Waves of good corporate earning drive the stock up while the market is down the previous day. This type of violent market movement provides opportunity for speculative stock trading. However, it is difficult to predict the direction of market movement based on common sense interpretation of market financial data. The highly manipulative behaviour of market movement is better analyzed based on the behaviour of market participants.
The low interest rate makes the "well off" investors look for higher return on their accumulated wealth. The equity market would be a good choice. However, many retail and institutional investors are scared away from the stock market during the financial crisis and have not come back yet. They maintain a large proportion of the investment portfolio in cash or treasuries and wait on the sideline. Some traders do not wait for the signal of a long term market trend. The economic indicators are still mixed and do not indicate a strong recovery. Since many individual investors are still pessimistic about economy conditions, the traders will bet on the downside of market movement. However, value investors may find the stock market attractive at certain level. Therefore it is a tug-of-war between two major group of participants before a clear signal of steady economic growth is in sight.
There are numerous reasoning to explain the stock movement in either direction. Therefore for speculative swing trading in current market environment, the high volatility provides higher return on trading activities.
The probability of another big decline in stock market should be relatively low despite wishful thinking of many individuals. Until the retail and institutional investors on the sideline become optimistic, the stock market will fluctuate with minimal gain on the average. Buy and hold strategy may not give good return. Speculative trading strategy may give significant return for a well managed and executed portfolio.
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