Stocks and Oil Tank, Safe Haven Currencies Rally Further
The S&P eminis are currently limit down at -5%. That is likely going to expand once the main trading session begins.
I see no reason to buy stocks right now, for swing trading or investment. Once there is a turn higher there will be plenty of opportunity and time to buy.
As of Friday, March 6, less than 14% of NYSE stocks were above their 50-day moving average. We also have a dropping Advance-Decline line. Swing trading conditions are more favorable when more than 50% of stocks are above the 50-day and the AD line is making higher swing highs and lows. Those conditions will further deteriorate as the S&P 500 looks to make a new swing low on March 9, set to open below 2,850.
For investors that want to buy on the way down, I would say “nibble” instead of taking larger positions. We don’t know how far stocks will drop, so it is best to keep our ammo (cash) for when the market gives us some positive signs. Not only will this still provide a good entry point, but it saves a lot of stress. If I buy now, I may have to hold that position through a continued decline, with no idea when the price will recover. We can’t know where the bottom will be, or how long it will take to recover, so it’s better to buy on the way back up, instead of on the way down. There is a lot of panic out there right now, which means big opportunities for those that are patient.
Oil Tanks More Than 20%
The other big story this morning is oil gapping down 20%. This follows a 10% drop on Friday.
Oil traded as low as $27.34 overnight and is currently near $32 as I write this. It closed at $41.28 on Friday.
This is going to hurt a lot of US and Canadian oil companies, and companies that are reliant on them. It is likely that we will start to see bankruptcies in the sector over the coming months if the price doesn’t rebound soon.
With the selloff today having just occurred, I have no idea where the bottom will be. Once we get a bit more price action there may be some opportunities for swing trades, but right now I am leaving it alone.
I have no swing trading positions in stocks or oil (or other assets), but I am heavily trading currencies.
The safe-haven currencies—JPY, CHF, and EUR—have been the ones to focus on.
Oil was already slipping so I have been aggressively trading CADJPY.
CAD is hurt by the declining oil price and JPY is a safe haven and also benefits from lower oil prices. That pair declined more than 5% on Sunday night at one point, before rebounding slightly.
The chart below shows CADJPY (right scale) and oil (left scale, purple line).
I don’t trade based on instinct, I trade based on my strategies, but there still could be further for this pair to fall. If oil stays at these levels, that will really hurt the Canadian economy. That said, short-term bounces are possible and/or oil could rebound. This is a pair I will continue to aggressively trade. I am short currently, but that can change rapidly as there is a lot of movement.
The CAD is also getting hammered against the USD. USD/CAD has been surging lately.
USD has been falling against the EUR, GBP, JPY and CHF.
The EURUSD I have also been trading aggressively lately, capturing these big rallies to the upside. I don’t know how long the rally will last, but I want to capitalize while there is lots of volatility and strong trends.
Trading in this environment is not without its perils. Slippage can be an issue. There were some flash crashes in the AUDUSD and NZDUSD on Sunday night, which then affected most of the other pairs involving these currencies.
The following is a 1-minute chart of the NZDUSD, moving over 5% in a matter of minutes. If on the wrong side, stop losses could have been filled at horrible prices, or orders triggered only to see the price viciously reverse. Utilize stop losses, and prefer tight ones over giving the price too much room (right now, that room will be taken).
There are so many opportunities out there right now in currencies. Nearly every pair is having big moves. Pick a few and trade them well, giving them your focus. There is no need to be in everything.
It is important to stay focused and give your trades attention. In times like these, things can change drastically in a minute.
Summing it Up
I am avoiding the long side in stocks as I see no signs of strength. I am also avoiding buying other assets, like oil and gold. I tracked what I thought would be a good opportunity for buying gold stocks, but it just never came to full fruition. Gold should be up a lot more today with the chaos out there, and yet it just doesn’t move up much. That is a big warning sign…and silver is tanking. Another big warning sign. But that is a topic for another day.
I am focusing on currencies right now, as there are incredible opportunities.