The Big Short. (Skip this trade at your own risk)
So for sometime at Trading Group 101 we have been discussing and looking to work out the next move in the stock market during COVID-19.
To do this successfully you need to look beyond the initial stock charts of the major indices and view the whole financial world. So with this in mind I am sharing some charts that not many people likely view (or even know exist) to give some insight into our thesis for the next big stock market crash.
In the first chart (DBPK) we are looking at an ETF for shorting the stock market, this is showing us where people are not only withdrawing their money away from the stock market and into a cash position, but they are actively putting money into profit from any downside in the S&P 500. People do this for a variety of reason and not just to profit from a crash, but also to hedge their portfolios against a negative move. Price is at a level 33% lower than the start of the COVID-19 crisis. This does not agree with the real fundamental outlook of the economy where most of Europe is seeing case numbers rise, and leading doctors in the US admit the virus is still not under control there.
The second chart (CRUDI) is an inversely correlated ETF against Crude Oil prices. In any market condition where the virus starts to peak again, we can expect Oil demand to fall and consequently prices to fall. This is where we will see this CRUDI chart rise as it did during the emergence of COVID-19.
The third chart may be more familiar to people (VIX) measures the volatility of the stock market. Our analysis is telling us the VIX will soon start to rise which will be yet another indicator of the upcoming market crash.
To back up this thesis we have to have a fundamental viewpoint - Essentially in so many different industries the 'new normal' isnt profitable. Restaurants with social distancing means they are not full, airlines are the same and this goes for many industries.
If you have some ideas on this please comment below.
To do this successfully you need to look beyond the initial stock charts of the major indices and view the whole financial world. So with this in mind I am sharing some charts that not many people likely view (or even know exist) to give some insight into our thesis for the next big stock market crash.
In the first chart (DBPK) we are looking at an ETF for shorting the stock market, this is showing us where people are not only withdrawing their money away from the stock market and into a cash position, but they are actively putting money into profit from any downside in the S&P 500. People do this for a variety of reason and not just to profit from a crash, but also to hedge their portfolios against a negative move. Price is at a level 33% lower than the start of the COVID-19 crisis. This does not agree with the real fundamental outlook of the economy where most of Europe is seeing case numbers rise, and leading doctors in the US admit the virus is still not under control there.
The second chart (CRUDI) is an inversely correlated ETF against Crude Oil prices. In any market condition where the virus starts to peak again, we can expect Oil demand to fall and consequently prices to fall. This is where we will see this CRUDI chart rise as it did during the emergence of COVID-19.
The third chart may be more familiar to people (VIX) measures the volatility of the stock market. Our analysis is telling us the VIX will soon start to rise which will be yet another indicator of the upcoming market crash.
To back up this thesis we have to have a fundamental viewpoint - Essentially in so many different industries the 'new normal' isnt profitable. Restaurants with social distancing means they are not full, airlines are the same and this goes for many industries.
If you have some ideas on this please comment below.
