The carnage continues in China with the market closing after 30 minutes of trading when it reached the 7% trigger point to close the market. That weakness spilled over into the European and US markets this morning, all of which are sharply lower.
One bright spot this morning is the that gold seems to be finding new friends that have pushed it up to its best levels in 2 months.
Why is all of this happening?
It all boils down to market perception. Perception is perhaps the most powerful force in the marketplace and the perception right now, no matter how irrational, is that investors do not want to own stocks. Investors were clamoring to buy Amazon when it was approaching $700 a share, now this morning Amazon is down almost $80 from its recent highs. Did Amazon's business model suddenly change? No, perception changed. Investors do not want to own Amazon right now as they think they can buy it lower.
The other big change, of course, is the fact that the Fed is no longer printing money and using quantitative easing to goose up the market. The fact that easy cheap money is no longer available is a psychological impediment to the market going higher.
If you have been reading this blog for any time now, you know that I have not been enthusiastic about the Dow, the S&P 500 and the NASDAQ. One of the reasons I felt so strongly was the fact that the stock market has been going up for six years and historically that is extremely old in bull market terms. There has only been one other occasion when the stock market extended on a six-year cycle, so the odds certainly favor the market putting in a top. As I mentioned in yesterday's video, markets slide faster than they glide.
The other negative is the psychological fact that Crude Oil is hitting a 12-year low this morning. The conventional wisdom was of course that crude oil was getting less expensive and would put more money in the pockets of consumers who would then spend on the economy. Well, that didn't happen and of course, we now see that lower crude oil prices have had the exact opposite effect on the economy.
The key now as an investor is to keep your powder dry and don't try to catch a falling knife. The important thing is to let the market settle down and readjust.
As investors, we have to practice discipline and remember that we have all year to make money. We don't have to roll the dice and try too hard to make all our money in the first week or two of January.
One last thing, Bed Bath & Beyond Inc. (NASDAQ:BBBY) is scheduled to announce its earnings after the close today. Based on the Trade Triangle technology, I do not expect to see great things from this the brick and mortar business that is getting killed by the likes of Amazon.com Inc. (NASDAQ:AMZN). Bed Bath and Beyond has been in a steady downtrend for all of 2015, and I expect to see disappointing earnings and a potential downside target of around $20 in the future.
Until tomorrow, stay strong, stay focused and stay true to your trading game plan.
Every success with MarketClub,
Adam Hewison
President, INO.com
Co-Creator, MarketClub
As per my personal view, Gold has no concern with China Turmoil, and present trend should must be consider just as Technical Bounce Back, until it cross up side Hurdles like $ 1120, $ 1140 and Finally $ 1176 so as far as any short term trade is concern, we may found some marginal upward movement, but when easy cheap money will no longer available, how can we expect Bull Run in Gold? so Medium and Long Term view is still quite Bearish, and my earlier Lower target of around $ 800 for Gold remains continue.
Very wise words of advice from one of the most experienced traders in the world for one of the potentially most explosive markets in the history of the world. Thank you Adam.
Hi Adam
Thanks very much for your valuable info. I have myself realised that it was wiser to buy gold shares and am holding a fair amount of Harmony shares. My question to you and concern is that if the market turns I could take a significant loss. My further concern is that do you think that theses shares are not over bought. I would appreciate your guidance as to when they be disposed and how. For now I am setting tight stop losses. I also plan to acquire a fair amount of Anglo Gold Shares tomorrow ( 8th Jan) . I am wondering whether I am doing the right thing and whether it is too late for me to get into Anglo Gold. Thank You. Good evening and take care. Regards Sundeep