Stock Market Panic = Commodity Opportunity?
Stock Market Panic!
Wow…
The past few days have been rather intense.
As I’m sure you’re aware, the Dow Jones Industrial Average (DJIA) succumbed to a gut churning 530 point selloff last Friday. Meanwhile, the S&P 500 gave up 64 points as investors jettisoned stocks left, right, and center.
But Friday’s downturn was just an appetizer before market bears feasted on Monday…
The DJIA plummeted just over 1,000 points on the open yesterday, while the S&P 500 essentially crashed 100 handles lower.
What the heck happened?
Market officials will likely deny it, but Monday’s downturn had all the signs of a “flash crash”- you know, just like the one we saw in 2010.
Regardless of the cause, the abrupt losses of the past few days have the DJIA down over 10% from the recent May highs, which officially puts it into correction territory. Not surprisingly, the S&P 500 is now off just under 10% from its recent highs as well.
I get the feeling this big bearish move for stocks has taken many investors by surprise.
Of course, if you saw this chart from a few weeks ago, you knew something big was about to happen in stocks.
Here’s another look at that same chart…
Keep in mind, this is the same chart I presented a few weeks ago- only updated with the most recent price action and adjusted to a slightly longer time frame.
As you can see, when I said “something big is brewing in stocks” in early August, I wasn’t kidding around!
Where do stocks go from here?
First of all, you’ll notice the S&P 500 sliced through important support at 2,000 like a hot knife through butter on Friday. Making matters worse, this essential index blew through 1,970 (another area of strong technical support) like child’s play on Monday morning.
That’s bad news if you’re a stock bull…
Given the severity and abruptness of this downturn, it’s going to be awhile until investors regain their composure. As a result, there’s a good chance the S&P 500 trades to the 1,825 area (green horizontal line) in coming weeks.
Here’s a quick tip…
In my decade and a half of real world trading experience, one of the most important lessons I’ve learned is to never underestimate the damage a quickly falling market can do to your portfolio.
If the markets aren’t acting like you think they should, go to cash and reassess the situation.
What’s more, don’t try picking a bottom in a highly volatile, fearful market environment.
Stocks can, and many times will, fall much farther than you can imagine!
Now, let’s get to the good stuff…
What’s this stock market panic mean for commodities?
As I suggested on August 13th, a big downdraft in the equity markets would likely exacerbate the selling in energy markets.
Believe it or not, the price of West Texas Intermediate (WTI) is falling into the upper $30 a barrel range.
As long as this fearful sentiment towards stocks sticks around, there’s likely more pain ahead for the price of crude, as well as the companies producing it.
However…
Sentiment towards gold has drastically improved the past few days. In fact, the yellow metal has rallied $70 an ounce since early August. However, most of those gains have come in the past three trading sessions- just as stocks nose-dived.
Remember, gold is typically seen as a flight to quality asset in times of equity market panic. Given the bearish S&P 500 target I mentioned above, gold may have another $50 an ounce of upside ahead of it.
Bottom line…
With stocks in freefall, you may want to look to bullish gold ETFs for commodity market gains.
On the other hand, you’ll just have to steer clear of crude oil, as it looks poised for a run into the mid- $30 a barrel range.
Of course, you could always profit from further oil downside with the bearish ETFs mentioned here.
No matter what you’re trading, it’s essential you have a plan. And most importantly, cut losses quickly if the market goes against your position.
In wild times like these, preservation of capital is your number one goal!
Until Next Time,
Justin Bennett
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.
Category: Commodity Trading
