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Market Outlook for November and December 2012

If you are a stock trader and been observing the market behavior in the past few weeks, you will know that market has been acting extremely weak. There is a good chance market might be heading further down in the short term. According to my thinking following are the reasons:

 Terrible earnings: So far bunch of companies have reported earnings and many big tech companies have disappointed the investors. That includes one time tech darlings, $AAPL $GOOG $AMZN. All of them missed earnings this time. In my opinion that is a huge red factor for the market to head south.

Might see dead cat bounce: Markets are currently oversold and usually markets react to the upside when that happens. So going by that logic, we might actually see a quick bounce in the US equities in the first week of November. However, if that weak is not supported by volume, I would expect it to turn into a bear flag and push the markets downwards

Elections are upon us: US presidential elections are upon us. Market usually runs big in the election year and we have seen that happen already. But now the time has come when fast money starts playing. If that conspiracy theory holds true, market might just crash hard after a slight bounce as mentioned above. Investors and traders need to really be careful and not overly invest.

So what are some of the things that investors should be doing right now:

  1. Avoid Margin Trading:The number one thing that investors need to avoid right now is to trade on margin. Thats a terrible thing to do. Because margins help to inflate your profits, it can be painfully dangerous when the market goes against you. So this is one of those times when you play safe. Market is so oversold that its hard to short at this level, at the same time no sign of good bounce, so no need to go long either. Since people who trade Options, cannot really disable margin, it just comes down the discipline.
  2. Keep positions lightWhen market is not favorable, traders should keep the positions very light. That way they are not emotionally invested in their positions. Light positions enable traders to take losses while big positions sometimes numb traders if it goes against you.
  3. Not trading is okay

I see lot of traders not being able to stay away from the market. They have to absolutely trade all the time. In my trading experience, its really not that important to trade all the time. Its perfectly okay to take a few days off and not look at the market even. For one, that helps to relax the mind. Second thing is that it helps you think more logically. If you keep trading actively even when market isn’t cooperating with you, there are higher chances of making a very expensive mistake.

Trade strategy for Rest of the year

Best Strategy right now is to avoid trading tech stocks right now. Financials (XLF) on the other hand have shown some resilience and might be good investment choice for November and December. Market usually runs hard around Christmas time and I would wait to see how November rolls. Based on that, might go heavy long into Christmas and New Year.
Disclaimer: These are just my personal opinion, not an investment advice. Please refer to your investment adviser for direction on how to invest.

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