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The Market Has Completely Lost Its Mind. Here's How To Trade It

By Jani ZiedinsMarket OverviewApr 21, 2020 12:47AM ET
www.investing.com/analysis/how-to-trade-a-market-that-lost-its-mind-200522165/
The Market Has Completely Lost Its Mind. Here's How To Trade It
By Jani Ziedins   |  Apr 21, 2020 12:47AM ET
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US Crude Oil Futures - By Contract
US Crude Oil Futures - By Contract

 

As unprecedented and historic as this global coronavirus induced shutdown has been, it keeps throwing curveballs at us that only a few weeks ago seemed too absurd to even be worth hypothesizing over.

The lastest unprecedented development was the most spectacular collapse in the history of commodity trading. $22 oil was shocking enough. Then we got barrels trading at $8 on the spot market a few days ago. But that was only warming us up for the main event.

People’s jaws were on the floor yesterday afternoon when oil contracts for May delivery fell under one dollar. Fifty cents for 55 gallons of oil? Surely it couldn’t get any worse than that. And moments later, it did exactly that.

Traders were so desperate to avoid taking delivery of physical oil they became willing to pay people to take their oil. That’s just how bad the current situation is. And not just a dollar or two. The day closed with oil trading at minus $37 dollars. That’s right, traders were so desperate to get out of their positions they would pay you $37 for every barrel of oil you take off their hands!

How did one of the most important commodities in the world go from a coveted resource to something akin to raw sewage that requires payment to be disposed of?

But just as shocking as the collapse of May’s oil contract was the stock market’s indifference to it. The neighbor’s house was burning to the ground and the S&P 500 was too busy organizing its sock drawer to even look out the window.

Two months ago, if you told me oil would fall $55 dollars in a single day, I would have expected all financial instruments to be imploding. But not now. Yesterday, it was just another headline the S&P 500 is ignoring.

At this point, we have three options. Argue with the stock market, fall in line, or get out of the way. No one wins an argument with the market, so please don’t do that. For our longer-term investments, buying at these levels still represents a decent discount if we plan on holding for a couple of years. For anything else, get out of the way!

There is a saying in the market, missing the bus is better than getting hit by the bus. If we don’t feel comfortable buying this strength for a long-term investment, there is nothing wrong with sitting this one out and waiting for a better opportunity.

Remember, often the best trade is to not trade. Until the risk/reward lines up in our favor, wait patiently on the sidelines. That means waiting until this rebound is breaking down before shorting it. Or for the less aggressive, buying the next dip. But whatever you do, don’t allow yourself to argue with this strength.

The Market Has Completely Lost Its Mind. Here's How To Trade It
 

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The Market Has Completely Lost Its Mind. Here's How To Trade It

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Comments (6)
Tony Dunleavy
Tony Dunleavy Apr 21, 2020 6:12AM ET
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how the stock market can be valued at summer 19 levels is beyond belief, but great advise
Bev Moer
Bev Moer Apr 21, 2020 6:12AM ET
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Well where exactly does the excess liquidity of Fed monetary policy get parked? Gold? USD? Or equities? Anywhere else?
Mark Warren
Mark Warren Apr 21, 2020 5:37AM ET
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You tell unforgettable tales more than penning an article. Keep the vivid style up.
Spacebos Luca Bos
Spacebos Apr 21, 2020 3:34AM ET
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Very wise article
Mark Warren
Mark Warren Apr 21, 2020 3:34AM ET
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Wise. A story teller.
Laine David
Laine David Apr 21, 2020 2:57AM ET
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An equally good trade is to short the indexes. Also, is this deja vu or does this not remind you of right before the Great Recession.
Deepak Jain
Deepak Jain Apr 21, 2020 2:41AM ET
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Very Nice Article keep it up man👍
Mark Warren
Mark Warren Apr 21, 2020 2:41AM ET
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Indeed. He tells a story in ways you can't forget.
Bodie Davidson
Bodie Davidson Apr 21, 2020 1:58AM ET
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The best trade is never to not trade. That would not be a trade. And missing the train to Cashville makes this party feel hopeless. The best trade is to start with one of the 3-5 best stocks in the market..Buy a little. Then re-assess. If it goes up and the same 3-5 stocks are leading then buy some more of the one you already have or another one of the 3-5 that would seem to be diversified. If it's a new 3-5 leading then I would sell and buy one of those with a stop below the previous weeks closing price.
Covid Altzheimer
Covid Altzheimer Apr 21, 2020 1:58AM ET
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I got ovet million cash waiting that is the best move. winning those 10 pross you ate losing future 50 pros. when music stpps then it is over.
 
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