Reasons to be Fearful – Parts 1, 2, 3.

Justin Freeman

forex news

An interestingly hesitant start to the trading week has prompted a rapid reassessment of where markets may be heading next. Stocks on Wall Street reached new highs last week, but on the back of disappointing news out of Asia, the US and European stock futures are underwater, and the Japan Nikkei is down more than two per cent.

The “record highs” news story has been running for weeks, so the obvious question is whether this is a dip to buy or a sign that the wheels are (finally) coming off.

Instrument 9th Aug 16th Aug Hourly Daily % Change
GBP/USD 1.3881 1.3848 Strong Sell Strong Sell -0.24%
EUR/USD 1.1763 1.1787 Neutral Sell 0.20%
FTSE 100 7,100 7,162 Strong Buy Strong Buy 0.87%
S&P 500 4,424 4,453 Strong Buy Strong Buy 0.66%
Gold 1,745 1,773 Sell Neutral 1.60%
Silver 2,396 2,354 Strong Sell Strong Sell -1.75%
Crude Oil WTI 66.44 67.03 Strong Sell Strong Sell 0.89%
Bitcoin 43,270 47,340 Buy Buy 9.41%

Source: Forex Traders Technical Analysis

The spoiler alert is that the former option remains most likely, at least in the short term. On a week-on-week basis, all major equity indices remain in positive territory despite Monday morning’s pullback. The FTSE 100 is up by almost one per cent and continues to attract attention from international investors trading off it because it is lagging behind its peer group. Oil, gold, and bitcoin are all up as well. The technical indicators and price action acting as a reminder of the need to look beyond the headlines.

Is Now the Time to Buy Stocks?

August markets are notoriously docile and characterised by lower trading volumes and fewer determined shifts in direction. Even the ‘rainmakers’ need a break some time. The Covid pandemic turned everything upside down, and other seasonal patterns such as “Sell in May” have not been as effective or reliable due to the underlying fundamental realignment.

Trading patterns over the summer holidays suggests this one historical pattern has come into play, which might not be too surprising given the pandemic started 18 months ago. The good news that ‘normality’ has returned to the markets suggests Monday’s sell-off is temporary. The not so good news is that the pick-up in trading volumes in September and October is associated with another trend.

US500 Chart 160821

Source: IG

One research tool to try is Googling “Why do markets crash in …” and find that the search engines algorithms predict “…October” to be the word you’re looking for. The “October Effect” has been the scourge of investors for more than 100 years. The Bank Panic of 1907, the Stock Market Crash of 1929, and Black Monday 1987 all happened during October. Things change, and old rules start not to apply, but the follow-up punch is that historically speaking, September has had more down months than October, just not the major crashes associated with the later month.

Medium and long-term investors could face a situation where it is too late to buy and too early to sell.

 

If you want to know more about this topic, please contact us at [email protected]

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.

Justin Freeman
Between 74-89% of CFD traders lose Between 74-89 % of retail investor accounts lose money when trading CFDs
  • Low trading costs
  • Great market flow
  • Research and analysis which helps spot trades
  • Wide range of Copy and Social Trading options
  • Limited range of non-forex markets
Your capital is at risk Europe* CFDs ar...
  • Multi-asset broker offering a wide variety of markets
  • Strong regulatory framework
  • Innovative risk management tools
  • Choice of market-leading platforms
  • Wide spreads on some markets
  • Expiry date on Demo Accounts
eToro Logo77% of CFD traders lose 77 % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
  • Social and Copy Trading Platform
  • Beginner Friendly
  • Risk-free Demo Account
  • Top-tier regulation
  • Limited means of raising queries
  • Withdrawal process isn’t really ‘client-focused’
Blackbull LogoYour capital is at risk
  • User-friendly platform with great trade-analysis tools
  • Leverage Up To 1:500
  • Spreads as low as 0.00 pips
  • Quality trade execution thanks to high-spec IT infrastructure
  • $0 minimum account opening balance
  • 26,000 tradeable instruments
  • Not available in all jurisdictions
  • Regulatory infrastructure
XM LogoYour capital is at risk
  • Low minimum deposit
  • Super- tight bid-offer spreads
  • Impressive trading platforms
  • Tier-1 regulators
  • Difficult to contact tech support
  • No Crypto