Life is about risk and reward; potential cost versus possible reward. Such is the basis of the entire lottery system, not to mention the appeal of call options to neophyte investors. Determining the risk-reward ratio is why we trader types spend so much time talking about market expectations and sentiment. Today the only real question for traders is: Just how bearish is the Street?
If everyone is expecting bad news, then bad news won't drive stocks lower. The bear market is here, regardless of whether or not it becomes official by definition --a 20% decline from recent peak. The next opportunity isn't likely to be on the short side but rather finding a long entry point as the global recession gets priced into the tape.
At least that's how I see it. To help give me insight on the thoughts of the rest of the investing world, specifically institutional money, Breakout welcomed Adam Parker, chief U.S. equity strategist at Morgan Stanley. Parker says the risk-reward setup still isn't right for bets on the long side.
"The reward for beating estimates during earnings season is going to be a lot smaller than the penalty for missing," he says. In other words, Parker thinks bad news still has the capacity to surprise Wall Street and send stocks lower.Read More »from Can U.S. Equities Avoid a Bear Market?