Chartists, Hedge funds, Market Timers – all considered average investors; are all in cash, treasury bonds, and gold; thinking it’s 2008 again!

In contrast, we at ETF Trade Advisor are fully invested in equities as of August 22nd.

Bold you might say? Maybe not! Unfortunately financial markets usually do not behave rationally, yet average investors keep trying to deal with the markets in a rational manner.

We saw the opportunity in the fear and emotion of the crowd. We cashed out of the Treasuries when we saw the panicked equity investors rush into US bonds. They cannot bear the idea of sweating another 20% drop from these levels. Yet so far the market just keeps surprising and punishing the amateurs by its rallies.

We are suspecting a much bigger rally in the works. When that happens suddenly everybody is going to regret being in cash and underinvested. There is going to be a huge rush into the market by chartists and momentum traders who will buy heavily since all the moving averages like 50 day and 200 day are crossing. The Hedge fund boys, not wanting to miss the action, will also rush in or risk underperformance with dismal rates of return compared to the market. And when the media start to show a lot of excitement, then we can experience some serious upside moves in the equity markets. That is the time for us to reap the profits and start cashing out and moving into US treasury bonds.

Confirming our thoughts, Insider buying has been very strong for the past two weeks. These are the folks that consistently make money in the market since they are the most knowledgeable executives of publicly traded companies.