Trading activity increases as market participants are trying to play catchup due to under-investing. Fear of market crash becomes less worry than fear of lagging behind in the rally with the pile of cash on hand making almost no return. Active market participants begin to give up the hope of a market crash for bargain buying. Market is hovering on three year high but market manipulators cannot initiate panic selling. Nevertheless, their commodities position can be dumped to create panic in the asset market.
Although institutional and individual investors will not dump stocks any more after the lesson in the previous panic sell-offs, there is still risk of market fall because long-term investors may trim the portfolio to take profit and to increase the cash level for repurchase opportunity. Since long-term investors pick up the shares at market bottom, there is no need to sell in panic. Market participants can wait for buying opportunity but should not hesitate too long as there is tremendous amount of capital on the sideline competing for bargain.
Despite market at near term high and approaching record high, the speculative trading portfolio is still at steep loss because the stocks are still struggling at near term low despite symptom of stabilizing at bottom. There is confidence in the near term performance of equity stock market and depressed stocks cannot be manipulated at undervalued level for extended period of time.
While market stays at high level, market participants are cautious and wait for sign of a strong economy. Domestic stock market have support on strong demand for wealth assets. Worldwide, there are uncertainties such as the sovereign debt crisis in Europe, growth slowdown and political instability in China, etc.
In the second half of last year, before market manipulators created series of panic selling due to US rating downgrade, it was mentioned in a post that there would not be double dip in the real economy but a dip in the equity stock market could be possible. Stock market is highly manipulative and can stay undervalued. Market participants should not be too pessimistic simply because too many households are piling up their wealth in cash. On the other hand, market manipulators are exploiting the herding behaviour of market participants on fear and greed. Hot capital will drive market in fast movement.
Stocks: Bull market enters fourth year
The bull market on Wall Street enters its fourth year this week and investors are wondering how much higher stocks can go.
"Recent activity data have brought further signs that global growth is recovering from its recent dip," said Simon Hayes, an economist at Barclays Capital, in a research report.
The bailout for Greece could remove a major source of uncertainty that has been hanging over the market this year, although analysts say the nation's debt problems are far from over.
"The euro area continues to face immense challenges, and the currency bloc is likely to be an ongoing source of financial market turbulence," said Hayes.
S&P 500 Is Set to Fall 15% Says Top Strategist
With the S&P 500 off to a roaring start this year and nervously sitting at a 4-year high, at least one Wall Street pro says it is time to revisit the defensive theme that dominated the market last year. And he's someone you should listen to.
Adam Parker, U.S. Equity Strategist at Morgan Stanley made the most accurate market call for 2011. He now says it's time to think about the 2nd half and 2013 because his crystal ball shows "risk aversion" will make a comeback.
While bull markets normally need a catalyst to end, few would argue that investors haven't become a bit complacent given a 30% run in less than half a year, which to me, makes a contrarian view like Parker's worth listening to.
Why Are Americans Avoiding Stocks? Ask a Shrink
The headlines say the financial crisis is behind us. The Dow is back to pre-financial crisis levels. Layoffs are the slowest since the financial crisis, and car sales the highest since the financial crisis.
So why are Americans still too scared to get back in the stock market?
Because all they hear is "financial crisis."
Every comparison to 2008, even a comparison that's supposedly good, stirs memories of 2008. For some people, it rekindles the fear of losing a job or a house. For others, years of retirement savings swallowed by a plunging stock market.
"In the old days, if there was a market rally, people would call and ask to put more money in. They felt they were missing the party," says Deborah DeMatteo, an independent wealth manager at 10-15 Associates in Goshen, N.Y.
This time, investors seem more than happy to miss the party.
"Now, people call and ask, 'When is it going back down?'" DeMatteo says. "There's a sense of doom."
So say the experts in the budding field of behavioral finance. Professional investors and money managers may be baffled that Americans are shaking off the good news. But people with a background in psychology are hardly surprised.
A broad measure of the stock market, the Standard & Poor's 500 index, is up more than 20 percent from last October. The index has more than doubled since March 9, 2009, the low point for stocks during the Great Recession.
But everyday investors refuse to jump in. They pulled $19 billion from funds that invest in U.S. stocks in December, according to the Investment Company Institute, and $2 billion more in January.
"In the old days, if there was a market rally, people would call and ask to put more money in. They felt they were missing the party," says Deborah DeMatteo, an independent wealth manager at 10-15 Associates in Goshen, N.Y.
This time, investors seem more than happy to miss the party.
"Now, people call and ask, 'When is it going back down?'" DeMatteo says. "There's a sense of doom."
What are they thinking? It's a question fit for a shrink.
Market psychology is still psychology, which is why Wall Street banks and investment firms pay people like Richard Peterson, a psychiatrist with a medical degree from the University of Texas, to help make sense of it.
A variety of emotions and thought processes are keeping Americans out of the stock market, Peterson and other experts say. The memory of 2008, when the Dow Jones industrial average swung wildly by hundreds of points a day, is probably No. 1.
The tumult of that year stamped itself in many people's brains. Like survivors of a devastating earthquake, they carry those events with them.
"A traumatic memory gets seared in the brain," Peterson says.
In this case, the wound is easily irritated. News that reminds people of the financial crisis — debt problems in Europe, a sudden swing in the market — sets off the same emotions of fear or anger. Getting your fear button pushed that often is exhausting, Peterson says.
People eventually tune out to save their sanity.
"Fear is still with us," says Meir Statman, a professor of finance at Santa Clara University in California and a leading expert in behavioral finance. "We live as if it's still 2008."
As a result, they respond to events as if it were September 2008 and Lehman Brothers were about to collapse all over again. In this case, Statman says it's not fear that's driving people but an error of reasoning.
