“V” is for volatility- not the shape of the recovery!
I was bemused witnessing the apparent fervour of people to buy shares last week. News of a 3-day, 18 percent rally in US stocks perhaps outmuscled the alternative news of the alarming pace of accumulating tragedy in the US as America overtook Italy and China as the number one centre for Covid-19!
While stocks gave back some of their gains on Friday, the death toll from the pandemic continued to rise. And despite massive and unprecedented worldwide monetary stimuli, it would appear that we are going to have some very tough weeks ahead.
Most macro data for the next month or so will bear little relevance in aiding trading decisions. With many countries feeling the effects of quarantine or lock-down, figures for GDP and employment are going to be relatively unpredictable. Likewise, earnings for Q1 are unlikely to resemble Q2 earnings and a whole load of considerations will need to be factored in before picking suitable stocks as we emerge from this crisis.
So trading becomes somewhat of a lottery; spreads are wider, HFTs distort market moves to both the upside and downside and heightened volatility means that moves are unpredictable. Similarly, for those who use technical indicators, I would imagine that their relevance is being challenged. Some people will make money trading the wild swings that we are experiencing in markets, but the odds I feel are stacked heavily against the majority.
Last Friday, the Bank of Canada became the latest central bank to cut interest rates again and so we have the US at 0-0.25%, Canada, New Zealand and Australia at 0.25%, the UK at 0.1%, the Eurozone at 0%, Japan at negative 0.1% and Switzerland at negative 0.75%. The US dollar appeared to be on the back-foot last week after several weeks of strength. Sterling was perhaps the outperforming currency.
I don’t see an abundance of reasons to be jumping into oil. Other commodities seem to be volatile too.
Let’s see which way the wind blows on Monday, but it’s a time for caution unless you love the thrill of day trading!
Good Luck and Good Trading! Ben Robson
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You Can Too.
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