Friday, October second, marked a big day for the U.S. stock market. Each of the three major indices went up by over 1 percent. It was a welcome relief for investors after days of poor market performances.
After three months of poor job reports, there are some serious concerns about what is going to happen to U.S. stocks. And even though there’s still bad news coming from this particular corner of the economy, there are plenty of good things that are offsetting it. For example, household incomes are going up. There are fewer new jobs, but individual families are earning more than they were a few months ago. September saw a sharp increase in this respect. As a result of having more buying power, certain sectors of the market are rebounding, too. Car sales are going up. This is good news as the automotive industry is a cornerstone of the U.S. economy.
In September, only 142,000 new jobs were created. It ended up being about 60,000 fewer than experts had predicted. Even though this would typically lead to a poor market performance, this did not happen on Friday. Part of the difference was because of the silver lining to the jobs report—other factors improved enough to show why people weren’t looking for new jobs. While jobs are a quick reference point, they are intended to be used to signify deeper things. If those markers are hit without new jobs being needed, this is even better.
Another reason why the market did well was because a simple correction was taking place. A lot of the recent poor stock performances were purely reactionary. Stock values are, at a fundamental level, much higher than recent prices would have suggested. If the law of efficient markets is correct, then it is only natural for them to gravitate toward what their true values are. If an overselling occurs, then prices will eventually go back up. This is a large part of what we are seeing now.
Short term traders need to pay attention to fundamental indicators for precisely this reason. Even if technical indicators say that something should happen doesn’t mean that it will if fundamentals win the day. So, if a stock like Apple has a true value of $125, but is trading at $110, it’s only a matter of time before it goes up. You can make short term profits off of the small dips that a stock will have, such as when Apple dropped down under $108 briefly on Friday, but if the true price is higher, then the move upward above $110 makes sense. And because many analysts believe that Apple will be at around $145 in a year’s time, then this makes even more sense, regardless of what minute by minute technicals are saying traders should do. This concept is true of day traders on any front, traditional stock market trading and binary options trading alike.
This is but one example within a huge marketplace. Also consider the fact that some stocks were buoyed even if they should not have been because of the general pull going on throughout U.S. companies. These stocks should be approached with caution and eventually shorted. Prices went up, and that means that some technicals will say that they should keep going up, but a weak stock will be illuminated by the fundamentals backing it. And because this momentum can push a stock’s price either way, it’s something you will definitely want to be aware of and check up on for each and every time you are trading a stock in some fashion, even if you are a day trader.
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