The quarterly earnings announcement starts this week and attracts more investors on the sideline than last week. This causes volatility in the market. Traders should be cautious on the instantaneous movement of the equities in the portfolio.
Investors take on more risk from the safety of money market. As mentioned in the article "The Bond 'Bubble': Are Small Investors Taking Too Big a Bet?" Furthermore, retail investors haven't been binging on long-term bonds, which stand to lose the most if interest rates rise. What they have been doing is responding rationally by moving out of money-market funds. Nearly $500 billion has come out of money funds so far in 2010. Thus, it seems, most people aren't selling off their stock funds to buy long-term bond funds. They are getting out of money markets and inching into short-term and intermediate bond funds.
Since many of the new market participants are attracted by higher return of stock trading but do not have enough confidence in the economy outlook, any news can easily drive the herd to run in either direction.
The speculative trading portfolio is holding stocks with sold call options. Market rally has driven a large portion of the options to become in the money. It is expected that some may be exercised later in the month. The leveraged ETFs portion of the portfolio is not for holding purpose as discussed in earlier post. They are primarily used for day trading purpose, especially in current market condition with sudden increase in trading volume by speculating investors on the sideline. There is opportunity in the wild movement of the market.
The stock portion of portfolio will be restructured after option expiration. The day trading strategy in leveraged ETFs will also be reviewed with experience gained in the tradings.
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