Yes, the markets were unpleasant yesterday and although I expected a corrective move, it exceeded my expectations in strength. Yesterday I didn’t even want to write anything, simply because I wanted to see the closing of the day. And now I see him. And here are the thoughts I have about this.
The “Buy out Correction” show continues on the markets.
What I mean? Now all the movement that we have observed, and perhaps will still observe, is due to emotional behavior. Will explain. The fact is that yesterday there were allegedly fears of the delta strain and complications of the situation with the “corona” on the market. But this is all such nonsense that only completely beginners or brachialists could get involved. Yesterday, no one even discussed the oil spill with the fact that the volume of 2 million b / d will return to the market following the results of the OPEC + meeting. Just fear of the crown and that’s it.
Why do I think that despite the correctional plot the show will continue, that is, the growth will continue?
There are a number of reasons for this.
The Fed has long learned how to treat coronavirus. They understood perfectly well that the crown is being treated with new dollars. The new dollars are a good vaccine for the markets. Yes, there are side effects, they should be, for example, in the form of inflation. But we do not see it yet, officially. The rise in commodity prices that we are all seeing has no inflationary cause. Rather, he is the reason for those lockdowns and plant shutdowns and shortages. But there is very little dollar inflation here. Agree that the dollar has not fallen in price by half, as raw materials did. All types of raw materials have grown exponentially. But the dollar didn’t. Therefore, there is no need to believe in the fairy tales that inflation is the cause of everything. The reason is the deficit, albeit a temporary one during lockdowns. This means that in the worst case scenarios, there will be new dollars, which will once again pour into the market.
In the end, look at how profitable these lockdowns were for the same America or Russia, in terms of the growth in the cost of raw materials. It would be difficult to think of a more weighty reason for their height if there was no crown.
Reporting of our companies. Why shouldn’t we be led on such divorces, as we saw yesterday? Because the companies, the shares of which we have, are doing well with the reporting. Do not forget one of the main qualities of the stock market – to be a barometer of the economy in general and of individual enterprises in particular. I apologize for voicing such platitudes, but given those yesterday’s emotions, it would not be superfluous to recall this. So, the companies’ reports are superb, without exaggeration. Now the question? How can you sell a company that has everything in order with the report? There is only one reason, either scary, or the desire to buy off the paper cheaper, that is, trivial fear and greed and all business. But with this tactic, you lose your position. You lose firmness in your legs. You will pay for your fear and greed. Always pay. These are very expensive emotions. Think about those who acted yesterday under their influence.
If everything is really bad in the markets, then raw materials are falling. All types of raw materials without a single exception! This is such a rule. We saw growth yesterday: Steel, coal, lumber, tin, wheat, sugar and much more. This indicates a situation not of a complete collapse, but of some kind of local picture.
The technical picture. For those who trade equipment, it was obvious yesterday that the indices were all going into correction. The RTS index voluntarily approached an important level, which became a technical reason for fixing positions. In addition, it returned to the Dow Jones range and this also meant the start of a corrective movement.
Now the question arises, how long can this correction last? It can be long, for example, 10 weeks. So far, there is very little information that can be operated on. I will not write about the depth of correction, because I myself do not understand to what level it will go. The average correction on the MICEX is 12%, and this is statistics. But let the markets themselves show it to stop.
As for me, I didn’t sell paper yesterday. And even with the development of the correction I will not sell, due to the reasons I have described. In general, I think that the most important thing in trading is not even making money on growth, but not selling on a fall. Even a “fool” will make money on growth, try not to sell on a fall! Here’s a cool challenge for your nerves. And then, if you manage, the market itself will bring profit to your deposit. Good luck to all!
With you was Alexander Perfilov, the author of the telegram channel “Look at the Market” @perfilov_invest.