Disclaimer- I am not a financial advisor or expert so take my post as entertainment purposes only.I have sparingly traded, but watch markets consistently at least on a weekly basis for over a decade. Recently I have been watching it daily. Main reason is the price action has been compressed to the point that a daily change is like a week's pricing. The only difference is this past week the market has continue to drop lower.
A ton of support levels have broken and VIX has expanded upward beyond what we normally see. With such swift drops there will come swift upticks. Issue is the upticks are not holding longer than a trade session. The real way to cleanse this is to basically crash the market. Price discovery in a normal market is key here. Will we get it? Hopefully soon because these swift and agonizing drops will continue if we do not find a stable bottom to build off from.
Central Banks To the Rescue?For many who have watch the rise of the global economy from the last recession in 08/09 the government and central banks around the world had lend support to prop up market assets prices. The main reason of doing so was to save the economy from self destruction. Now in the mist of a likely global pandemic the Central banks are reversing course on trying to aid in supporting market assets. How long will central banks hold off stimulus and effort to combat the recent market turmoil?
What can the FED do to help?
Reality is they should do nothing and let price discovery to work. This will likely result in a USA recession if not depression as assets prices drop while people lose jobs and incomes. The moral will drop and less spending which will feed into a negative cycle. However since the last great recession the FED has been providing sufficient liquidity are very low interest rates to prop market assets. With quantitative easing 1, 2, 3, and current non-QE the supports are there but not enough to hold up asset prices. The FED has cut rates down to 1.5% but it is still high compare to other countries. The opportunity to lower rates is possible. Implementing additional lending to banks will also help market operations. We can only wait and see if the FEDs will execute anything to help the markets.
This whole week has me rethink about my investment plans. Bonds have made a tremendous run up and is still very bullish, however it would not make sense to hold it if equities are getting a big discount. The potential to be a buyer here in the market is also not ideal right now since the markets have yet to bottom. With one day left in the week to trade I would recommend sitting on the side lines to see the outcome and plan ahead. If one is in need of the urge to trade due to FOMO it maybe good to go in small as the markets are very volatile.
Posted via Steemleo