Financial Stocks

At the moment, Bank of America (BAC) is up 14%, Wells Fargo (WFC) is up 22%, which is not unexpected, and financial is up all across the board. The main reason attributed to this rally in financial is the optimism that the new administration will move quickly to stabilize an ailing financial sector. However, hope and optimism are never trading strategy, and I don't expects this rally to last. The common strategy here is to buy into earning, hold it a day or two at best to see how things really play out, and then, back to the sell off. The truth of the matter is that for the economy, nothing has really change.

We are still losing jobs, banks are still in trouble, we still lack capitals, and overall confidence is low. Then we see that the new administration is planning to add about a trillion dollars ($1,000,000,000,000) to the national deficit, which mean we are potentially facing a national debt of over $10 trillions dollars. Even for a $13 trillions dollars economy, $10 trillions is a bit to much to handle, especially given the bleak economic situation we're in. Optimism? I think it is more of a delusion than is it optimism that is rallying this market.

Stock Market

For many observers, the current market is nothing more than a big mess; unpredictable, and illogical. However, for trend traders, the market had never been easier to read. In the current environment, "investment" is shrouded in fear and uncertainty. The common tactic employed to fight fear and uncertainty is of course diversification which reduce the risk margin, while having the same marginal return. In a market like this, diversification seem to matter little as all sectors seem to be hit just as heavily as the overall economy deteriorate. In other words, in this environment, one rules by fear, uncertainty, high risk, and speculation; there is no long such thing as investment.

The buy and hold investors had long excited the market, leaving room for only the bravest souls looking for a quick buck. Viewing the market in this way, the market will be operating on a rally than dumb approach. If one go back and look at the market for almost any average/good companies within the last month (companies with a positive cash flow), than one can easily see this trend. One day the market will be down due to profit taking, and the next day, market again rally due to the price drop from the profit taking the day before. Then one just need to buy when the mass are selling, and sell when the mass are buying.

Of course this is merely my observation. If one is to "invest"/trade, one certainly would need to understand the risk involved, and do one own due diligent. Come to the game with a game plan, adjust to the market, but never let emotion/fear/uncertainty change the game plan. Only proper DD should be able to do that.