After a long holiday weekend the equity market finds itself at fresh new highs. Will traders look to upcoming economic data, or will complacency set in as vacations will be in focus?
Last week saw a slow but methodical grind to the upside in equities. The lack of economic data and the US Memorial Day holiday dried up liquidity in the market. There was a lack of back and forth trading going on which resulted in a decidedly bullish tone for the week.
After a very mild sell off on Tuesday, the market seemed to be in auto pilot for the rest of the week. With traders more concerned with the holiday weekend, the market closed at its highs on Friday. The sector rotation showed the resurgence of a higher risk appetite. Sectors that have been under recent heavy pressure such as bio-tech saw some buyers this past week.
The upcoming week will be somewhat light in terms of economic data. The exception being the release of the latest US estimate of GDP on Thursday. For the short week the economic data calendar is as follows:
Tuesday – European Central Bank President Speech, US Durable Goods Orders; Wednesday – Swiss GDP and German Unemployment; Thursday – US First Quarter GDP and Japan CPI; Friday – US Personal Income and Outlays and Canadian First Quarter GDP.
In this holiday shortened trading week the SPY, S&P 500 ETF, may land somewhere in between 187.60 and 194.30; the IWM, Russell 2000 ETF, may land in between 88.40 and 92.10; TLT, the 20 year and beyond US Treasury Bond ETF, may see a week ending from 110.40 on the low side to 114.70 on the high side.
Many traders and their supervisors will be on holiday this week. Some will be out of the office physically, while the rest will be on a mental holiday. Historically, this week is seldom one where major investment decisions are made.
That being said, it is one of those times where working on investing game plans is worthwhile. Market action can be viewed in many ways. Media will start to print stories of reasons to believe that an explosion to the upside is imminent. The same media outlets will print stories on how dangerously close the market is to a great depression style crash.
What is more relevant is your own personal views and having a systematic and logical approach to your trading. You should also have an open mind in terms of your choices of investments. Perhaps you are only looking at one way of expressing your investment thesis. For example, if you have been afraid of Geo-political unrest are you only investing in gold or the US dollar? If you have then you have probably been disappointed with the way the market has shrugged of the Ukraine crisis. You could have also invested in US treasuries, but perhaps you have been scared of inflationary pressures.
Recent actions have shown that the only international response to the Ukraine has been economic sanctions. One of the risks of those sanctions are the backlash it may have on European economies. Instead of gold perhaps you should look at German Bonds, the Swiss Franc, Natural Gas, or Oil.
Charts Courtesy of Yahoo Finance
Opinions are often tied to egos. Psychologically, it may be difficult for beginner traders to really separate egos from investment ideas. This is a financially fatal mistake. By being open to the possibility of there being a more practical way of trading your opinion, you can make it easier to make that separation. Proper planning is easier than the consequences of foolishly thinking that there is only a limited set of outcomes to the market game. When you start to ask yourself, what happens if I am wrong, slightly wrong, or the market doesn’t care? You are on the right path to keeping your ego out of your trading. That will help keep profits in your pockets.
Good luck and trade rationally.