Day traders who do not respond quickly to the sudden change in market direction may suffer loss since the rebound is much faster than the decline. Individual investors again see the transfer of wealth as the stock equity portfolio is trimmed down. Institutional investors mostly remain calm during the sell-off. As market rebounds strongly, portfolio value is mostly recovered. Long term investors make a quick profit for the risk taken. Market makers are most benefited from the recent sell-off.
The speculative trading portfolio makes the same mistake as individual investors. Since the trading philosophy is long term buying, portfolio holding is maintained during the six weeks' decline. However at the market bottom when day traders are selling and individual investors are trimming down to the core holding, it is afraid that market collapse may be triggered if day traders start short selling and individual investors start dumping core holding. Fortunately this scenario does not happen as market participants do not have very strong desire to sell while market makers have already stopped selling. But the fear of panic selling still looms large and a decision is made to hedge the portfolio holding with bear ETF. As a result, large portion of the rebound in portfolio value is eroded by the bear ETF.
Market makers and big investors having the edge over small investors is not uncommon. Herding behaviour of investors are exploited by market makers to manipulate the market. A close look at the market trend should reveal that a calm investor should be able to see that when market makers stop selling and then followed by day traders and individual investors, market should have reached bottom. When long term investors start buying from the market, a mistake is made on the speculative trading portfolio to add bear ETF holding in the portfolio.
In order to minimize emotional mistake, it would be desirable to set a strategy based on the activities of market participants in the previous week and projection into the coming week. Unless there is sudden event, investment decision should adhere to the strategy rather than following the herd or based on fear.
As mentioned in the posts, market is manipulated and short term market movement is basically unrelated to macro economic condition. The speculative trading portfolio is speculating short term profit on market fluctuation based on market participants activities.
There is a large pool of capital flowing around the globe looking for investment return on various assets. In the last two weeks, long term investors started buying in the equity market. Then selling from day traders and individual investors ceased. In this week, market makers return to equity stock market. With a thin portfolio and a pile of cash on hand, the objective of market maker is not to short sell to drive market down as in previous strategy but to accumulate positions. This drives the market up significantly as a strong rebound. Institutional investors have been inactive during the sell-off period and follow market makers quickly on the buying. Day traders and individual investors seem to hesitate to follow the buying as they are the last to stop selling at the bottom. Hedge funds are preparing for storm in the commodities and bond market as the Federal Reserve bond buying program has ended. From this observation, there are not much selling desire from market participants. If institutional investors and market makers continue to buy from market, the latter may advance further.
Market makers may not be buying equity stock on fundamental performance since just profited from the recent sell-off. However, the influence on market movement may create herding behaviour. Market is expected to be manipulated up in the coming week. Consequently, the speculative trading portfolio, has reduced the holding on bear ETF and increased holding on bull ETF. The holding on equity stocks remains unchanged for longer term appreciation.
Treasuries Triple Global Returns as Dealers Predict Decline
Yields near record lows have frustrated fixed- income investors looking for more return.
“But we are in a moderate growth recovery with little evidence of inflation pressure and the Fed in no hurry to change its stance. The path of least resistance is very low” rates for a long time, he said.
Corporate debt has done even better, gaining 3.2 percent this year as companies sold $1.9 trillion of bonds, a 24 percent increase from the same period of 2010.
Inflation expectations are rising.
After buying $1.7 trillion in securities through last year, increasing the amount of money in circulation to prevent deflation, the central bank started a $600 billion program that ended last week. QE2 also succeeded in driving investors into riskier assets.
“Despite headwinds, the economic recovery will continue into the end of the year.”
Bond yields tick lower as 'ongoing jitters' keep coming
It's a far cry from last week, when diminishing Greek concerns and a strong stock market sent bond prices tumbling to a two-month low. That pushed yields -- which move in the opposite direction -- rapidly higher, at the fastest pace since 2009.
But by Tuesday, bond prices were back up slightly, and the 10-year yield fell. That trend continued Wednesday, with the benchmark yield falling to 3.08% from 3.14%.
U.S. Debt, Default & Beyond: Financial Armageddon Is Inevitable, Says Author
Central Banks being intertwined is going to result in "inflation like we haven't seen in this country in 30 years." For those of you unfamiliar with this line of thinking, the inflation will come as a result of tightening in China. Cheap labor and low-priced imports have been the saving grace for the U.S. economy, giving our corporations growth and driving consumer spending. When the U.S. loses those tailwinds we will be financially cast adrift.
How the Bubble Destroyed the Middle Class
Most middle-class families didn't have much wealth to begin with — about $100,000. For the 22 million families right in the middle of the income distribution (those making between $39,000 and $62,000 before taxes), about 90% of their assets was in the house. Now half of their wealth is gone and it will never come back as long as they live.
Of course, rich folk lost lots of wealth during the panic as well. Their wealth is mostly in paper not bricks — stocks, bonds, mutual funds, life insurance. The market value of those assets fell further than home prices did during the crash, but they've mostly recovered their value now.
The rich recovered; the rest of us didn't.
With the upper classes prospering and global markets booming, they don't need the U.S. middle class any more. The market is up, profits are soaring, and the corporate jet is fueled and ready for takeoff.
With Stocks Near the Top, It’s Time to Worry About Bonds
"My biggest concern is with the fixed income markets" Cobb says, explaining that he thinks a lot of people are going to get hurt by rising market rates long before the Fed actually lifts its own. "So much money flood into the bond market...but unfortunately, these people who tried to do the right thing at the time and go away from risk assets are going to be greatly disappointed when rates start to rise," he says.
When asked about the imminent start of 2nd quarter earnings season, Cobb flatly recites "the driver of markets has been, and will continue to be corporate earnings" before warning that record profit margins "have already started a very mild retreat."
Will Earnings Season Lift Stocks?
Back in June, that seemed more like hope than a sound strategy. Now, with the stock market racing higher again and earnings season arriving next week, hope will meet reality. It might not turn out the way folks expect.
The financials are expected to report weak numbers, reflective of their poor performance this year. Analysts have trimmed earnings estimates for financials 8.6% since March 31 as banks grapple with heavy mortgage problems along with weak trading and deal activity.
As ever, commentary about what's up ahead will matter just as much, if not more, than actual results.
"We think too many investors are banking on another season of upward earnings surprise," he says. "For one thing, the economy has clearly slowed, and rising nondiscretionary costs over the past several months have pressured the consumer which generates the majority of U.S. growth. In addition, earnings revisions for the S&P 500 (for both 2011 and 2012 earnings) are approaching all-time highs."
With banks promising to set a sour mood early in the reporting campaign, it will take something incredibly special to surprise a crowd that is already well down the yellow-brick road. It could be a rockier stroll than most expect.
Economic Rebound “Not Happening” in 2011: Achuthan
With so much riding on - and priced into - an economic and earnings rebound in the second-half of the year, Achutan not only pours water on that, but ups the ante by saying he cannot rule out slumping into another recession in 2012.
Further, Achutan says "It's a growth rate slowdown and that's what the market really cares about. Recessions and recoveries, that's old news."
How bad is it? Pawn shops, payday lenders are hot
"People are broke. They're all chasing value. It's a seismic shift in mindset," he says.
Montagna, the Dollar General bull, says he's seeing people earning $70,000 or more at that chain, too. Even he shops there now.
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