Are the days of ‘buy the dip’ a thing of the past? Certainly that has been the mantra for months, the frustration of those who had been expecting a bigger dip to re-engage. But has the character of the market changed, or is it changing before our very eyes? Remains to be seen but certainly the increasing volatility and fear is a change from what have seen over the previous months. A trader loves volatility – chance to make trades on both sides of the market with less predictability in prices – but keep your timeframe short and leash very tight.
A Crazy Week
This was one of the wackiest weeks we have seen in awhile. Three days the Dow moved over 100 points. You would have to go back to last June just following the ‘flash crash’ to find that kind of action. We got used to that sort of stuff back in 2008 and even in 2009. If you can stomach the wild swings and be ready to move on quick shifting trends then you are positioned to do well. We can point to ONE main culprit that is causing such volatility – oil. I believe the fear is real, but when we see panic there is exploitation and opportunity. There just doesn’t seem to be a supply problem – demand is not increasing (much) so we have speculators making strides. Those getting long oil NOW will feel the pain eventually – commodities can rise parabolically but will not be able to sustain lofty levels. In other words, gravity will take hold. Looking at precious metals we saw silver breaking out significantly higher. I mentioned more than once that $40 was a good target price for the metal this year (currently near 36). Gold made a new all-time high this week and technically is poised for a move higher. These are moving based on the rising fear in the Middle East and the uncertainty over the emotional response. How it all ends? I have no idea nor do I know when, but suffice to say drops in the market due to exogenous events have been some of the best buying opportunities in history. At this point, we need to pay attention to our charts, watch volume levels (which have been elevated recently on the selling days) and play it smart – just in case.
Charts of Oil and Silver
Below are charts and notes of crude and silver. These two commodities have made monster moves over the last few weeks. Oil has gone short term parabolic while silver is in a massive long term uptrend. One of these will fade hard (oil), the other will correct and resume a path destined for higher prices (silver). Much of this move is based on fear – war, commodity constraints, etc. Most worried investors/traders choose to ‘shoot first, ask questions later’. But after such a long streak of low volatility perhaps HIGHER volatility is making a comeback!
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