Stocks (03.03.20)

in hive-167922 •  3 months ago 

Volatility has continue to rise even after last weeks swift drop, and this is likely to continue moving forward. Hence traders need to stay nimble and limit position size of trade as trend can change in a matter of minutes and move in that trend + or - 3% in a day. Yesterday's biggest points gain in Dow Jones, and today most of it was given back. The Friday's lows are yet to be tested but at current conditions it may likely be tested very soon.

Fed Emergency Rate Cut 0.5

CNBC business news kept talking about the rate cuts that happened today and how it was a positive or negative on the markets. The FED drop rates from 1.5% to 1.0% and at first the market soared, but as trade session continued the indexes fell and closed near its daily lows. This was over a 1,000 point swing for the Dow from session highs to its closing lows. Even the movement down was not a straight line as there were moments the Dow moved 100 points in a matter of minutes. Bottom line is today's emergency rate cut was not like by the overall markets.

US Bond Yields for 10Y below 1%

With the emergency FED rate cut traders and investors piled into TLT. 10Y bonds were below 1% during trading session and closed near 1% for a historic record. For the past century since the creation of US bonds the interest rate has been trending lower. The end result is signs of investors being conservative with their investments and buying more bonds rather than equity. The trend of continued lower interest rates may likely continue as FED is giving investors the impression that more rate cuts can be applied in the near future. If investors are willing to purchase bonds that yield rates lower than 1% it would not bold well for equities.

Coronavirus in US

With more cases confirm in several states and death toll rising in Seattle the outlook for containing the virus in the US is getting slimmer by the day. With no end in sight as to when this virus will be defeated there is a lot of caution towards investing in the markets. Overall not a good sign with such much uncertainty around the virus.

Conclusions

There is a lot of uncertainty in the future of the economy hence the rise in volatility. The volatility has remained for more than a week and may likely to continue as long as there is no resolution to the virus. I would likely stay on the sidelines to avoid the big price swings, but I if I do find opportunities to go long or short I would likely only hold them during trade sessions as there can be mean reversions in after hour trading. Also limit risk by holding smaller positions.

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