Tuesday, October 27th, 2020

Reasons Why Traders Are Buying Stocks Today

April 24, 2020 by Jim Walker  
Filed under Options Trading Education

 

The stock market crashed in response to the coronavirus pandemic and now has partially recovered despite dreadful unemployment. Here are reasons why traders are buying stocks today. On our sister site, ProfitableInvestingTips.com, wrote recently, why is the stock market ignoring the economy? They note that two factors are important. The first is that the stock market anticipates the economy and the second is that folks are using the prolonged bull market following the 2008 Financial Crisis as their guide. Market Watch also looked at this issue.

Reasons Why Traders Are Buying Stocks Today

Market Watch notes that it is not so crazy that stocks are rising. They agree that the stock market appears to be ignoring the carnage in the US and world economies. However, they offer several reasons why some investors view this as an excellent time to buy stocks or at least buy call options on depressed stocks.

The thing is that the stock market is essentially set up to get you to buy stocks and that “marketing machine” is now is high gear. However, we need to look at where the action is. As Market Watch notes, the majority of the recent market rise was caused by short squeezes as contrarian were caught on the wrong side of the recent partial recovery. That momentum, however, will be short-lived.

While unemployment is up to 25% of the work force, 75% are still working. Many of these folks are working online from home and have jobs that are not immediately affected by the current situation. And, add to that fact that the vast majority of folks who are out of work do not invest in stocks, mostly because they do not have the resources.

The folks who do invest and are still working are seeing contributions to their 401ks which generally go into the market.

The rapidity of the recent market fall has not sunken in for many short term traders and investors.

It may take a while for the severity of the crisis to sink in for many younger investors who are thinking about the bull market that followed the Financial Crisis. Until this happens, many will continue to look for bargains.

And, fund managers are now looking for a way to save their skins after the recent terrible losses. If this works out OK for them, it remains to be seen.

Investors who are looking to profit from a cure for the virus or the early (and profitable) delivery of a vaccine are picking and choosing in hopes of hitting a home run or two.

And, the likes of Amazon, Apple, Microsoft, Intel, Facebook, and even the big oil companies have huge cash reserves as well as markets that may even be helped by the move to home as a workplace.

The Case for Options in This Market

The reasons that we and Market Watch list for why folks are still buying stocks may well be valid. However, we have not seen the end of the pain from this once in a century crisis. The beauty of options trading is always that you can limit your risk while staking out positions which could turn out to be very profitable.

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