It’s A Mad, Mad, Mad World

I have been an active trader and was licensed as a commodity broker in 1984, which means that I was present for the equities meltdown and crash of 1987. I was also in the industry in 2008 when the U.S. stock market crashed following the banking crisis which resulted in a multiyear recession. Having said that, this week’s meltdown in equities contained extremely wild price swings, the most volatile price swings I have ever witnessed.

Last Friday, investors moved the market sharply lower to break below 26,000 on the Dow, losing roughly 500 points. However, that drop was dwarfed by this Monday’s trading activity which contained over a 1,400-point range and resulted in a 1,000 point drop in the Dow Jones Industrial Average.

Tuesday’s trading activity resulted in sharply higher pricing with the Dow moving back above 24,800, gaining roughly 800 points on the day. On Wednesday, the market attempted to find some stability, closing in essence unchanged. Then on Thursday returned into its downward spiral once again to give up about a thousand points.

Today’s activity was just as volatile with the Dow trading down about 500 points at its lows only to close 330 points higher at 24,190.

To give you an idea of the pace and magnitude of this week’s market crash, according to Ryan Detrick of LPL Research, “the S&P 500’s move from all-time high to correction was the fastest on record”.

It was no real surprise that a week ago Friday gold prices suffered a $16 drawdown as traders and investors liquidated assets to cover losses due to their equity positions.

What was surprising, however, is that as this week progressed, and given the uncertainty present in the markets, gold pricing did not recover and continued to trade under pressure throughout the remainder of the week. It was clear that the safe-haven aspect of gold was not present this week.

Yesterday’s trading activity resulted in gold futures moving to the weekly low of approximately $1309, just above its 50-day moving average. This intraday low also represented a price move to the 50% retracement of the most recent rally which resulted in a $120 gain.

Today, gold closed nominally lower and is currently trading at $1,318, which is a decline of a $1.00. It seems clear that if gold can hold above its 50-day moving average, it will have survived this week’s extremely volatile markets and could, in fact, move to higher ground from this price point.

This week investors and traders truly experienced a mad, mad, mad world.

Wishing you as always, good trading,