Stock equity market is buoyed at year high with strong support in a thinly traded week. The slightly upward trend begins in October when individual investors rush into equity stock market giving the strong support. Although buying activity is very cautious, there is little selling pressure. At the same time, investors are becoming less interested in treasuries and bonds. Recently, the buying trend is reversed and capital is flowing out of the treasuries and bonds market.
The second round of "Quantitative Easing" ignited the rally in equity stock market. The yield of treasuries did not drop as expected. Instead the rate is steadily rising on inflation speculation due to oversupply of liquidity. Investors exhibit increased risk appetite, encouraged by the wealth effect of asset appreciation.
Institutional investors and hedge funds are inactive during the holiday period. After the New Year holiday, institutional investors will restructure the portfolio in the new year. It is likely that the treasuries and bonds portion in the portfolio will be reduced. With significant amount of cash on hand in a bullish market, the positions in equity stocks and commodities may be strengthened. Hedge funds are much less active in 2010 as compared to 2009 due to uncertainties in economic recovery. However in the coming year, hedge funds will become more active because of the return of individual and household investors in the equity stock market. This will create turbulence and thus opportunity for speculative trading.
The speculative trading portfolio does not perform very well in 2010. Although the majority of trades are long positions, the timing is not quite right. For short term swing trading, it may result in a loss despite the fact that many of the traded stocks have significantly higher price at the end of the year. Therefore the speculative tradings are not executed with appropriate skills and strategy. This experience will be useful to improve the speculative trading strategy. As discussed in earlier post, it would be advantageous to estimate with accuracy the short term cycle in stock price movement from market participants activities.
The outlook for the coming year is to continue current bullish trend in the first quarter as broad base of investors are chasing assets with surplus capital liquidity. However, it is not without worry because the concentration of wealth may post a threat to the stability of society at large. Equity stock market may perform much better than the economy which on the other hand affects the living standard of the general public. Inflation is another threat as well.
"Stocks down slightly as investors lock in 2010" Stocks are set to end 2010 on an upbeat note: The S&P 500 index and the Dow Jones industrial average are both up 14 percent for the year, after dividends, thanks to record corporate profits. The Dow is back to levels last seen in August 2008, prior to the heat of the financial crisis, while the S&P might just eke out the best December in 20 years.
"Outlook 2011: Daniel Gross Puts on His Prediction Cap" You might be relieved to hear that he remains bullish on America and that he does not foresee the sovereign debt crisis reaching our shores, at least not this time around.
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