Trading with Focus – Mad Max: the rise of Immortan Don?
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Volatility, fear and greed. The Trump playbook could be in its final act. Or not.
I loved Fury Road. Everything about it was a masterpiece. Light on the dialogue, heavy on the action. Crazy cars fanging it around the desert, pet thyroid cancers, even Elvis Presley’s grand-daughter and Lenny Kravitz’s daughter and Jason Statham’s girlfriend and their model friends were looking pretty neat.
For a post-apocalyptic world it didn’t seem to be written that far into the future. There was still petrol – and it doesn’t stay fresh that long. There were still tyres all of all kinds, and they weren’t really looking after them. There were still audio speakers and amps big enough to power them; that one’s a head scratcher. But, (I guess not that surprisingly) a Donald Trump-type was still in charge and hoarding all the water and using it to control his people.
And it took more than a global pandemic to unseat him. There appeared to have been global destruction. A breakdown of society. Global warming looks to have kicked off. I’ll bet the sharemarket was terrible!
But a one-armed feminist truck driver stole his milk-truck and his sister-wives and drove off into the desert, before turning around and coming back to dismantle the evil dictator’s regime by way of a serious monster truck accident with the help of a random guy that was dragged out of the desert behind a car. Isn’t that always the way!
I’ll bet the script for Mad Max was written near the bottom of a share market correction. The trader’s mind automatically goes to the absolute worse case after the market has taken a spanking, but during the rallies everyone starts thinking about new cars and boats (or paying off the mortgage, if they are sensible).
So what could happen? Will the US break out into a civil war? Will the Russians and the Chinese use this period of weakness to take over the world? Will nukes go off? Will global warming destroy the food chain – or will it be the death of bees that starves out the human race?
What if none of it happens? What if Afterpay just keeps going up? What if this pandemic gets cured? What if aliens come down and fix global warming and leave a whole lot of cool technology to make us smarter, happier and healthier?
The stockmarket, as a whole, is said to hate uncertainty and it is usually the fear of the unknown that causes people to sell out en masse. But also, generally, the market tends to go up when there’s little uncertainty. In fact, it always tends to go up.
Individual stocks, on the other hand, may have little correlation to the All Ordinaries. The speculative stocks rely on a generally positive mood to catch a bid, so the favourite cry of the perma-bear (when the markets come off a bit) is that “specs are dead!!”.
And often, this can be the case. A sector that is full of fluff, over-valued by optimism and being bought by new investors with little understanding of the market or fundamental valuations will often suffer badly when the markets come off. Be especially careful if they need money or are high in debt, as these companies will need to issue new shares, sometimes leaving a diluted wreck behind.
Let’s look at a few charts…and see if there is any cause for concern that they may highlight, before the future happens.
Firstly, the All Ords with a Donchian Channel overlay. Overall, we’ve really just been going sideways with very low volatility – as you can see from the thinner channels in relation to the panic earlier in the year. Today it’s dropped out the bottom of the channel, so it’s worth keeping an eye on. But I’ve said that before…
The RSI is coming off a bit, but it wasn’t really overbought. The stochastics could probably do with another down day or 2, and we’re sitting right on the cusp of the linear regression. Still, the charts have may have nothing obvious to show, but I guess at this point (Tues arvo) we’ve only had one bad day.
The market doesn’t seem to care about COVID anymore. We’ve already seen the money-printers move into action to keep companies afloat. This volatility is more likely about the uncertainty surrounding the election in the US, as never before has a US President stated that he might stay on even if he is voted out. And after the corporate excesses of Trump, will Joe tighten the reins and will this sweet ride for corporate America come to an end?
Who knows! So, what do you do? Well, I guess it depends on your strategy. If you’re a portfolio builder, keep doing what you’re doing with good, profitable companies trading at cheap prices. A lot of things have to go wrong for the long-term profitability of Wesfarmers or CommBank to be affected by the outcome of the US election.
If you’re a trader, maybe be a bit more cautious and pay closer attention than you are. Maybe look at your stop losses and whether you could get your position cleared out if the volumes start to dry up. Or start looking for bargains if you think that this is bargain hunting time.
Me? I’d set a few alerts under the stocks I’m worried about using something like the Average True Range. The XFL’s ATR is currently about 70, so according to that the market generally is a bit of a worry if it drops another 140 points. Which is only another bad day… so I’m going to hang onto those bear-ETFs for a little longer…
But I’d put a nickel on it that over-valued speculative rubbish like BNPL and travel stocks and anything without any foreseeable profits (that are currently pumped up by novice traders and social media) will suffer when the lights come on. Remember Brainchip? I just can’t say when the lights will come on, but it’ll probably be well before their profitability justifies their share prices.
So, we could be in for an extended sell-off. Or, we could just have a bad day or two. Or the markets might like the odds on the US election and rally. Or Covid might be cured. Or some sort of Mad Max prequel kicks off when Donny refuses to leave the White House and a civil war starts…
Either way, it’s reason enough for heightened vigilance. Stay close to the news, stay close to the market and remember to set those alerts!
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