Wild Oscillation In Stock Market

As predicted in the post in last week, the stock market oscillates wildly in this week. And also as predicted in the post in the beginning of this month, the stock equity market shows a gradual uptrend, with some fluctuation. The movement of stock equity market in relatively short term depends on market participants' herd behaviour. In the longer term, equity stock market is correlated to economic growth. Therefore it should be optimistic with the advancement of technology. However, there is a threat of overuse of natural resources by human being and thus damaging the environment. Many people are aware of the threat. But from the perspective of an investor in financial market, the threat will not have significant effect on the economy, at least in the coming decade.

The speculative investment portfolio has small gain in this week. Some of the profit in equity stock holding is offset by the leveraged ETFs which is bearish to protect the portfolio against sudden market drop. However, it is seen that a more active trading strategy can improve the profit if managed properly to mitigate risk. The portfolio can take advantage of fluctuation in market to increase overall return. However, instantaneous market movement is highly unpredictable and day trading strategy is not to be end up as pure random gambling with the portfolio. One of the objective of developing a speculative trading strategy is to avoid the mistakes during the financial crisis in order to increase the probability of positive return in the portfolio.

So far, the allocation of stock equity and leveraged ETFs in the portfolio seems to be adequate. However, it appears that the holding period may be long for an aggressive trading portfolio. The oscillation in yesterday's and today's market provides chance to make profit for opportunistic traders. Therefore trading activity can be increased if there is volatility in the market. This would require close tracking of market movement and analysis of market environment.

Investors on the sideline are impatient of waiting with cash earning low return. This drives the price of gold, junk bond, as well as stock recently. Although it is believed that equity stock should go up in the log run, there are many uncertainties in short term. And it can be manipulated quite easily under current environment. For a speculative trading portfolio, holding an investment for extended time may not be the most efficient strategy. Therefore portion of the stock and ETFs in the portfolio would be used for day trading if there is the opportunity.

If trading volume remains low, the market may drift upward to extend the rally. Herd behaviour is critical to this market environment. There is probability that market can swing violently. And this will be golden chance for opportunistic traders.