For the past few weeks, we have seen a strong rebound in stocks, but at the same time, we have also seen a plunge in Oil, crazy volatility in the USD, and a surge in Gold.
How can we make sense of this crazy market, when it seems like everything is moving in different directions? Does it mean it is risk-on for now, and is the market bottom already in?
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Is the Stock Market Bottom In?
To be honest, no one really knows at this point.
After reading all the different articles, news, opinions and data, it seems the consensus is pretty split on this.
I also did a poll on Telegram, which seems to favour more downside.
So is it possible that we are actually here?
Let’s take a look at the arguments for each side.
- Slowing number of cases and hospitalisations after lockdown measures
- Possible that lockdown will end soon and economy returns to normal
- Unprecedented fiscal and monetary policies to boost economy
- Only certain industries are hit pretty bad, the rest of the economy is still ok
- It is a matter of time before a vaccine is found
- China is already “back to normal” after lifting their lockdown
- Permanent damage to the economy – lost jobs, businesses shut down, loan defaults, etc
- Less future spending – change of habits, less discretionary spending
- Lockdown (full or partial) may last a really long time
- 2nd wave of infections after lockdown is lifted
- Domino effect of economy failure has yet to really kick in
- Fiscal & monetary policy is insufficient to save the economy
How to Swing Trade the Stock Market?
If I had to put a number on it, I would say I am 60% bearish, and 40% bullish.
Based on this opinion (and of course studying the price action), my general strategy is to do short/medium-term bullish swing trades, while at the same time looking for an opportunity to take a long-term bearish trade.
This will allow me to profit from the short/medium-term price rebound, based on the price action, but also not miss out from the potentially bigger long-term move down, should it happen.
Tesla – Very Strong Price Rebound
After the sharp plunge when the stock price was almost hitting $1000, Tesla fell sharply to the $380 to $400 buying zone, which was the area I was planning to accumulate the stock.
It had an amazing rally after that, and as of today’s closing it is up almost 90% from my initial entry price. Congrats to those who took the trade with us!
Crude Oil – Double Whammy Selldown
Crude oil was very unfortunately to suffer a confluence of bad news, including price wars, and a huge decline in demand due to restriction of travel.
As price continues to drift down, we have seen the main exporters try to put together some deals and supply cuts, but the problem is that demand is too low, and even with a decrease in supply, there is still an increasing supply glut.
So unless we see lockdowns being lifted, and the economy going back to normal, we can expect crude oil to continue falling. This will get worse the longer the lockdown lasts.
Gold – The Hedge for USD
After seeing how the Fed (and almost every huge economy) is printing billions and trillions of dollars to save the economy, it is highly possible that we might see a devaluation of the US Dollar in the long-run.
For many traders and investors, they see Gold as a good way to hedge against the decline in value of the USD, which could explain the huge surge in Gold prices.
Thankfully, we managed to start buying in near the lows, and slowly accumulated on the way up.
As I mentioned in the post, I think this is a good medium/long-term trade, so for investors, you might want to add some of this in your investment portfolio as well.
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