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Active Retail Investors Look to Alter Investment Strategies while Trimming Household Budgets
added: 2009-02-06

As concerns over job security and poor investment portfolio performance finally sink in for investors, increased numbers of active investors now say they are adjusting investment strategies and trimming household budgets to combat the current economic conditions, according to a late January survey of 300 equities and options traders conducted by online broker TradeKing.

Twenty-one percent of retail options traders (OT) and 24 percent of retail equities traders (ET) reported that the statement "I’m concerned about losing my job this year" either definitely or might apply to them, up from only 11 percent and 17 percent respectively just last April.

Similarly, a larger percentage of investors indicated they were "switching investment strategies to respond to recent market volatility more effectively" (31 percent of OT, up from 29 percent in April; and 26 percent of ET, up from 21 percent in April).

At the same time, the numbers of those indicating they were "trimming…household budget spending" rose from 20 percent of OT in April to 37 percent, and from 21 percent of ET in April to 35 percent. Interestingly, despite the dip in oil prices, a significant number from both groups still reported "trimming…energy consumption" as well (30 percent of OT, 33 percent of ET).

"There has been such dramatic change in the economic landscape over the past six to nine months, and the investment environment is in such flux right now, investors are now ‘circling the wagons’, tightening their belt where they can and looking for near-term opportunities to enhance their portfolio," said Don Montanaro, CEO of TradeKing. "The survey certainly supports what we are seeing in our clients’ actions on our site – the old ‘buy and hold’ strategy just isn’t a comfortable position anymore for some investors. Some are opting instead to alter that strategy somewhat by buying and selling on the news of the day or trading leveraged and ultra-short ETFs to take advantage of short-term swings to keep cash-positive during this challenging trading climate."

"Bearish" sentiment subsides (somewhat)

While still high, bearish sentiment appears to be subsiding a bit among active traders.

- Thirty-six percent of both options and equities traders describe themselves as either "bearish" or "very bearish":, down from 45 percent (ET) and 49 percent a year ago and 40 percent (ET) and 42 percent (OT) in October. However, the majority of those holding a bearish position said they did not see the market hitting bottom until the latter half of 2009 or beyond.

Domestic issues dominate the field of potential trading triggers

Not surprisingly, the actions of the Obama Administration were seen as the top market trigger for both options and equity traders, followed closely by consumer spending, earnings, U.S. housing market, and unemployment reports.

- Thirty-four percent (OT) and 42 percent (ET) listed the Obama Administration agenda as a top trade trigger, while consumer spending ranking second with 32 percent (OT) and 33 percent (ET). This represents a complete shift in focus from a year ago, when "interest rate changes" and "evidence of general recession" topped both OT and ET’s list of market triggers to watch.

- Among those potential trade triggers of least concern to both groups surveyed this January remained "the U.S. trade deficit" and "U.S. policy on war in Iraq."

The Long and Short Bets

Holding steady from last October, both options and equities traders agreed that the sectors having the greatest potential for success in the next quarter from a long position were energy and healthcare/biotech, with gold/precious metals unseating utilities for a top-three spot among long plays.

- Forty-five percent of total respondents (42 percent OT, 49 percent ET) selected energy as their top long play in the coming quarter, followed by healthcare/biotech at 35 percent (33 percent OT, 39 percent ET) and gold/precious metals at 30 percent (31 percent OT, 29 percent ET).

From a short position, finance, retail and travel/transportation garnered the most votes, while entertainment also received attention as a promising short play.

- In the short position, both options and equities traders ranked finance and retail as their top short plays. Finance received the most votes (29 percent of total respondents) followed by retail (25 percent), transportation (16 percent) and entertainment (15 percent).

Source: Business Wire

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