The Economic Stimulus or Economic Recovery package has been signed into law. The question for many is how soon the economic stimulus will result in an economic recovery. The stock market will try to anticipate the economic recovery. When bits of news, a new law or regulation, or pure rumor pass around there will be flurries of activity as investors try to position themselves for a profit. It will likely be during these times of high trading volume that there will be profits to be made for short term traders.
It will take a year in many cases for employment in US infrastructure work to take place now that the economic stimulus package has been passed. Tax breaks, one time payments into social security and the like will put some money back into the economy sooner but are not likely to bring about economic recovery all by themselves. The coming longer term investment in US infrastructure will create jobs and improve competitiveness which will in turn be more likely to speed economic recovery.
When Will Anticipation of an Economic Recovery Increase Trading Volume?
The question for the short term trader is when the market will start to move with substantial trading volume. Trading programs are more accurate at high volume. Moves can be more substantial at high volume allowing the short term trader to piggy back on the big money as prices swing up and down.
The standard thinking is that half way through a recession the market anticipates an economic recovery and stock prices start to advance. It is likely that this will happen in fits and starts in the current situation as even the President and his advisor are saying that we are in uncharted territory.
Having an appreciation for when the market starts to move will help you make sure you are on line and ready to go. Having your trading plan in place will be essential. If market volume is down it is not a sin to practice simulation trading. When things start to move either in fits and starts or for real the opportunity will arise to jump on the back of the big money and make your profits.
The Economic Recovery, Hard Facts, and Psychology
By in large folks want the economic recovery to work. Market psychology will be to look for some hard facts that will seem to act as predictors of an economic recovery. Looking at the various parts of the economic stimulus package will give you clues of what the big money will be looking for. Individual psychology is the dangerous part at this time. Remember that you do not need to trade when conditions are not right according to your trading plan or the signals from your trading program. Now is the time to take advantage of market psychology and not fall prey to the fear and greed that are the downfall of so many traders.
In short, do your homework, practice your simulation trading, and limit your trades to what fits your trading plan and program. Then be ready for the signals that the market is ready to invest heavily in an anticipated economic recovery.