In this week’s copy of the Market Slice, we dive into what’s driving the bull market, retail traders, and the role of your thinking in determining your trading success!
That Was the Year That Was
2021 might have been the year of the Ox in the Chinese calendar, but it was the year of the Bull market on Wall Street.
With a string of all-time highs punctuating a year of significant volatility, the past 12 months were good to traders on the long side of the equities market. Several “fake out” bear feints resulted in repeated short squeezes, and the bulls came out on top every time.
At the same time, there is real concern about the breadth of this tired bull market. Technical traders might want to focus on this formation in the recent index price action:
This “double top” is a possible indicator of exhaustion, and with the markets gapping down this week, once again bears are on the alert for a possible reversal.
Here’s another cause for concern for the bull market.
As the percentage of companies trading above the 200-day moving average declines, there are real questions about how long this long upward trend will be sustained.
However, there’s another side to the question. Consider this recent item:
ETF Inflows Top $1 Trillion for First Time –“The top 20 fastest-growing ETFs, largely run by Vanguard and BlackRock, this year pulled in nearly 40% of all flows, charged an average fee of less than 0.10 percentage point. Of the nearly 600 active ETFs in the U.S., three-fifths have less than $100 million in assets, according to FactSet data. More than half are below $50 million.”
Add to that the continued pile of cash reserves available to drive risk assets up further. Money market funds means cash; with this number so high and the Fed Funds rate near zero, the same fundamental force underlying this epic bull run remain in force:
In short, our 2021 market wrap leaves us with the same mantra we have been repeating all year: Liquidity and inflows continue to drive stocks higher. Concentration in fewer and fewer big stocks threatens the stability of this market, and all the major indexes remain highly vulnerable to extrinsic shock.
More than ever, a long/short strategy, allowing you to profit from market moves in either direction, is the best way to hedge portfolio risk and profit from market volatility.
Do you have a clear plan for making money in down markets, as well as up trends? Are you diversified beyond equities, for non-correlated portfolio returns? Do you have a high-confidence approach to trading strategies? FFR Trading helps traders create a more professional, risk-managed portfolio strategy. Call (800) 883-0524, to schedule a complimentary call with our Strategy Team.
Trading Places
One of the biggest stories of 2021 was the rise of retail trading, with apps like Robinhood and online groups – particularly on Reddit – driving a new market dynamic.
Some commentators suggested – especially during the incredible GameStop saga earlier in the year – that the roles have been reversed, and retail traders now control the market. Older and wiser market participants know better… even with the increased striking power of banding together via Wall Street Bets, retail traders still only comprise a small chunk of the market. Check out this article from Bloomberg: Retail Traders Slide Back Below 20% of Market’s Total Volume
If we recognize that the retail swarm might be able to impact individual stocks, or even attempt a silver squeeze, that makes it worth keeping an eye on popular opinion. But what are the pros – the big players who actually move the broad markets – worried about?
https://themarketear.com/
This chart shows the “tail risk” assessment of institutional traders. As you can see, the biggest concern among professional traders is the possibility of interest rate hikes by the Fed and other central banks.
Next on the list is inflation… another monetary phenomenon that threatens the overall stability of global economies.
What this tells us is that macroeconomic forces are topmost in the minds of market-movers. As traders, we can monitor these developments, which are generally slow to unfold, to set our market outlook, and remain in position to profit, without depending on the FOMO narratives of the Reddit crowd.
Be Introspective With your Trading Strategy
By taking charge of the circumstances in your life, specifically with your trading, you begin shaping your world and creating the outcomes you desire.
Recently, Joe Duffy presented a webinar on the Neuroscience of Trading. On the webinar, Joe explained how the adages like “psychology is important”, and “you need discipline” are not enough, or the obstacle of repeated trading errors would have been surmounted long ago.
What IS needed is an understanding of how your brain actually works. You can’t fix or change what you don’t understand. This webinar succinctly explains the ❛WHY❜ of your mental roadblocks.
Armed with this knowledge, and a couple of simple techniques, any trader can start to fix what willpower alone most often cannot. If you have ever caught yourself making the same mistakes over and over… mistakes you know better than to make… this webinar has the answers you’ve been seeking.
And now the replay is available on YouTube. Visit our YouTube channel to view this essential presentation on A Deep Dive Into the Neuroscience of Trading.
The staff of Market Slice, and the entire team at FFR Trading, wishes you the happiest of holiday seasons. We will not publish next week, but we will return on Dec. 30 with our look ahead at 2022! You can also stay updated with investment and trading updates to have the tools to better manage your trading strategy! Make sure to check us out on Instagram, Facebook, and Twitter! Happy trading and happy holidays, everyone!