{"id":62543,"date":"2014-10-27T02:12:20","date_gmt":"2014-10-27T06:12:20","guid":{"rendered":"http:\/\/countingpips.com\/?p=62543"},"modified":"2014-10-27T02:12:20","modified_gmt":"2014-10-27T06:12:20","slug":"the-bears-hate-this-market-heres-how-you-could-profit","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/10\/the-bears-hate-this-market-heres-how-you-could-profit\/","title":{"rendered":"The Bears Hate This Market\u2026 Here\u2019s How You Could Profit"},"content":{"rendered":"
October 27, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

If you listen to the bears, they’d have you believe this market is teetering on the edge of a cliff.<\/p>\n

And as usual, they have a simple explanation.<\/p>\n

But here’s the problem…that ‘simple explanation’ seems to change week by week.<\/p>\n

On one level, we can sympathise.<\/p>\n

When you’ve been consistently wrong over a long period — as the stubborn bears in this market have been for the past few years — you tend to clutch at anything that can explain away your wrongness.<\/p>

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When one bearish theory is disproven and its forecast fails, the bears just try another one. <\/p>\n

That’s why the ‘bear points’ that make up so much of this market’s white noise have become a bit of a grab bag.<\/p>\n

But we can’t empathise with pundits who insist on continuing to be wrong — regardless of what reason they choose this week.<\/p>\n

Because with your wealth at risk, the stakes are too high…<\/p>\n

This week, the bears are running from an old story.<\/p>\n

It’s Tuesday and Wednesday’s US Federal Reserve policy meeting.<\/p>\n

That’s the meeting where the ‘great and powerful’ members of the Federal Open Markets Committee (FOMC) meet to decide the direction they want to push the markets.<\/p>\n

The bears are worried about the potential outcomes of this week’s Fed meeting.<\/p>\n

They seem to think that if the Fed ends its current round of bond buying this week, the price of government bonds<\/a> will collapse and the stock market<\/strong><\/a> will melt down.<\/p>\n

Anyone who accepts that view must have a limited understanding of the way markets work.<\/p>\n

Players in any market — whether it’s for stocks, bonds, cocoa beans or fish — don’t set prices based on what’s happened in the past.<\/p>\n

Traders take their positions based on how they expect the future to shape up.<\/p>\n

If, over the course of several months or years, everybody slowly comes to expect a good thing to end — the price impact of that change will spread across a long period.<\/p>\n

That has happened over the past 18 months with the Federal Reserve’s<\/a> money-printing program.<\/p>\n

In May last year, the markets freaked out when the Fed announced its intention to buy slightly fewer bonds each month. <\/p>\n

You might remember that ‘taper tantrum’. You might even have recognised what a great buying opportunity it was.<\/p>\n

Since the bears threw their toys out of the pram in May and June last year, the S&P\/ASX 200 [ASX:XJO]<\/strong> has returned as much as 21%. You can see that in this chart from the start of April 2013 to the present day.<\/p>\n

<\/a>
\nSource: nabtrade<\/em>
\nClick to enlarge<\/a><\/em><\/div>\n<\/p>\n

Over that period, the Fed has slowly but deliberately made it obvious to the market that its bond buying program would run down to zero in 2014.<\/p>\n

It matters little whether the Fed announces the end of bond purchases this week or at its next meeting in December.<\/p>\n

Here’s the point: The smart traders have already priced it in.<\/p>\n

That means when the Fed makes this announcement, it won’t send the markets into meltdown.<\/p>\n

In fact, it might even push stocks up.<\/p>\n

It only takes a basic understanding of how markets work to see why…<\/p>\n

The most bearish players in this market have sold stocks<\/a> that they don’t own.<\/p>\n

They’ve borrowed the stocks to do this. It’s called short-selling.<\/p>\n

They’ve done this in anticipation of a cataclysmic market crash that they think might happen because of something the entire market already understands —i.e. the end of money-printing.<\/p>\n

When the US Federal Reserve<\/a> makes that announcement and the market doesn’t collapse, the bears will quickly realise that they’ve been wrong.<\/p>\n

They’ll scramble to buy stocks so they can return them to the owners who enabled their short selling.<\/p>\n

We call that scramble a ‘short squeeze’. It usually has a rapid, powerful, positive impact on stock prices.<\/p>\n

We’re not necessarily forecasting a short squeeze when the Fed stops buying bonds<\/a>.<\/p>\n

For that to happen, all the bears in the market would have to throw up their hands, say ‘I was wrong’ and reverse their trades.<\/p>\n

And as we’ve seen, some bears insist on staying wrong for long periods.<\/p>\n

But when reality disproves yet another bearish theory, stocks tend to go up.<\/p>\n

And when that happens, you don’t need a PhD in finance to figure out which stocks go up fastest…<\/p>\n

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How you can benefit<\/strong><\/h2>\n<\/p>\n

We’ve written before about how you can think about market sentiment as a giant pendulum.<\/p>\n

It’s free to swing in any direction…but right now, the bears are doing their best to push it towards the red.<\/p>\n

And the factors conspiring against one sector in particular have pushed this pendulum almost as far as it will go.<\/p>\n

We’re talking about the Aussie resources sector.<\/p>\n

All it will take is for investors to hate this sector just a little less. <\/p>\n

Then the ‘resources pendulum’ will swing back into the green. That could bring fast, outsized gains to nimble profit-hunters.<\/p>\n

We’ve never seen a better time to consider the potential of carefully selected resource stocks.<\/p>\n

So it’s timely that our Resources Analyst, Jason Stevenson, has just picked four of the best and most underappreciated energy stocks on the Aussie market<\/a>.<\/p>\n

Sentiment towards this hated sector will improve. When the bears realise the sky won’t fall in when the Fed makes a statement that the whole market already sees coming, that improvement could come sooner than you think.<\/p>\n

That makes now a great time to consider investing in unloved stocks.<\/p>\n

Cheers,<\/strong>
\n
\n Tim Dohrmann+<\/a>
\n Editor, Money Morning<\/em><\/strong><\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

The post The Bears Hate This Market… Here\u2019s How You Could Profit<\/a> appeared first on Stock Market News, Finance and Investments | Money Morning Australia<\/a>.<\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au If you listen to the bears, they’d have you believe this market is teetering on the edge of a cliff. And as usual, they have a simple explanation. But here’s the problem…that ‘simple explanation’ seems to change week by week. On one level, we can sympathise. When you’ve been consistently wrong over a […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-62543","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/62543","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=62543"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/62543\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=62543"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=62543"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=62543"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}