Traders Now Lean Towards a Bearish Market for the Remainder of 2008

06/18/2008 12:00 am EST


Tim Bourquin

Co-Founder, The Traders Expo and The Futures & Forex Expo

Results of the Trader Sentiment Indicator were officially announced at the Las Angeles Traders Expo on Wednesday evening, June 18.

The survey polled 222 active traders across the country and revealed that 42% of traders are now leaning towards a bearish sentiment for the S&P 500 for the remainder of 2008. Not far behind, 35% of bullish traders stated the S&P 500 index would increase for the rest of 2008, while 23% of traders remained neutral about the markets.

The number of traders shorting the market has changed very little from sentiment indicators over the past year with 18% stating they won't be making any short sales to make profits and 61% claiming that up to half their trades would be on the short side of the markets for the remainder of the year.

When traders were asked what they felt their most profitable trades for the year would consist of, options continued to be the most profitable and possibly the most safe in the peaks and valleys of today's markets at 27%. Stocks were a close second at 22%. Commodities and foreign currency trailed behind at 18% and 15%, respectively. These two markets should be watched closely throughout the year with the much-needed attention the US dollar has been receiving, and the race for alternative fuel sources come into play as oil and grocery prices reach record highs.

When asked about how they felt the US dollar value would act in relation to other currencies, 46% of traders foresee a moderate to significant rise. This compared to just 3% last February represents the biggest turnaround in traders' sentiment. This change in the trader sentiment indicates that many traders feel the bottom is in for the US dollar. This makes sense when one views the change in trader sentiment for interest rates. It also indicates that trading currencies is becoming a more important tool for traders looking to trade markets outside of traditional equities

Another one of the biggest changes since the last sentiment indicator is how traders view the Federal Reserve and interest rates. An overwhelming percentage of traders now feel that the Fed will not change rates (43%) or will raise rates once or twice (42%). Last February, 85% of traders felt the Fed would lower rates once, twice, or even several times.

In the past, most traders would say they only concern themselves with charts and not interest rates. Today, traders are more sensitive than ever to macro-economic events and clearly, their answers show they see a benefit to following Fed moves with their technical analysis. Pairing chart reading with fundamental analysis in order to find trading opportunities is becoming increasingly popular.

Inflation and the prices of gold and oil are making headlines almost on a daily basis, and questions have been recently added to the sentiment indicator to reflect traders' views. An overwhelming 87% of them feel that inflation will rise modestly to significantly into 2009

When asked about gold and oil prices at the end of 2008, 33% of traders expect gold to rise between $1,100 and $1,200 an ounce.

54% of traders anticipate oil to rise between $150 and $175 per barrel.

Lastly, this Sentiment Indicator reveals what instruments will be used when trading the markets throughout the year. This is only a glimpse of what is to come for the rest of the year.

While most traders are interested in what is going to happen in the next several hours or days, rather than months, the Trader Sentiment Indicator shows that opinions about market direction can vary significantly.  Traders will continue to watch the very short-term movements while keeping an eye on the overall trend.

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