Thursday, October 2, 2014

Stock Market: V Stands For…..

(Drivebycuriosity) - The letter V has different meanings. For militarists V means "victory". For hedonists V stands for "vagina". On the stock market V stands for a sudden rally following a selloff which is typical for herding behavior.

Today we saw a typical V-movement on the financial markets. Before 11.50 pm US east coast time the market was under pressure. Risky assets like oil futures, small cap and Internet stocks continued Yesterday´s fall. Around 11.50 pm the market suddenly turned and oil, small caps and Internet stock jumped.

I believe that the sharp swings we experienced with different kind of assets (oil, small caps, Internet) were caused by hedge funds and other speculators. Hedge fund managers are known for their herding behavior (driveby). They buy and sell the same stocks, at the same time, and track each other's investment strategies. In the morning the herd was selling everything which seemed risky, after 11.50 the herd was buying back.

In the long run those movements don´t matter, they are just noise. I reckon that the bull market, which started in spring 2009, will continue, because the global economy is advancing and company profits are rising thanks to the technological progress (king-for-day).

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