foot by abandoning it at the worst time.
Profits Are at Record Levels, So Why Aren't Stock Prices?
With almost all of the third quarter results out, it's safe to say that companies in the S&P 500 Index (INDEX: ^GSPC - News) have achieved record earnings and profit margins on a quarterly and one-year basis, fully exorcising the 2008 credit crisis and reflecting the aggressive cost cutting efforts underway since that calamity.
"Third quarter 2011 establishes a new quarterly and trailing four quarter EPS peak while trailing four quarter net margins remain at peak levels," according to a Goldman Sachs Research, which came to this conclusion using the figures from the 90 percent of the S&P 500 members that have reported and the firm's estimates for the rest.
"The last four quarter EPS total of $94.80 (for S&P 500) exceeds the previous peak of $91.47 achieved in second quarter 2007," Goldman Sachs said.
So if stock prices are a reflection of future earnings, why hasn't the U.S. benchmark returned to this record high yet? Currently, the S&P 500 is 20 percent below that 2-year old peak.
"The expectation is that earnings may decline if Europe can't get out of its own way," said Karen Finerman, president of hedge fund Metropolitan Capital Advisors.
Companies are sitting on a record cash hoard that they have started to deploy on buybacks and dividends, but have yet to use to hire more employees. Jobs data released Friday showed a 9 percent unemployment rate. Average profit margins in the S&P 500 are at a peak 8.9 percent, according to Goldman.
"You want to buy depressed profit margins and sell record ones as it's a mean reverting statistic," points out Peter Boockvar, equity strategist at Miller Tabak.
Finding Good Opportunities in a Bad Market
If your outlook on the markets was literally "a decade of blah" it is hard to imagine why you would even stick around for more given all the other intriguing ways there are to invest money. But for Malcolm Polley, the president & CIO of Stewart Capital Advisors, blah markets make for great deals; similar to the 1970's period that spawned some of Warren Buffett's most lucrative investments.
Not surprisingly, Polley is more confident making market calls for the next decade, rather than for the next few months. And who wouldn't be given the current degree of volatility and broad range of economic forecasts that seem eager to humble even to the most savvy of money managers (three-quarters of whom are reportedly underperforming their benchmarks).
Polley says he is also a long-term bull on technology, but advises against diving into the entire sector all at once. Again, he deploys an updated overlay to this perennial favorite of the growth crowd, saying that in fact, tech is now largely cyclical due to the size and cost involved in purchasing computer equipment. Here, he refers to the sector as "an interesting animal," and then dissects the group with a preference towards things like software where the capital expenditures aren't quite as large.
Market Technicals: Is 2011 a 2008 Redux?
Katie Stockton is relatively bullish over the near-term, the operative terms being "relatively" and "near-term." "It's not a comment on the next couple of months," the chief market technician at MKM Parnters tells me, but a chart of the major indexes "looks a lot like what we saw in late 2007 and 2008," she warns.
Her bottom line: "Position for the rally" but don't expect it to last. As a stick-with-it-until-it-stops-working kind of guy, my bottom line remains: Hold your nose, ignore the noise, and buy the dips.
NEW POLL: Americans Now Think Economy Favors Super-Rich
A new Wall Street Journal poll suggests that Americans have woken up to the extreme inequality that has developed in the country in the past three decades, in which the richest Americans have gotten much richer while everyone else has stayed in place or lost ground.
60% of the poll's respondents believe that the current structure of the economy favors a small portion of the rich over the rest of the country. They also think that the power of major banks and corporations should be curtailed. And that the government shouldn't subsidize or bail out companies.
It's very hard to imagine that we will find a way out of our economic predicament that doesn't involve significant pain of one sort or another. But it does not appear that most Americans have woken up to that.
Why European Crisis Fears Slammed U.S. Stocks
The explosive moves in the stock market recently are testing the resolve of investors worldwide, and today there was no relief. The Dow Jones Industrial Average fell 389 points, or 3.2% to 11,781, the Nasdaq fell 3.88% to 2,622, and the S&P 500 fell 3.67% to 1,229.
The market opened lower this morning on concerns out of Italy and whether Prime Minister Silvio Berlusconi would truly resign his post due to his failure to stem the country's debt crisis. As a response, Italian bond yields soared to crisis levels, rising above 7%. Later in the afternoon new details emerged that European officials are reportedly considering an overhaul of the European Union we've come to know.
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