I think that before embarking on a quest to make a position in the stock market in any capacity, be that long or short, one needs to have an opinion on the global stock markets and the worldwide economic situation.
I've had two opinions on the global economic climate since I started actively managing my portfolio:
The first opinion that I held adamantly for several months was that the global markets were destined to capitulate and sink again as they did in 2008/9.
The second opinion (one that I still hold) is that the global economies aren't necessarily in a great position overall, but that the the stock markets will continue to rise as a result of external pressures.
My reasoning behind moving from the first opinion was that I very quickly realised that it's become very popular to take the counterargument when it comes to discussing the stock markets. Now, what I'm about to say doesn't really apply to AIM (where I primarily invest), but it does hold true across world markets:
The market is like a super-computer that processes all of the information in the market and then comes up with an appropriate price as close to the "true value" of the market as possible.
Therefore, if the stock market has been rising for a week, it's not necessarily true to say that the value within that market has increased, but that the price has.
This is important in my opinion, because it's the main driving point behind my current market opinion (since January 2014). I am a believer that the global stock markets will continue to rise because the external interest rate factors have made the stock market the only place where a return above inflation can be made. In short: value has not necessarily increased with this bull run of the stock market, but prices have.
As a traders we primarily profit from being able to determine the effects on the price of an instrument and not the value (although value investors do certainly exist and I have a lot of respect for them). It's because of this that I'm comfortable with still going long on the S&P 500 and the FTSE 100, but nevertheless, I believe that we have to be very careful as investors and traders not to become pulled in too much by the current bull run.
For example, jobs and housing figures in the US has only recently began to deliver more consistently positive results and yet the markets have continued to rise.
To conclude, it's in my eyes that the current bull run is sustainable and that we could likely see further increases in the major stock indices. I am therefore bullish on price increases, but not necessarily bullish on the value added to our major markets. Low interest rates that seem likely to remain low as a result of uncertain macro-economic conditions worldwide. This combined with the environment created by quantitative easing makes the bullish pattern seem stronger in my eyes.
Good luck and good night.
For example, jobs and housing figures in the US has only recently began to deliver more consistently positive results and yet the markets have continued to rise.
To conclude, it's in my eyes that the current bull run is sustainable and that we could likely see further increases in the major stock indices. I am therefore bullish on price increases, but not necessarily bullish on the value added to our major markets. Low interest rates that seem likely to remain low as a result of uncertain macro-economic conditions worldwide. This combined with the environment created by quantitative easing makes the bullish pattern seem stronger in my eyes.
Good luck and good night.
