Who's Underinvested When Europe Matters Less? - Tactical Trading

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So, now that we just made 40 S&P points, is it still up, up, and away from here? The market could definitely run away higher from here. That's a clear risk for equity fund managers who don't want to be caught under-invested at this time.

And I love this kind of tension too where, after months of bearish sentiment, all it takes is a good news catalyst that removes doubt about something (like European systemic banking contagion), and you can move another 30 points higher before the open (like the S&P did last week on Thursday October 27).

By the way, that kind of strong "Good morning and how the heck are ya!" where the futures are 1-2% higher before the opening bell rings is fund managers scrambling to get exposure. They use the S&P futures because it's the fastest, most liquid vehicle they have.

But not all are this nimble. And lots of that futures buying is by hedge funds putting the screws to the portfolio guys. Yes, markets fall faster than they rally, since panic is often stronger than greed. Yet, a surging market is also a wonder to behold, especially if you are already long and watching other investors chase your stocks.

That's why you want to have some core long positions so that you are invested in this potential, not chasing it. And then you wait for other fear-driven dips to buy.

Volatility and Valuations

SPXU

Kevin Cook is a Senior Stock Strategist with Zacks.com
 
Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

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