Friday, August 28, 2009

Stock market in a "sell into any rally" trading range

The stock market can be lethargic and volatile in the lazy days of summer when a lot of people are on vacation. Without any significant inflow of "real" money, such as from mutual fund managers, traders and short-term speculators will try to work the market back and forth to maximize their potential for trading off volatility and the brokers will collect transaction fees on all of these trades. Ka-ching! The mentality of traders and short-term speculators is to "sell into any rally" when stocks move above or up near "resistance". That is what we have been seeing lately. Sure, sometimes they sell too much and then we see sharp rallies based on short squeezes, but more commonly we see the market open higher and then we see those early "trading gains" dissipate as traders and short-term speculators sell or short into the early rally. This kind of give and take lethargy continues until eventually some "real" money, such as from mutual fund managers, comes into the market and manages to overwhelm the amount of money that the traders and short-termspeculators are throwing at the market on a daily basis.

What does this mean for "real" investors? Not much, really. Simply ignore it all and focus on economic and business fundamentals. These daily fluctuations are rarely reliable signals about economic and business fundamentals.

-- Jack Krupansky

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