Jump to content
Sign in to follow this  

Some simple and basic 'Fundamental Analysis'

Recommended Posts

I wanted to share some simple and basic 'Fundamental Analysis' with regards to my 'Long' Gold and Silver trades and 'Short' S&P 500 trade.

The Gold price is continuing to rise as equities around the world are declining. Gold is priced in USD and US Equities are in 'bear market' territory. US Federal Reserve has raised interest rates by 25 base points. There are a lot of 'risks' at the moment in terms of equities declining, Trump's Trade War with specifically China and monetary policy. These conditions are favourable for Gold going forwards. 

For those who may not be familiar let me explain when a market is in 'bear market' territory. It is when a market has declining by 20% or more from its highs. The biggest worry is any 'recessionary impact' that may come going forwards. A lot of people have obtained cheap credit whilst interest rates have been at all time lows. If interest rates begin to increase then if these people have not managed their risk properly then they could be in trouble as their repayments begin to increase. Business are effected by interest rate increases too so as their loan repayments increase their costs increase which could lead to job cuts.

On top of this major technology stocks have entered into a 'Death Cross' recently. Now for those not familiar with what the 'Death Cross' actually means then it is when a share's 50 day moving average goes below its 200 day moving average. This tends to signal a change in trend from upwards to downwards. I think it could take months or at least the first quarter of 2019 for this bear market to try and bottom if not longer. I have a 'feeling' that this is going to be a enormous downtrend and those who do not short such opportunities are going to miss some exceptional opportunities. These are just my personal thoughts based on my 'gut' and 'instincts'. So please do not take this as 100% likely or it is given. I could just as easily be wrong. 

Now in the past on IG Community traders have posted many threads and posts about 'Buy the Dips'. I would absolutely not buy the dips right now on such indices trending strongly downwards. What I would be looking to do is 'Sell The Rips'. This is the opposite of the buy the dips. During any prices rises during a downtrend one adds to their position and adds to their short position. It is being reported that indications are the more declines are likely to be seen in the weeks and months ahead. It seems the major indexes are producing new lows which gives me the impression that the worst is still to come. What makes it difficult for us traders is that volatility is increasing. This is great for day traders and shorter term traders but for anyone who holds long positions it becomes difficult with the risk of stop losses getting executed. 

The dynamics of the current scenario is fascinating. I never thought I would be 'Long' Gold and yet I am. Risk tolerance is declining and along with it the markets are declining. Now one could infer that the price action of Gold is making it look like a potential safe haven for investors. There is the potential of a weaker dollar which could lead to higher Gold prices. I have openly stated I am not a fan of Gold. However, I saw an opportunity to get in early on what seems to be a trending upwards movement based on price action.

We have the US Government shutdown which seems to be becoming a regular occurrence. For me this creates uncertainty in the market which is going to bad for stock markets and positive for the likes of Gold. When one adds the US Monetary Policy into the mix then one can see why things are unravelling the way they are. 

  • Like 1
  • Great! 2

Share this post


Link to post

Continuing with the fundamental analysis with the US in particular I would like to add that the US dollar has ended 2018 as one of the stronger currencies. It is after all the world's reserve currency. 

Now there is an expectation that the low interest rate period is behind us. One of the biggest issues is the US's national debt which is simply unsustainable on any level. This could rear its ugly head in 2019 and presents a major risk from a fundamental perspective on the markets. 

I shall be keeping a close eye on Bonds and Gilts in 2019 and see the price behaviour of those assets which may well help to give an indication of future price performance on equities. 

Share this post


Link to post

As the country awaits the voting on the Brexit deal it will be rather interesting to see how the FTSE 100 and other UK indices behave as well as the safe haven 'Gold' in tomorrow's session and the overnight session throughout the night. 

 

 

Share this post


Link to post

Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  

  • Member Statistics

    • Total Topics
      6,068
    • Total Posts
      26,617
    • Total Members
      33,736
    Newest Member
    nigelbradley
    Joined 20/01/19 19:39
  • Our picks

    • What's wrong with predictions?
      Join the IG conversation on Community. "There's lots of talk about 'the smart money' banks, institutions, pension funds and the like but not much about the others side of the coin, 'the dumb money', why is that - it's because they just aren't influential to the market. The collective size of the dumb money is dwarfed by the big money to the point of being irrelevant."
        • Great!
        • Like
      • 3 replies
×