While many are decrying the end of days for the markets, Fred Razak, Chief Trading Strategist at CMTrading, is a little more circumspect. He looks at the markets around the world and makes predictions for the coming months.
Why are the markets so volatile at the moment?
“To look at where we’re at, we have to take perspective on how we got here, the markets have overcome many obstacles the past few years and still just coming of our all-time highs. We were trading on the Dow Jones at 36 600. We have had a period of terrific expansion the Trump administration and then an extension to that rally into the Biden Administration in midst of a world pandemic. It was during the pandemic despite the change in power, which governments around the world to eased monetary policies to stimulate their economies. This was then backed up by factors we did not foresee, which was supply chain issues and the rising price of oil, and this has led to global inflation that we haven’t seen in 30 years.”
Traders love volatility
“Traders love volatility, simply because the larger the volatility, the larger the moves are going up and down. This is similar to a surfer riding the waves. Things that are trading in a $100 range offer far more potential than things trading in a $10 range. The past volatility has done an odd thing though; there currently seems to be a lot of fear out there from traders that they are going to miss out on one of the biggest opportunities in a century.”
“This bear market is quite different to some of the previous ones we have had, because it’s not following traditional patterns. Usually, we go into a bear market and then after some time, it’s over, there’s a moment of consolidation, lull if you will. Here, however, we have a bear market that seems to have stalled. Most people, therefore, aren’t sure where we are going, and this uncertainty is going to impact what happens moving forward.”
So where are we going?
“The ‘fear factor’ is still around, which means I expect there to be continued market uncertainty. With pockets of sell offs and short squeeze covering. The markets are digesting conflicting news and unusual position, which is a good recipe for ranging markets. We see this phenomenon already reflecting in the markets. Yes, we are off of our highs, but we are also comfortably off our lows and I think this range is going to continue.”
“Unless there is some additional social, economic, or political instability that comes about I predict we will be trading in a range of 2000, maybe even 1500 points for the foreseeable future. Essentially, we aren’t at expansion yet, but we also aren’t as bad as many seem to think we are. At least at this stage”.