Direction of Market - in Augest 2019

I believe most of the times, direction of the market is influenced by couple of market or geopolitical events and stocks follow that. At least this is happening for past 3 years.This is because of passive index investing (S&P and others) , volatility investing & margin calls.

So let's say there is a trade news or rumor, investors will start selling stock Indexs or ETFs ( pretty much all equities are part of this), Quant funds will start dumping all equities with stock volatility spikes.Traders will get margin calls so they will start selling. Also Investors will start buying VIX calls. All this will lead to greater downward pressure in risk assets. I remember in 2018 Feb, Volatility increased more than 200% + in few days. DOW was losing 100 points every min, with maximum lose of 1500 points  at one instance (it did recover on closing though).

The good news for a long term investor is that times like this creates good bargain opportunities and you can buy good stocks at discounted or reasonable price.        

These days, market direction is decided by Trade news or escalation between U.S & China (Since July 29). For the past week , it's all about Dollar to Yuan rate after it crossed the psychological level of 7. So Daily China 's Central Bank PBOC (People Bank of China) fixes Yuan ( per dollar) everyday (after that it's allowed to trade around 2% in each direction). After it crossed that 7 level , PBOC is setting the midpoint more stronger than analyst are expecting. This is because they want to avoid the capital outflow with a weaker Yuan as it happened in 2015 (over $500 billion).

Below are the snapshot of tomorrow (8/12/2019) S&P futures and Yuan offshore per Dollar (taken from WSJ.com)

 


So if China is strengthening the Yuan, it's good for the market as seen above. Let's see if market follows this direction tomorrow...


Update 12 August 7:38 PM

Market did reverse the direction because of the protest at the international airport in Hong Kong..

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