- We broke the 3% down threshold — uh-oh…
- Gold’s relative strength is shining.
- Divergence plays developing in energy?
First things first: Is everybody OK? That got ugly, fast.
If you aren’t OK, please, read on. This is for you.
I don’t have all the answers. In fact, nobody knows anything.
I don’t know what’s going to happen tomorrow, next week, next month, or even later today.
I have no idea what the price of anything is going to be in the future.
And I’m OK with saying that because no one else does either, regardless of how enthusiastic they are about their “calls.”
I believe in price, the bond market, and puppies.
It took a lot of hard lessons to know how to be positioned for something like Trump Thursday.
And I’m happy to be able to share with you what I’ve learned.
Pure Gold
Equity index futures pointed to a 3% gap-down on the opening bell at the New York Stock Exchange.
The S&P 500 had gone 639 consecutive trading days without a 3% decline.
But 3% down-days happen a lot.
It’s when they stretch out to 4%, 5%, and 6% down-days that things start to get interesting.
Trump Thursday is one of those days. The Dow was down 4%, the S&P 5%, the Nasdaq 6%.
When it gets like that a lot of people just sell. Some people still have profits to lock in, others are just scared.
The overexposed are forced to sell.
The Energy Select SPDR Fund (XLE), the No. 1 sector ETF for the first quarter, took a double hit: some profit-taking plus an OPEC production increase.
That’s what we call “volatility on volatility,” which means more potential for overreaction.
We still like the long-term trend for energy. And we’re taking a close look at potential bounce-back opportunities in this space.
When we can identify a meaningful pattern and a clear signal, we’ll make a trade. Short term, long term: What matters always is risk vs reward.
But I’m excited about what we can do here along multiple time frames.
Same goes for Gold.
Talk about relative strength: The VanEck Gold Miners ETF (GDX) was down 0.09% at the closing bell.
The big word on the Street is that outflows from the U.S. will weigh on the dollar for months… maybe years and decades.
That’s good for Gold, Gold miners, and Gold ETFs.
It’s good for you and me, too, when we have our positioning right.
What Just Happened
The market goes through periods of volatility. We’ve seen it before. And we’ll see it again.
Five years ago it was the COVID-19 panic.
I’d been through a few of these things before that. So I’d already learned a few good lessons.
And I was able to learn some more and come out of it that wreck an even better investor.
This volatility is different from the volatility in 2008… and 2011… and 2015… and 2018… and 2020.
There are always new lessons to be learned. There are always new patterns and signals coming and going.
That’s what creative destruction is. Supply and demand. Capitalism. Uncertainty. All stuff that makes people crazy.
And we’re already looking for meaningful patterns and clear signals so we can profit right now too.
Notice how you’re behaving right now. It’s important that we understand how we react under these kinds of circumstances.
We do that and we’ll be better traders the next time around – you and me both.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs