Market Overview

Five Reasons Why This Will Remain A Traders Market

Related FDX
Wells Fargo Downgrades Syntel After 48% Run, Sees Need For Client Diversification
FedEx Reports 'Solid' Q4, But Bernstein Sees Capex Uncertainty
FedEx - Delivering Packages, Delivering Appeal (Seeking Alpha)

1. Every central bank in the world is pumping money into the financial system. The Federal Reserve started this so-called zero interest rate policy for the too big to fail banks in December 2008. They have also started their third round of bond purchases called QE-3 (quantitative easing) in September 2012. This is where the Fed buys U.S. Treasuries and mortgage backed securities. Currently, the Federal Reserve is buying $85 billion a month of these securities with no end of the purchasing in sight. Where do they get the money for all of this? They print it. Other central banks such as the Bank of Japan, and the Bank of England and most other central  banks have followed the plan by the Federal Reserve. So if the stock market falls the central banks will just print more money and put it into the financial system. One day this will likely create another massive bubble, but they will worry about that when it happens. 

2. Many stocks are reporting poor earning so these equities will usually decline sharply and lead to another buying opportunity. The key here is to understand the technical support levels. This has been evident in equities such as International Business Machines Corporation (NYSE: IBM), FedEx Corporation (NYSE: FDX), Caterpillar Inc (NYSE: CAT), Intuit Inc (NASDAQ: INTU), and others. In other words, the buy the dip mentality is embedded in the institutional traders right now.

3. Short trade setups are appearing everywhere. Many stocks have fallen despite all of the central bank money printing. Stocks such as Apple Inc (NASDAQ: AAPL), EMC Corporation (NYSE: EMC), and others have declined sharply recently. If you understand the technical chart patterns you can find many short trades in the market. 

4.  The bond market has not rolled over yet as many so-called experts have predicted. When the bond market shows strength it is telling stock traders that trouble could be lurking. Now please understand, the central banks are buying a lot of bonds so the bond market could be somewhat distorted. Either way, if there is a major sell off in stocks money will pour into the bond market despite the low yields. This tells us that the stock market will be volatile and continue to provide countless trading opportunities in 2013.

5. The housing market and housing stocks have been very strong since October 2011. Yes, countless private equity firms are buying single family real estate and renting out the properties. Many individuals now want to rent a home instead of owning a home. You can see that this is the opposite thinking from 2006 when people would do anything to own a home. This single family home buying by the private equity firms are certainly boosting the housing market. This is obviously part of the master plan by the Federal Reserve. After all, many construction jobs have been created with all of these home purchases by the private equity groups. It is also important to note, many home owners feel better  psychologically when they see their home values rise. Remember, a home is usually the largest purchase that a family will make in their life time. Stocks such as Home Depot Inc (NYSE: HD), Lowe's Companies Inc  (NYSE: LOW), Sherwin-Williams Company (NYSE: SHW), and others have  benefited greatly from the uptick in the housing market. As long as the consumer is spending money this stock market can hold up for a while. Right now, this market remains a great trading environment.   

Nicholas Santiago

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Markets


Related Articles (AAPL + CAT)

View Comments and Join the Discussion!