If you happen to be in a diversified retirement fund you probably finished 2011 basically flat. Many of the popular hedge fund managers also underperformed the S&P 500 Index last year. This tells us that it must be tough out there if the so-called smartest people around cannot beat the market. It really seems that the only people who can make money in this type of environment are the savvy traders who play these up and down moves. This market has not been an easy endeavor for the average person who simply listens to the media in order to take trades. Whenever the stock market tries to recover from a major economic shock such as 2008 it usually takes years to recover. Now I shall list the three reasons why this will remain a great traders market and not the typical buy and hold market that is preached by many on Wall Street.
1. Many people in the world resent Wall Street and the investment bankers at this time. Just look at the uprising that has occurred recently. The Occupy Wall Street movement is not going away. Ordinary people have lost faith in the investment world. This has obviously happened before; however, it will take time for the investment bankers to regain confidence in the public. When jobs are lost, homes are foreclosed, and retirement and savings accounts free-fall; it will definitely cause a lot of resentment in the investing community. These problems did not just occur in the United States, they happened all over the world.
2. The public seems to be fed up with the politicians. In the United States many people now believe that there is very little difference between the Democratic and Republican parties. Many people have lost faith in most governments around the world. Just look at the Arab Spring movement in Egypt, Libya, and other countries. These rebellion protests are still going on to this very day around the world.
3. Consumer confidence continues to remain at lows around the world. The average person around the world continues to worry about the large debt that most countries continue to have. Countries such as Greece, Spain, Italy, France, and even the United States have huge debt. How are these countries ever going to pay this debt off? Perhaps at some point in time there will be debt forgiveness, however, that would require bankruptcy and these days the biggest get bailed out by more debt. You see, the average person has a hard time getting their head around this idea because they cannot run their household or small business like this. If any normal person operated in massive debt they would eventually have to go bankrupt at some point.
These are the main reasons why this will remain a traders market for years to come. Sure, there will be multi-month rallies and short term glances of a bull market from time to time. On the flip side, there will be deep declines and sell offs that will scare the pants off of the average investor. The days where the small investor looks at the fundamentals (i.e. P/E ratios, book value, EPS, and EBITA) are over for now. The technical trader is the one who has the advantage, as it is simply the study of money flow and human emotion. This savvy technical trader will be the one to recognize the optimal opportunities in the markets. Learn to read and understand the charts and it will serve you throughout the rest of your investing life.