Strategy to play stock market into Elections 2012
This is the date we all have been waiting for a long time now, election day is finally here!! People are debating if Obama will be able to get back to the white house or not. Everyone including the financial markets are holding their breath to figure it out. I think market right now is in a holding pattern. Other people might say perfect calm before the big storm.
How will the market react if Obama wins or loses
In my opinion, its a foolish game trying to predict the market reaction. This is not very different than trying to predict the movement after company announces its earnings. You just do not know, no matter what people say. So the strategy to sit out the decision sounds like the best thing to do.
How I plan to play the elections
I regularly update my blog with the market recap and commentary on Market Outlook and Strategy. Yesterday I talked about how market seems to be nearing its bottom, but still time isn’t correct right now to jump in. I am all in cash and waiting for the dust to settle. Honestly I might miss out on few trades here and there, but over the long run playing defensive in times like this saves you lot of confidence.
While it seems like bottom is in, the biggest declines usually come in the form of panic selling when everyone is ready to play the bounce. If you remember how the market played out last summer, you would know market just kept dropping until pretty much just gave up on the market bounce. And then it bounced and it bounced hard. Lot of retail money was lost in the process, but the ones who held tight and sat in cash were looking quite pretty at the end.
How to know when to get back in the market?
In my opinion, market will remain volatile for next week or two. So I plan to continue to trade very small or just stay all in cash. Now coming to figuring out the bottom, let me tell you based on my personal experience of trading for past few years. If you try to catch a bottom in the market, you will remain at the bottom only. A very successful trader once told me, “I am not interested in the bounce, I would rather trade the first pullback after the bounce occurs“. Such a great piece of advice for anyone who has been screwed over a few times while trying to catch a bottom.
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