Tips for traders, 19 May 2020
With economies in more and more regions around the world reopening in the last two weeks, the wheels seem to roll again. They’re slower than before but at least they’re not idle.
This condition gives traders some hopes and expectations that there will be improvement in the upcoming months, with better performance of corporates than last quarter. There is also demand for stocks, so prices have appreciated in recent weeks. The volatility index of the S&P 500 (the VIX) has also dropped to its lowest level since March 2020. It is even approaching its normal level between 10 and 24, dropping from readings in the 80s.
The price of crude oil has also recovered from its lowest point since last April and has been at its highest since mid-March 2020. The demand after economies reopen is real; inventory in the USA has been dropping more and more since its economy reopened a couple of weeks ago.
On the other hand, the price of gold seems to be stagnant in its range around $1,680-1,740/troy ounce. Lower demand due to hopes of economic recovery has led to stagnation for the price of gold. In the meantime, more and more investors seem to be confused by the economic condition that does not suggest either expansion or contraction.
Currently, it is probably best to stay with short-term positions while having all eyes on the data and all ears on the rumours. By doing so, traders can have a stronger foothold in deciding to hold or close a position. Short-term volatility will remain wild if uncertainty rises. Capitalising on such conditions with short-term trades and maintaining low risk on all positions is probably a good approach for many traders.