Without selling from market manipulators, market participants are seeing profit potential in short term stock trading as market moves up and down but in an overall upward trend. Following market manipulators, day traders also stop selling as institutional and individual investors do not follow the selling and the shares are quickly bought up by bargain hunters. Sideline cash is waiting for pullback after consecutive days of advance.
With the retreat of traders from selling down the market, sellers have far more bargaining power than buyers and stock price has strong support. Nevertheless, trading volume is thin and market can be easily manipulated. On the other hand, there is tremendous sideline cash which is waiting for opportunity of market crash. Since investors are reluctant to sell, imminent market crash due to panic selling is unlikely. But with further advance in market, some investors will take profit on part of portfolio positions. In short term, market should have support. Market participants should watch closely on the flow of hot money which drives the herd of investors.
If Europe Holds It Together, Stocks May Keep Rising
Stocks ride the tailwinds of central bank promises into the week ahead, and could continue to drift higher in the absence of any nasty surprises from Europe.
"There's not a lot of things for the markets to be afraid of. This week was full of event risk," said John Briggs, senior Treasury strategist at RBS. "We are through that, and the markets are coming out with some confidence when it comes to risk assets. With the markets not having a lot to be afraid of, and no blatant 'risk off' events on the calendar, we're looking at auction supply." The Treasury auctions $72 billion in 3- and 10-year notes, and 30-year bonds Tuesday through Thursday.
"It's just one more reminder to retail investors that something is amiss," said Luschini. "After the flash crash and everything else they've gone through, this is just unsettling."
Luschini said most of the action affecting markets in the coming week could come from Europe, but the discussion around the U.S. "fiscal cliff" is getting louder. The "cliff," is a term coined for the double expiration of tax cuts Dec. 31 and beginning of automated spending cuts Jan. 1.
Don't Expect Market Rally to Last: Pro
On Friday, buyers drove the Dow (Dow Jones Global Indexes higher by triple digits as two major positives buoyed sentiment.
"What is more interesting is that we're within 200 to 300 points of recovery highs, which is pretty incredible when you think of all the issues we face."
Will the market re-visit those highs?
Not likely, says Jeff Kilburg, founder of Killir Capital.
"I don't see the euphoria in the stock market reflected in the bond market," he says.
Kilburg and the other pros often look to action in the bond market to confirm or deny a market move. And in this case - they say it'd been denied.
"There is no panic selling," Kilburg says, "and there should be if there's been a meaningful change in the market dynamic."
In other words bond holders aren't selling out of their positions in mass - in expectation of a rotation in higher risk assets. That's something the pros would expect to see if the rally were sustainable.
Tide Turning for Global Equity Markets?
Global equity markets ignored negative headlines on Europe's economy and nagging concerns about a slowdown in China to end in the black for the second straight month in July, signaling a return of risk appetite among investors.
Stock markets worldwide have already priced in too much negative news and are poised for much sharper gains in the months ahead amid signs of more supportive policies from global central banks, said Nomura in a recent report.
"Worldwide market volatility in May essentially 'pre-priced' a high likelihood of an imminent synchronized global recession, presumably stemming from disorderly deterioration in the euro area," Nomura said. "Yet with every week the global catastrophe fails to materialize."
A move from equities into safe-haven bonds should continue to unwind, Nomura says, amid positive signs that the European Central Bank will take decisive action to end the debt crisis in the 17-member single-currency zone.
The brokerage said one potential risk to a rally in equity prices was high food prices, which could constrain central banks from easing monetary policy.
Prices for crops such as wheat, corn and soy beans, have shot up in the past three months - wheat prices, for instance, have gained about 40 percent - threatening the outlook for inflation and causing a headache for policy makers keen to use monetary policy to stimulate their economies.
Money Anxiety Index: Market Rally 'Totally Irrational'
The stock market rally worth about 300 points on the Dow over the past three sessions is "totally irrational," according to the curator of the Money Market Index economic barometer.
"Markets are cycles. The problem is everybody pins markets to economic cycles. That's not the case," says Nadav Baum, executive vice president at BPU Investment Management in Pittsburgh. "Markets are just long-term cycles, and we haven't had a good stock market since 1998. At some point the market's going to do better."
Baum advises clients with a high level of anxiety to stick to what works - dividend-paying blue chips that are going to weather stormy markets.
Indeed, it's been the market stalwarts that have led the way this summer.
