The stock market is beginning to show signs of recovery, but there are some caveats to this. One of the more concerning issues that is going on is that money is leaving the stock market at an alarming rate. Over the past seven weeks, there has been an outflow of about $53 billion. Experts from Bank of America have pointed to this number and have linked it to some negative trends. For example, in 2008, right before the financial crisis hit full steam, there was an outflow of $85 billion. In 2002, before a bear market, there was an outflow of $65 billion. And most recently, before the debt ceiling problems faced in 2011, there was an outflow of $80 billion.
Money is leaving the stock market, and it is going to safer locations. Government issued bonds are seeing increased interest, as are funds that focus on precious metals. However, it seems that most people are turning to cash as the alternative. This means that traders should be looking at falling stock prices for areas of opportunity through short sales, but that they should also begin thinking of alternative sources of profit, like the Forex market or even gold futures. Other traders prefer the flexibility and low risk that they can gain with binary options trading. There are a lot of choices available, and learning how to use a few of them will be very helpful in the event of a marked decline in equities.
To solidify this mode of thinking, Bank of America also noted that their cash levels are at the highest level they’ve been since 2011 thanks to the fact that the next month will see a lot of action when it comes to policy making. The G20 is meeting, the European Central Bank, the Bank of Japan, and the U.S. Federal Open Market Committee are all meeting in the coming weeks, and the outcomes of these could have profound effects on what happens to the economy afterward. Investors are being cautious right now. The events of the last few months have forced them to be.
You as a short term trader should also be cautious. There’s no guarantee that a bear market is going to happen. There’s more money in the stock market today than ever before. The numbers of 2002, 2008, and even 2011 do not apply in the same way that they do today. Between inflation, more wealth in the United States, and the increased amount of attention given to the U.S. because of international economic events and the decline of oil, $53 billion today is a lot less than it was even five years ago. Besides, we already know that the market is volatile.
Sitting out and waiting for risk to subside is a normal approach to dealing with this. Still, there is a potential trend developing here, and if we are not at least aware of the possible ramifications of what could happen as a result of the fulfillment of that trend, we could lose money in the future. By establishing a plan to deal with something like this, either through the use of Forex trading, binary options, futures, or something else, we are giving ourselves a safety net to keep making money when everyone else is losing theirs. As long as our trades are educated, and as long as we are aware of the overarching economic context that is behind every trade we make, we are not losing opportunities to make money, even if a bear market is inevitable. That’s the beauty of taking control of your own finances and learning how to trade well.