The global stock market sell-off continued yesterday and bearing the brunt of it were shares in the world's largest social network.
Facebook (NASDAQ:FB) fell a whopping 6.77% during yesterdays session after it was revealed that a massive data breach allowed Cambridge Analytica to harvest the personal information of 50 million users without their permission and use it in the 2016 Trump elections.
The hashtag #DeleteFacebook is now trending on Twitter and Mark Zuckerberg's personal wealth has dropped by $5 billion overnight.
However, this couldn't possibly be the sole reason for the global sell-off. In fact, there are several other factors weighing on stocks lately and the entire year has been marked by heavy volatility and general uncertainty in the markets.
In today's premium market webinar we will discuss some of those factors and some steps you can take to protect your portfolio. This webinar is usually held for Platinum members twice a month but due to the urgency of recent events, I would like to invite all of my readers to join in today at 15:00 GMT.
Space is limited so please register now at: http://etoro.tw/Pwebi32018
Today's Highlights
Volatility is Backwards
Focus About to Shift
Crypto Support
Please note: All data, figures & graphs are valid as of March 20th. All trading carries risk. Only risk capital you can afford to lose.
Traditional Markets
Several financial websites pointed out a clear sign of weakness in global stock markets and the indicator that they're pointing to is called VIX Backwardation.
As we know, the VIX index shows the level of volatility in the SPX 500 stock index and after the record low levels witnessed in 2017, the first quarter of this year has been particularly bumpy.
What we don't always pay attention to is that are the futures contracts of the VIX, Usually, the price of a VIX contract is more expensive the farther out you go. Meaning, traders are willing to pay a higher price for contracts that expire in a year from now than they are for one expiring next month. This is because the farther into the future you go the more uncertain things become.
Today however, this metric has been flipped upside down with traders paying a higher price for contracts that are closer to today's date. This means that traders are willing to pay a higher price for short term protection than they are for protection in the future.
Notice on the following chart how the contracts are progressively lower from March until June.
Focus is Shifting
Many of you will recall that one of the main factors mentioned as the reason for the sell-off in February was Fed tightening.
The idea that interest rates are about to rise is particularly scary for long term stock traders because it means that anybody who borrowed money to buy stocks over the last few years will now need to re-think their investments.
Tomorrow, the US Federal Reserve is all set to raise their interest rates by 0.25% in the very first meeting that will be chaired by the new Fed boss Jerome Powell.
This has been the top thing on the minds of many investors over the last few months. Of course, we'll take a deeper look in tomorrow's update and in today's webinar that we mentioned above but for now, just know that this is happening and will likely play into today's market movements.
Crypto Support
Mark Carney's letter to the G20 really went a long way to help support the prices of Bitcoin and the alts. Though the meeting in Buenos Aries still isn't over, at this point it does seem unlikely that any bad news will be coming from the world's financial leaders.
While the world watches for any updates in South America, my eyes are locked on a different part of the world.... Japan.
Bitcoin is legal in Japan and these days the volumes there make up about half of the overall trade on digital currencies worldwide.
As we mentioned in Friday's update, Japan is currently going through somewhat of a political crisis. So much so that the finance minister Taro Aso had to skip the G20 meetings, where he was largely expected to speak from a place of experience, about cryptocurrencies.
For the moment, the situation in Japan is largely contained and so far has been serving to strengthen the Japanese Yen. Prime Minister Abe finds himself at the center of all this is a big supporter of the weak Yen policy.
Now, many Japanese citizens are familiar with the markets and are excellent traders. So, as long as the yen continues to strengthen they may just hold out on making large bitcoin purchases. However, if the political fear subsides, or if the Bank of Japan decides to intervene and weaken the rising yen, this could create buying pressure on Bitcoin.
The alternative of course, if the political uncertainty gets worse, could create buying pressure for altogether different reasons.
Let's have an awesome day!
eToro, Senior Market Analyst
Disclosure: This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results. All trading carries risk. Only risk capital you're prepared to lose.