Why should we care? Prudent investors follow the money. Flows of money into a market at higher than average rates are an indication of demand for the market. It is an indication that market participants find the market cheap and feel that it will go up.
As a practical matter, any increase in demand for a product will eventually cause the price to go up. So fund flows in some sense are self fulfilling prophecies.
So what do we learn from today's article? Investors think the stock market will soon go up in price and that bonds and real estate are expected to under perform stocks in the near term.
Do you agree? Tell me why or why not and we'll discuss it.
I generally disagree about making investment or trading decisions based solely upon newspaper articles like this. Trade in the direction of the major trend, but look for corrections in the major trend that stall at key retracement levels, and time your trades with Candlestick indicators.
Avoid making trading decisions based on news or fundamental reports alone. Chances are the market has already discounted it all already. Besides the increased buying interest in stocks from the general public may be a result of the commercials "feeding the pigeons" their net positions. (Don't fight the commercials!)
Avoid chasing the market. Use stochastics to avoid buying tops (or selling bottoms). Always consult the seasonals to ensure you're not fighting some monster tendency of which you are either uninformed or unaware.
Define how much you're willing to risk before entering the market and use stops. However, a stop close can only be used successfully for illiquid markets.
Learn to like your losses. They're a fact of trading life, and its how you deal with them which will determine your longevity in the market. You must find a way to take the emotions out of your trading.
Posted by: Bob Hansell | February 23, 2006 4:32 PM | Permalink to Comment