In the lead up to last week's Fed interest rate decision, I said we should expect volatility before and after the announcement and that is basically how things unfolded. Despite the Fed announcing a widely predicted 25 basis point interest rate reduction, markets drifted lower afterward most likely because the language used in the rate announcement was quite hawkish. The bad news continued later in the week when Trump announced further tariffs on China, causing the sell-off in broad markets to accelerate into Friday's market close.
Precious metals rose modestly into the rate decision on Wednesday but were pushed lower into the equity market close, which resulted in gold and silver miners being slammed hard. The sell-off on gold continued into the overnight session, with gold eventually bottoming around the same time that Trump announced the additional China tariffs. Gold then rose sharply overnight and through the day on Thursday. The result was that many mining stocks recovered all of Wednesdays losses and more. Friday was mostly a flat day, as traders digested what had happened over the previous 24 hours.
The trade war fireworks continued last night (Sunday) when China responded to US tariffs by announcing that it would curtail imports of US agricultural products. This was followed by the Chinese Yuan devaluing heavily against the US dollar. Complicating things for Canadian traders is that today (Monday) was one of those awkward market days where Canadian markets were closed for the holiday, while US markets were open. US markets sold off hard today closing down around 3% on the day, while gold miners (GDX) traded up around 3%. Gold rose all the way to 1470 and is trading around 1460 as I write this. For tomorrow we can expect Canadian markets to price in all of today's US market action in addition to whatever developments occur overnight. US broad markets appear to be very vulnerable at the moment, so I think we can expect more volatility and perhaps further down-side. The upshot is that we need to be prepared for another wild week.
I did a brief scan of the markets this afternoon and to be honest, most of the strongest stocks (precious metal stocks) are already on our watch-list from last week. Marijuana stocks bounced nicely on Friday but it remains to be be seen whether this is a tradable reversal or whether it is just an oversold bounce that will be followed by renewed selling. Energy and non-monetary metals were hit hard last week and financials also sold off pretty hard. Outside of the precious metals space, the markets are showing incredible weakness. In light of all of this, I think our best approach is to keep this week's watch-list the same as last week and see how things unfold. I will be keeping a close eye on the markets and if anything changes, we can respond accordingly.
This is one of those times where caution is warranted and we should not be trying to force trades where opportunities don't exist. If selling in the broad markets continues, we will likely need to consider shorting opportunities both in terms of quick-trading but also as hedging strategies in the Natural Selection portfolios. A continued situation of broad market weakness also likely means that gold, silver and mining stocks will continue to do well.
The watch-list can be viewed by clicking here or by following the link below: