Market Approaches Year High In The Beginning Of December

Market moves violently in this week and approaches year high at the end of week on the last month of year. It can be seen that market participants become more active and create turbulence in the equity stock market. In the beginning two days of the week, hedge funds attempted to move down the market after the opening bell. Since selling pressure was very limited. market gained support from individual investors who started to enter the market in November. After two days of unsuccessful attempt and seeing the strong support from individual investors, hedge funds changed the strategy from selling to buying and ignited the following three-day rally. Individual investors and hedge funds together pushed the market higher with increased trading volume.

Market sentiment turns optimistic. Capital is probably flowing from treasuries and bond market to equity stock market. However hedge funds are opportunistic traders seeking short term profit from market fluctuation in up or down direction. Another potential impact on equity stock performance is the tax cut expiration. After the 2008 financial crisis, wealth is more concentrated on the rich people because they are buying diverse assets while the majority of people are frightened by the market decline and liquidating the investment portfolio to save in money market. Depending on tax planning of rich people, profit realisation on capital gain before tax cut expiration may generate selling pressure.

Long term outlook on market performance is optimistic as discussed many times in the past. However, short term market movement is more dependent on market participants, rather than economic condition. There is ample liquidity in the capital market and it appears that investors are becoming more interested in the equity stock market. However, household are still very
cautious on buying stocks. Movement of market is range bounded. With increased activities from market participants, range is widened with increased volatility.

Leveraging on trading portfolio is very risky under current market condition. For long term investment, holding power is very important to preserve portfolio value and appreciation. For short term trading, risk mitigation is critical to successful strategy.