Short-Term Traders Split on Economy and Market’s Prospects for 2010

02/16/2010 2:30 pm EST

Focus:

Tim Bourquin

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

Traders know that markets are driven by human psychology. Because markets tend to be driven as much by participant sentiment as technical analysis and news, MoneyShow.com has been gauging trader and investor sentiment for several years at each Traders Expo. And while online traders typically hold for shorter time frames than traditional investors, forecasting the direction of the markets is an important component of any overall trading strategy.

A survey conducted by The Traders Expo, the largest convention for active traders and investors, was compiled to determine trader sentiment about the direction of specific sectors and the overall market for the next ten months. Over the course of several days, traders were asked their opinion about a variety of financial issues, including the overall direction of the stock market through the remainder of 2010, and their opinions on the value of oil, gold, and the US dollar. Traders were also asked about their profitability as compared to last year’s trading results.

See complete sentiment survey results here

Some notable findings were:

  • Nearly 40% of traders surveyed are somewhat or very bullish on the prospects of the Standard & Poor’s 500 through the remainder of 2010–10% less than when the survey was conducted last in November 2009
  • 45% of traders surveyed stated they would be making more trades this year than last
  • 55% of traders surveyed believe the Federal Reserve will raise rates at least once or twice during 2010
  • 54% of traders stated that they believe the price of gold will rise for the remainder of 2010

Overall, traders are split on whether the market will be higher or lower at the end of 2010. More cautious than they were at this time in 2009, the traders surveyed seem to be unsure as a group regarding what will drive this market over the next ten months. 

Although more than half of the traders surveyed felt that the Fed would raise rates this year, the percentages are not as strong when it comes to the price of gold.  Typically, a rise in interest rates would be accompanied by signs of inflation, and thus, rising gold prices.  However, traders may be feeling that the run up in gold over the past few years may be nearing an end—at least in the short term.

However, the results also seem to show that traders are ready to profit from either market direction. The trend of traders becoming more comfortable making short trades (trades that profit from an anticipated move down in any market) continues to increase, with short-term traders seemingly more willing to trade the down side of the markets than in past surveys.  In 2009, 40% of traders stated they would execute trading strategies that include up to 25% of their total trades based on a belief that a security will lower in value. This year, in 2010, that percentage has increased to over 47%.

In terms of the price of crude oil, more than 60% of traders are bullish on its price prospects. Perhaps that is where traders are counting on inflationary pressures to be presented first.

Finally, when it comes to the overall economy, traders divided themselves into a nearly perfect three-piece pie of better, worse, and the same at the end of 2010. As traders do, most admit they will simply let the market tell them which way to trade on a day-to-day basis.

By Tim Bourquin, trading content director, MoneyShow.com

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