Avoiding Stocks Is a Big Mistake: Vanguard Founder
If you don't have money in the stock market and you hope to retire someday, the founder of The Vanguard Group says you're making a big mistake.
John 'Jack' Bogle tells us if you're investing for the long-term don't get spooked by events of late. "Knight Capital is meaningless for anyone in the market for the long haul," he says. "In fact, you're probably in a mutual fund and you can pat yourself on the back for being smart."
In other words, for most individual investors the risk from Knight Capital is non-existent because most individuals hold a basket of stocks and the diversity of the basket hedges out the single stock risk.
And he takes issue with commentary from Bill Gross who believes "the cult of equity is dying."
Bogle goes on to remind us that in 1979 BusinessWeek made the same argument.
The article came out right before the beginning of one of the greatest bull markets of the 20th century, Bogle insists. "It's always a question of balance but anyone who is out of stocks right now is making a big mistake.
Why Are Investors Fleeing Equities? Hint: It's Not the Computers
You've no doubt been reading a lot about a "crisis of confidence" on Wall Street in recent days after software problems at a big trading firm sent the stock market, briefly, into a tizzy.
Everyone is hyperventilating at the errant trades at the Knight Capital Group - suggesting, in the words of Arthur Levitt, that these malfunctions "have scared the hell out of investors." The problems at the firm were immediately lumped together with Facebook's glitch-filled initial public offering, the flash crash of 2010 and the rescinded public offering of BATS Global Markets, among others.
So why are so many investors sitting on their hands? The unemployment crisis, the European debt crisis and the looming fiscal-cliff crisis, to name just a few reasons. Economic growth is slowing, not just in the United States but in China, too.
Even the hedge fund titan Louis M. Bacon has been so humbled by the stock market that he returned $2 billion to his investors last week rather than risk losing it.
Here are the numbers today: About $171 billion has flowed out of mutual funds over the last year, according to the Investment Company Institute, which tracks mutual fund data. Where has all that money gone?
Bonds. About $208 billion has flowed into the bond market over the same period, according to numbers from the I.C.I.
Individuals are worried that it's hard to make the right bet and worried that the market is rigged against them. Much of this is an outgrowth of woes of Wall Street's own making, like insider trading cases or market manipulation scandals. Those situations are partly why individual investors don't believe they stand a chance against the professionals.
Trader Urges Caution and Patience as S&P 500 Tops 1,400
Up, up and away we go. It may be the fifth 3-day, 3-percent rally we've seen in the past 2 months, but this time it's different. At least it feels different as we instantly blasted through the key psychological 1400 level in the opening minutes of trading today, but also broke above the top-side of an upward sloping channel that has been forming since June.
And yet, for all the positive you throw at the market, volume remains light and fear is still heavy as concern about a correction seems to grow by the day.
All the while, this Summer of Hate rally has (so far) defied multiple attempts to knock it down, even though participation has been deemed to be limited given the light trading volume that been a hallmark of the market all summer.
"The market has to digest some of this recent move," Polcari predicts, pointing out that the 1400-breakthrough could attract even more buyers, late in the game. "It'll cause a lot of people to jump right in, and that's just when they shouldn't be doing it."
His advice to investors on how to play it is 3-fold: be patient, be very thoughtful about what you buy, and don't be foolish.
"All and all, the U.S. economy is still on a very rocky road. That's why think you need to be cautious. You will get your opportunity," says Polcari.
The Most Hated Stock Rally in History?
Could this be the most hated stock market rally in history? Not only do traders not like the market, the average public doesn't believe the stock market is rallying.
The S&P 500 less than 1 percent from a four-year high. NYSE short interest is near a five-year peak, which is a decent contrarian indicator.
Why the rally?
1) A widespread belief that more quantitative easing (explain this) is coming from the U.S. Federal Reserve and the European Central Bank: traders in particular are expecting the ECB to lay out more definitive steps on a bond buying program at its next meeting on September 6th;
2) There's nothing for sale, and people cannot afford to be under-invested; most hedge funds -and even many large cap mutual funds - have underperformed this year; and
3) While the global economy is still weak, and Europe is certainly not looking like it is bottoming, there's hope that China will soon embark on a much more aggressive infrastructure program. The Australian Central Bank left interest rates unchanged today and said China's growth was "not slowing further".
