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Saturday 25 July 2009

Market Trading - Do It Sideways!

Having sat next to traders in many fund teams at investment banks as a humble lone researcher it was clear traders make money and business activity (trading volume).

Despite Black Swan and Dr Doom, what we are witnessing in this particular investment climate is just another cyclical correction (the frontline media are not on-the-money, matter of fact, never have been as much as frontline practioners).

So traders continue to buy and sell securities whereas medium- to long-term investors are still licking their investment portfolio wounds and rebuilding their balance sheets. Market timing and good old fashion volatility trading without 'irrational' momentum driven stories of this and that buy-out is a return to trading fundamentals.

This sideways trending market will continue until housing, employment and related corporate solvency is fixed. So this week (ending 24-Jul-09), the DJIA broke-out above 9,000 (and stayed there despite impending CIT bankruptcy workout and poor reports from bellwethers Microsoft and Amex!). So based on at best 'mixed' 1H09 earning reports we drove to a six-month high. Not surprising some of these better earning numbers considering the lows springboard from two years into this correction.

Some fundamental doomsters are waiting for the 'confidence-breaking' accident that traces a "lower low" than March (when the S&P 500 was 676.53 on 09-Mar-09). However, traders work on current sentiment and short-term perception together with mandatory fundamental bottom-up research. I am getting back in on-the-dips, and I admit I missed the 2H09 traders rally. Tactically. I may put on an ETF-short on belief the rally will dip back.

So like the traders I advise investors to go long/short ETFs etc (for retail/HNWI money) and proprietary capital (for institutional money) and get trading the unique volatility. Goldman Sacs did it and do it - trading is core to their performance.

Caveat: reading the markets and timing it is risky so let a respected adviser or fund manager do it.

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