As we continue to see the effects of the Coronavirus on the markets, I want to take a look at four markets in particular…
Four markets that are most definitely on my watchlist, Gang.
These markets really should be on everyone’s watchlist right now. Even if you aren’t necessarily trading them, you should know how they’re altering the flow of everything else.
The four markets are…
STEP ONE: Bonds
Bonds, Gold, the Japanese Yen, and the US Dollar.
These four are not only markets that I day trade but also that I look at for longer term positions. Conveniently, they are also the markets that tell us when most of the panic will finally subside.
To start let’s revisit the selloff we saw in Bonds at the end of last week. A ton of traders were asking me, “Well Ragh, isn’t this a crash?” And while you could consider it a crash, you should also look at it from the reverse — it could also be considered a melt up.
Both the candles are identical on the chart (for reference I’m talking about the candles I’m shown with my proprietary indicator).
And this generally tells us what?
That this was an overreaction.
So going forward you need to measure the move… be just as skeptical of moves up and moves down, Gang. Remember: we don’t want to let the bias of our position affect our decision (cue my favorite sticky note on my desk, here).
Keeping that in mind, at the end of last week I was looking to buy Bonds…
Particularly TLT calls at the money.
STEP TWO: Gold
Now did this outflow in Bonds effect Gold?
Well, let’s check it out, Gang.
Given that Gold moves in tandem with the equity markets — when they go up, Gold goes up. (I can explain more on “why” that happens in another letter.) However, even though Gold is moving upward, my analysis is that Gold is still a bit farther out for a buy.
So keep your eye on that one.
STEP THREE: Forex — Japanese Yen and US Dollar
Now onto Forex as we wrap up Gold (being a different kind of currency)…
The most important thing I want to pass along is I won’t be getting long the US Dollar against the Japanese Yen. What you want to do with your trading is at the end of the day… you’re decision. But this is mine, Gang.
First off, there are just better alternatives out there. I’ll get into those in a minute.
Second, those are TWO strong currencies going against each other. It doesn’t work like that. They can’t be on an equal playing field, otherwise one won’t come out on top. This is a basic principle of Forex, Gang. Buying and selling the strong against the weak.
Here’s some alternatives to look at…
- Buy Yen against Australian Dollar
- Buy Yen against New Zealand Dollar
- Buy US Dollar against Australian Dollar
- Buy US Dollar against New Zealand Dollar
Now physically speaking you CAN buy the Yen against the Dollar… it’s not the fact that two strong currencies can’t physically be traded against each other. But that’s not what you should do if you want to take advantage of a strong trend in the Forex market.
As we continue to see the repercussions of this several trillion dollar bailout, things in the market will continue to shift.
So keep an eye on these four markets in particular as they can help shed some light on market sentiment and when the panic will subside. We’ve seen a little bit of that already, as we’ve experienced some upward movement here and there…
But my analysis tells me we haven’t seen the real bottom yet, Gang.