Valuations & Mood Down: Of Course It’s Time to Get in the Market Says Haverford’s Smith
In an industry filled with nuance, conditions and measured responses, it's not very often that we get such an unambiguous answer. With stocks rushing towards an annual high, many have wondered whether it's too late to participate in the rally. For Hank Smith, the Chief Investment Officer at Haverford, the answer is a ''no-brainer''. Of course you get in.
"The economy is expanding, not contracting. Corporate profits are rising, not falling. Balance sheets are fortress-like with record amounts of cash. Valuations are attractive, dare I say cheap, and sentiment is extraordinarily negative," Smith rattles off in the attached video. "People are afraid. They're panicked. Look at what they're doing. They're will to accept a zero return on fixed assets just so they get they principal back."
Clearly the flight to safety and appetite for more defensive sectors and stocks has been well pronounced, as concerns about Europe and China led to concerns about our own economy. It's a scenario Smith characterizes as ''unrelenting negative news" and one of the main reasons why he's not shying away from the stock market right now.
Market Rally Just a Set-Up for a Bigger 'Collapse'?
Global stocks have been rallying in recent weeks, climbing a "wall of worry" and confounding the bears, leading a number of strategists to warn the rally is unlikely to last and investors should remain cautious.
"I think we're in choppy waters and that continues. You've got to remember to sell if you own the stock market now," Charlie Morris, Head of Absolute Return at HSBC Global Asset Management told CNBC Europe's "Squawk Box" on Wednesday.
Morris says with bad news on the global economy over the past year, the market had "tried to collapse", but with so many people short stocks, the conditions hadn't been ripe. That, he says, could change after the current rally ends.
"You need to trip the market to have a proper collapse. So you almost need to set it up with a rally, get everyone excited and then it can fall," Morris said. "If there are risks, the risks to a very negative market come after this rally fades."
Barclays equity strategist Barry Knapp also pointed out in a note to clients on Wednesday that the underlying factors in terms of "expectations of U.S. and global growth deterioration, less accommodative monetary policy, earnings growth deceleration and elevated public policy uncertainty" were the same as they had been in the second quarter when U.S. stocks dropped 10 percent.
He said investors who were defensively positioned could buy call options on small cap stocks and select cyclical stocks to ensure they didn't lose out on the rally. But, he added: "We remain unconvinced that investors should chase the low volume 'wall of worry' August rally."
Few Believe, but Technicians See Market Rallying On
While many investors fear the market is ignoring reality, some technical analysts say stocks could continue to move higher as the market looks past what worries it.
The unresolved European debt saga, the so-called U.S. "fiscal cliff" and the tension surrounding the U.S. presidential election are all wild cards for the market.
Slowing corporate earnings and the sluggish U.S. economy and global growth, in general, are all valid worries. Yet stock prices are riding a wave of momentum to near four-year highs, even as few investors can be found that love the stock market.
Strategists also say the stock market is being supported by the prospect of more Fed easing, ahead of its Sept. 12 meeting. The double whammy of possible moves by the European Central Bank are also underpinning markets.
Barclays Capital chief technical analyst Jordan Kotick said, however, that stocks are moving beyond the immediate economic worries.
"The market always wants to find the pain trade," he said. "Most people are either neutral bearish or really bearish. The most painful trade would be a higher stock market because nobody has it," he said.
After 3 Years It’s Clear, Investors Are Chasing ETF Losers!
Money chases performance. Or at least, that's how it used to be on Wall Street. ETF pro Nick Colas, the chief market strategist at ConvergEx Group, recently crunched some numbers on ETF performance versus fund flows, and the results are truly surprising.
"I fully expected that the old adage on Wall Street that money will chase performance to be in place here, and it was just the opposite," says Colas. "The names that did the best didn't have very much in terms of new flows, the names that did the worst had tremendously strong flows."
Based on the average three-year performance, the top 30 products returned 142% with fund flows + $5.6 billion. The bottom 30 products returned -83% with fund flows + $14.3 billion over the 36-month period.
"When we look at the top 30 and bottom 30 we get a lot of leveraged ETFs, the doubles and the triples," says Colas. "And folks buy the doubles and triples because they're worried about downside scenarios. So they'll buy the bearish doubles, the bearish triples, and that's why those names continue to have relevance even though their absolute performance over three years is very poor, down 85 to 90%."
That is pretty clear evidence that the money is chasing losers. So what can we all learn?