Last summer, for instance, a fight over raising the federal government's debt limit led Standard & Poor's to strip the United States of its top-flight AAA rating. The markets went wild. For the month of August, the Dow swung an average of nearly 2 percent every day.
Another habit that Statman sees at play is the confirmation bias.
"If you have evidence that goes against your beliefs, you dismiss it," he says.
Statman says it seems some people are looking to confirm a "doom and gloom" view of the U.S. economy. Point out that the economy grew at a 3 percent rate in the last quarter of 2011 and they'll change the subject.
Their view, he says, is: "This country is going down the tubes."
How to Play March Market Madness
In the eight trading days since I last did a Purple Crayon episode stocks had their first 1% down day of 2012, followed almost immediately by the biggest one-day move of the year.
There's a lot of stuff happening.
It's important to understand just how bad a first quarter is for professional investors who are short or under-invested. The S&P 500 is up 11% so far in 2012. A fund manager lagging this rally has some explaining to do. A fund manager ending this quarter negative doesn't need to explain anything; he just needs to return the customers' money and slink out of town.
Desperate fund managers, improving fundamentals, and a beautifully well-defined uptrend is what we have. This is bullish, bullish bullish, if only until April 1st.
Top 3 Blunders of the Bull Market
Stocks have now entered the 4th year of a bull market that began on March 9, 2009. The benchmark indexes are up more than 100% since the bottom and it would be easy to pat ourselves on the backs and compile a list of great picks or classic hits. Unfortunately, that would also be useless, since most of our best learning is born of our mistakes.
Atop the list, not only in dollars, but arguably in terms of the breadth of impact, is the premature burial of the bond market - before it's proverbial heart had actually stopped beating. Sure we are closer to the bottom than the top when it comes to yields, which have been steadily falling for 30 years, but when the 10 year Treasury hit its first trough at 2.1% in mid 2008, calls that the bond bubble was over proved to be premature. And yet, once again in early 2010, the fixed-income morticians were choosing burial plots, including the biggest, baddest bond buyer on the planet - Bill Gross of PIMCO.
Of course now we all know how that worked out, and have learned that an historic black mark on the nation's credit report at the hand of Standard & Poor's does not a selling event make. In fact, the lead-up and loss of our AAA rating last August triggered a flight to - not from - Treasuries, exactly the opposite of what had been predicted.
Our 2nd "mega mistake" is also culled from the fixed income patch, but specifically, from the corner where municipal bonds normally thrive in relative anonymity. That all ended in late 2010 when the news magazine 60 Minutes grabbed a scoop from the business press and shared it with the masses.
Renowned analyst Meredith Whitney staked her reputation (earned from correctly calling the banking meltdown) on a prediction that there would be "a spate of municipal defaults" that would cost "100's of billions of dollars." It never happened.
And finally, the bronze medal for blunders goes to the commercial real estate market, which defied conventional wisdom and refused to become "the 2nd shoe to drop," as was often predicted. As the mortgage mess spread and further contaminated both the market and financing of residential real estate, it seemed only logical that the same dynamics would ultimately find their way in to the commercial side of the business too. Again, it never materialized.
New stock market highs by fall
The stock market could be trading at new all-time highs by the end of this summer.
Have a hard timing accepting that possibility?
Well, consider this: That rosy forecast comes from none other than Sam Eisenstadt, the former research director at Value Line, Inc. When I last reported on his stock market outlook, in mid December, he was projecting a 10% rise over the subsequent six months.
Breakout or Fakeout? The Case Against the Market Rally
It's the rally that just keeps on giving, defying all bears, and knocking down resistance levels with minimal hesitation. The S&P 500 broke above 1,400 for the first time since June 2008 to close at 1,402.6 on Thursday. The S&P is now up over 11% year-to-date, and about 12% below its all-time closing high of 1565 set in October 2007.
The only logical question plaguing every investor now is whether this rally continues.
Schoenberger has several more reasons he isn't buying the sustainability of this rally, starting with the labor market.
Schoenberger acknowledges the improving trend, but favors quality over quantity. He says our job growth is of "low income variety," meaning we're adding low paying, mostly service sector jobs that do not increase household wealth enough to make a meaningful mark on consumer spending —the lifeblood of the economy.
Another straw that will break the rally's back is the Federal Reserve.
"This was all a big ruse because we've been waiting for Ben Bernanke doing quantitative easing 3 (QE3)," says Schoenberger. "He came right out this week and said 'no I don't need to do that right now.
How Commodities Predict Market Movement
Copper is more than the main ingredient in wire and gold is more than what we wear on our fingers and around our necks. These commodities, along with others like oil and grains, are used by investors to gauge the health and short-term direction of the market, but how does it work? What do commodity prices tell us that we can use as traders?
Gold is the best-known commodity because it appeals to investors and non-investors alike. Consumers may not think of gold as an investible product, but the story of gold is actually complicated. Not only does it serve as a commodity, but also as a currency. In the latter part of 2011 and into 2012, it has taken on the behavior of a stock often mirroring the overall market.
Copper doesn't have the allure of gold since it's a base metal used largely for industrial purposes, but that doesn't change the fact that investors watch it closely for hints of the overall market sentiment. Because Copper is an industrial metal, investors use it as a way to gauge the health of the manufacturing and housing sectors of the world's economies.
If gold is the best-known commodity, oil isn't far behind. Oil, and the way it is priced and traded, become talking points around water coolers and on the news, particularly when the price of gas is rising; but savvy investors know that oil has a big effect on the stock market.
Although commodities may not move based strictly on supply and demand, investors use their price movements to gauge the overall sentiment of the market and make short-term decisions of where the market may go.
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