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Hi Everyone,
Welcome to the second half of 2020. If this next six months is anything like the last six, then we're certainly in for a wild ride.
However, something tells me that it will not. In fact, already during the last month or so, we've seen a great stabilization in the markets, and looking at the charts we can see some rather clear trends, the kind we haven't seen in a very long time.
Additionally, now that the misinformation stage of coronavirus is behind us and the trajectory, remedies, and restrictions are understood by all, it's super unlikely that we'll get any kind of major surprises going forward.
Despite what the memesters might be joking about, or perhaps because of it, the markets are fully braced for almost anything that this foul year might throw at us.
True, second quarter earnings season is now just two weeks away and many companies are likely to report record-breaking losses, but investors seem ready to write off 2020 entirely, forgive and forget the lockdown losses and award valuations based on what companies will likely be worth two years from now.
With the ample stimulus protections in place from global governments and central banks, the wave of bankruptcies and mortgage delinquencies could very well be postponed for several months and so at the moment, they seem out of sight and out of mind.
That doesn't mean there won't be volatility and surprises on the way, because there always are, but at least for the moment, it seems like we've got some clear skies and beautiful trends to trade on.
Please remember the age-old disclaimer that when it comes to the charts, past performance is not an indication of future results, and everything is subject to change at any time, now more than ever. |
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The Trends
Many analysts are now talking, not about a downturn in stocks, but about upcoming volatility. I think with all the "stocks only go up" proponents and those who feel that free money can continue indefinitely, it's almost become sacrilegious for analysts to say prices will come down, or even pull back from their highs. But the word volatility hasn't be cancelled just yet.
Despite the volatility, stocks haven't really moved much in since May. Well, the overall stock market hasn't moved much. It's kind of like how quicksand appears calm on the surface, but underneath, it is very much in motion.
Quicksand is actually not a bad metaphor for the stock market, as its fluctuations are often the result of excess liquidity that causes instability. It also goes well with the calamitous theme of 2020.
In any case, stock pickers are constantly readjusting their portfolio in a desperate attempt to figure out what stocks are good to hold right now and which are not. The indices, however, are showing little movement on the surface.
Take a look at the S&P 500 here. Each candle is one day. Since breaking above 3,000 points (approximately the 200-day average (blue)) there hasn't been very much movement at all. |
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One of the clear winners of the current times is gold. With interest rates on the floor, bond markets and fixed income look a lot less attractive, and so many turn to gold, not only as a safe haven but as a hedging mechanism.
Personally, I've been waiting for a major pullback before going in more heavily because FOMOing in at the top is rarely a sound strategy.
Still, the price target of $1,520 is looking less and less likely, as the the metal forges higher into under-charted territory and the all-time high (yellow line) is well in sight.
At this point, I'd be glad to see anything around the 200-day moving average for a large position. I'm hoping I get that lucky but at the very least, I'd be quite surprised if we don't get a major retrace ahead of the new ATH. |
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Though I don't frequently trade copper, I did have a look this morning, and the trajectory seems very similar. Silver, on the other hand, has been rising lately, but it is now coming up on some very heavy resistance around $18.50 per ounce.
The currency markets are also quite interesting at the moment. Major pairs like the euro, yen, and the British pound are ranging at the moment, so clever forex scalpers should be able to pick out a few good entry and exit points. The emerging-markets currencies, however, are trending hard right now. |
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Alt Rotations
Similar to the stock markets and currencies, crypto is showing some undeniable patterns right now. Bitcoin is pretty much flat at the moment, and it's still unclear if it's headed toward support around the 200-day moving average or if it's gonna look for a fresh breakout above $10,000. |
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What's interesting right now are the altcoins and the rotations in the lower markets. It seems that crypto traders, like their stock picking counterparts, are getting very selective at this time.
Even when the markets are down, it's generally clear by looking at the charts which coins are trending lower and which are managing to build support. Here we can see two examples of that.
On the left is litecoin, which hasn't been doing very well, and the slow and dangerous decline resembles a slippery slope. On the right is zcash. Even though it has fallen, the decline can be seen as movement within a range in a rising trend. |
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If in doubt, use the 200-day moving average as an indicator of strength right now. If the asset is trading above that line it gives it strength, whereas the weaker assets will likely be lagging below.
Many thanks for reading. Please feel free to share this message with anyone and everyone who might appreciate it.
Have a wonderful day ahead!
Best regards, |
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Mati Greenspan Analysis, Advisory, Money Management |
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