Colas says the first lesson is to do your homework. If you get a tip about an ETF, take the time to learn what it's really all about -- Does it track an index? Does it track commodities prices? Is it leveraged?
"The second [lesson] is look at how much money is still going into negatively oriented ETFs," he says. "It's a real signal and a real sense that investors are still worried about the market, even three years into a bull market rally, we're still worried about what might happen."
Gary Shilling: Everyone’s Still Wrong About Bonds, but They’re a Great Investment
It's hard to find anything in investing that everyone agrees on, but one thing almost everyone agrees on right now is the theory that bonds are terrible investment because interest rates are about to soar.
In fact, over the past several years, a parade of respectable economists and strategists have made the seemingly obvious observation that "interest rates have nowhere to go but up," suggesting that anyone who is dumb enough to buy bonds will get killed.
And, so far, they've all been wrong.
Next for Markets: Break Out or Break Down?
CNBC's Fast Money traders don't agree on much but lately they all seem to agree on one thing - the stock market is at an inflection point.
But will stocks break out or break down?
Trader Stephanie Link, director of research at TheStreet, is optimistic. She believes earnings results confirm the message telegraphed by the latest housing data, retail sales numbers and more. And that is, the economy is growing - albeit slowly.
Trader Guy Adami, managing director of stockMONSTER.com, isn't so sure.
He says for quite some time the market has been trading very technically and that matters most. The level to watch on the S&P (^GSPC), he says is 1425 - the 2012 high. "If the market fails to break above 1425 - technicians will say it's a double top - and I can see even a little bad news triggering a sell-off."
Trader Simon Baker, CEO at Baker Avenue Asset Management, thinks the scenario laid out above is, in fact, the one that's most likely. "It's time to take money off the table," he says. "We're at the top of the range - and it looks to me like the market is about to fail."
Do Equity Markets Need a Reality Check?
Stock markets from New York to Tokyo have seen some stellar gains this week amid hopes of further monetary easing globally, but analysts say there's one thing that investors appear to be forgetting: economic growth remains weak and is likely to remain so for some time.
Expectations for monetary easing have lifted equity markets out of the doldrums, but the problem analysts say, is that it is difficult to assess what impact the stimulus measures will have on economic growth since many central banks have to resort to unconventional policy measures such as large-scale bond purchases as interest rates are already at record lows.
For instance, key U.S. lending rates are in a target range of zero to 0.25 percent, while the Bank of Japan on Thursday left its benchmark policy rate in a range of zero to 0.1 percent.
The IMF last month cut its forecast for global growth for 2013 to 3.9 percent from a previous projection of 4.1 percent.
Vasu Menon, Vice President, Wealth Management at OCBC Bank in Singapore, told CNBC that while he was positive on equity markets in the short term, investors should expect volatility in the medium-term.
"Don't throw all your money into markets just because things are looking good right now. We continue to tell investors to drip feed into the market over the next six to nine months," he said.
"You don't want to stay out of the market completely. But if you are waiting for blue skies, it's not going to happen. The problems in the U.S. and Europe are very deep seated," Menon added.
Wall Street Week Ahead: Bulls, bears and wallflowers
The S&P 500 is up 12 percent so far this year. Through July, it had its best first seven months since 2003 and its second- best seven-month run since 1998. That sounds like a bull market.
But there is clearly a disconnect between the way markets have performed and the high level of caution among many investors. That is mainly due to the perception that things have the potential to go horribly wrong - incredibly fast.
The danger for investors is that they focus too much on the potential risks, such as the break-up of the euro zone, and end up getting left on the sidelines when markets move higher as they have done since the start of June, said Doug Cote, chief market strategist at ING Investment Management, in New York.
"We are in a bull market," he said. "The mistake investors have made is too much attention on global risk, and not enough attention on fundamentals that are very resilient."
David Joy, chief market strategist at Ameriprise Financial in Boston, says it's an uncomfortable time for many investors, who are caught between missing a rally and getting blindsided by some nasty event that sends markets into a tailspin.
"We have a bit of a pro-cyclical tilt in our sector strategy within U.S. equity markets, largely because the market seems to be positioned so defensively," Zirin said. "We have seen this flood of flows going into defensive safe havens with high yield, and we just think they are very highly priced.
Of course, the market could also be setting itself up for a fall. Betting on what central bankers will and won't do is a risky game.
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