Being fairly new to the markets I would like to see if I have a correct understanding of some things. Is it correct that stocks and bonds are basically long the market? I understand that you can borrow stocks and short them but the huge majority of them are owned for the longer term. Bonds too are owned and held for the longer term. Futures on the other hand are equally devided long and short at any given moment. So overall the huge majority of holdings are long and suffer when their market goes down. Is this correct? So even in a bear market the majority of ownership is long which means that most of the markets swings are due to speculators as the owners only want their market to go up. So basically the minority causes the fluctuations in the markets.
(1) The answer to your two questions is "yes". (2) With futures and options trading, each dollar earned by the "longs" is a dollar lost by the "shorts". (3) I believe larger price swings are caused by longer-term traders/investors, not short-term speculators. Speculators can have some influence in the short-term but not beyond that. (4) A "minority" can't move the market too much. Only when people accumulate into being a majority can huge moves take place where long and short-term people are all trying to do the same thing at the same time.
To the original poster - two elements for you to consider as well would be fear and greed. For example, 2-3 months ago the Canadian & US markets were largely driven by greed, due to a longish, steady increase in the market indexes. I would say that fear is now somewhat more dominant, due to the recent declines in the market.
================ Think you got it mostly right; and NazzdaQQQ explained it clearly. Woundedknee; While , your last sentence certainly can be true in illiquid markets, but here is my read on a bear [ in liquid]markets. Average sell volume generally trends up , price persistandly trends down. Bear rallys are also generally much sharper,steeper than bull market uptrends also. So, in a bear market, funds,& many mutual funds are selling,selling selling; many others do sell, when wounded enough, wounded knee Also DIA,SPY,QQQQ are stock related; but are traded more perhaps like derivatives,long/short more.
the minority cause fluctuations in "quiet" markets e.g. July 2006 to Feb 2007. i.e. people keep buying at regular intervals and so market goes up in almost uniform, up, then pause (pullback), then up, then pause etc. but when there is panic/fear, the majority cause market movement as they stampede for the exits i.e. many want out hence huge volume as on Feb 27 or mar 13. But just one more thing, it is erroneous to think that stock holders are mostly long. Why? Because each and every trade (without exception) has a buyer and seller. It may be a market maker or whatever, so when one person is long, another is short etc. Doesn't matter stock, options, futures etc. Only difference is options and futures are "created" as we go along, whereas stocks are finite i.e. issued. Hope I am not too verbose and confusing http://lauristonletter.blogspot.com/