The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Short-Term Traders Remain Divided on the Markets
06/04/2009 12:01 am EST
The Los Angeles Traders Expo is this week in Pasadena, California, home of the Rose Parade and the Rose Bowl! Before each of the three Traders Expos during the year, we survey the traders prior to attending to gauge where their thoughts lie on the markets.
While it's true that active traders are more concerned with the direction of the market in the next few days or even hours, having a feel for the long-term direction of the markets is critical to the success of any trader. Successful traders know that understanding the long-term trend can impact the length, speed, and momentum of intraday short-term trends, and therefore, cannot be ignored.
The survey is quite simple and consists of just seven questions. Let's get right into the results of the latest survey.
1. When asked their opinion of the overall market direction for the remainder of 2009, traders were split, with the bulls coming in at 47%, bears at 40%, and 13% felt the market would remain flat. Uncertainty in the market continues to give no clear direction either way. Traders, no doubt, are monitoring major company bankruptcies such as GM as well as the economy in general. Without clear signals that either is improving, traders are hesitant to fall squarely into either sentiment. It will be interesting to see by November if traders are in more agreement with their broad market forecasts.
2. In question two, we asked traders what percentage of their trades would be short sales. In some sense, this is another indicator of overall market sentiment. I would expect that the more bearish the trader, the higher percentage of their trades would be shorts. While we've seen these numbers increase over the years as traders have been forced to become comfortable with shorting the market or continually lose, fully 34% of traders indicated that less than 10% of their trades would be short sales.
With 40% of those surveyed being bearish on the markets, this indicates one of two things:
- Traders are confident in their ability to cherry pick the stocks that will rise in an overall declining market, or.
- Traders continue to be less comfortable with their short-selling strategies
My sense is that both of these assumptions are correct.
3. In the third question, we asked traders what they felt was the future of the Federal Reserve announcements regarding key interest rates. Not surprisingly, given the current economic environment, a strong 73% felt there would be no change to interest rates for the rest of 2009.
The 22% that indicated rates may rise could be concerned that inflation may begin to take hold, forcing a move by the FOMC to raise rates even as the economy and credit markets continue to struggle.
4. When asked how their number of trades would compare to their volume of trades last year, 47% stated they would likely make more trades than last year in the same time period, while 19% reported that they would trade less than last year. Given the short rally the S&P 500 has experienced since March, traders may be anticipating a time of increased volatility, thereby offering a larger number of trading opportunities between now and December 31st.
5. Question five, which asks which securities traders feel will offer their most profitable trades, stocks win again, as they have in all previous surveys, with 26% of respondents stating their most profitable trades will be in the equities markets. However, options are close behind with 23%, and forex continues to be strong at 15%, a terrific increase from just a few years ago. Traders continue to diversify their trading as more products come on the market outside of traditional stocks.
6. When asked their opinion of the value of the US dollar in relation to other currencies, 49% felt that the dollar's value would decrease "moderately" for the remainder of 2009. This is also not surprising, given that during the days this survey was open for responses, the US dollar had been pounded down on a short-term basis on fears of additional bailouts for major companies such as General Motors.
This sentiment may change if the dollar finds a base, however, it is obvious that economic worries continue to plague the dollar's prospects.
7.And finally, question seven, which addresses the overall health of the economy, shows a pie that probably couldn't be more evenly split, even with a slight pessimistic bias. In it, we see 36% of traders felt the economy will worsen in the remaining months of 2009, while 30% felt it would improve.
Just as traders were divided on the future direction of the markets in question one, they continue to also be split on the health of the overall economy. It will no doubt take several quarters of better earnings and fewer news stories about the bailout of corporate America to give traders a better window as to the market's future.
Related Articles on STRATEGIES
Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Profit from a market by capturing a trend. Money management is key. The battle is often from within,...
Has Mr. Market (S&P 500/Equities) priced into too much positivity, while inflation remains at ba...