Why Buy Gold as S&P 500 Rolls-over
Theme: People will learn to live with less!! It may be that this pandemic will have a positive effect on society …perhaps fix the financial inequalities!
We all have our preconceived perceptions waking up in the morning as to what could potentially take place in markets today. We wake up grab our coffee and check the morning headlines, digest and interpret the happenings in the economy from the previous day/weeks, and reflect on our mood to determine if there is a way to make money today. Usually within the first 30 minutes of waking up, I have a fair understanding on the underlying direction markets are going to go. But sometimes not…
No matter what the conclusion of those thoughts turn out to be, the key thing to take away is there is always an opportunity present for investors/traders to turn their cash into further profits.
It isn’t rocket science to say that COVID-19 or the Coronavirus is the number one influencer and catalyst effecting the world’s economy. But as more and more data is released and the unpredictable nature of equity movements or commodity prices develop, it does become challenging to start to predict what is going on.
The wonderful thing about the stock market is every single day brings new events, data, technical indicators, fundamental changes and announcements to think through. With that in mind here is what has caught my eye this week.
Something no one could have predicted a couple of months ago is the drop-off in crude oil consumption. Collectively, global businesses worldwide are unanimously in lock-down, we have gone from consuming 100 million barrels every single day two months ago to 65 million.
So, if all nations are producing the same quantity of oil as they were before the COVID-19 pandemic, ceteris paribus, there would be an excess of 35 million barrels sitting on the shelves. If my arithmetic is correct.
The uncertainty surrounding the storage for this colossal excess number of barrels sent the price of oil tumbling to a low of -$37.63 per barrel USD. The first time in history the price has been in negative territory. This means anybody who owned oil in May and needed to sell had to pay someone to get the oil off of their hands. 😮
The key takeaway here is that the ongoing Coronavirus pandemic has caused unprecedented shocks to the economy. The worlds resources are sitting idle unlike the toilet paper we can’t get out hands on in shopping centre shelves. The question is: Can this happen again? And will this continue to happen?
Even the company that doctors the entire internet and the reason why you are even able to read this article is suffering during these unfortunate times. Alphabet Inc or Google (NASDAQ:GOOG) (NASDAQ:GOOGL) whose earnings will be released next week, have warned that they could cut advertising by as much as half and are postponing any further hiring. Google spent $18.46 billion on sales and marketing last year – how could this effect the online world moving forward? Especially as businesses are needing to now find solutions to allow employees to work from home.
Coronavirus has swept through the world effecting families, healthcare workers and maybe less importantly but more pertinent to this article: the economy. The number of confirmed cases is approaching 3 million with total deaths amounting to almost 200,000. A further 4.43 million Americans filed for unemployment benefits this week which brings the total number of claims to 26.5 million in the last 5 weeks. The S&P 500 Index (INDEXSP:.INX), even with its rally since the low a month ago is still at half its value from the high set in February. Energy stock prices have also lost half their value.
However, as mentioned, there is always opportunities to be found even when the world economy is struggling. Companies that specialize in products and services positioned to meet the needs the Coronavirus has forced upon the world, are emerging. Amazon.com, Inc. (NASDAQ:AMZN) and Netflix Inc (NASDAQ:NFLX) are close to record highs, Zoom Video Communications Inc (NASDAQ:ZM) is booming from all the work being done from home. There are also a number of Biotech companies dealing directly with treatments, vaccinations and testing of the disease which have also seen large uptrends. Gold is seeing a resurgence.
Gilead Sciences, Inc. (NASDAQ:GILD) has boomed recently as they have reported patients infected with COVID-19 were sent home within just days using its drug remdesvir. Rising as high $85.97 – a big 36% gain in one month. Health experts warned the world not to bet the house on the experimental treatment and they might have been proven right.
S&P 500 Index (INDEXSP:.INX)
Key resistance: ~2,879
Key support: ~2,795
Gaps to be filled: ~2,526 – 2,579 & ~2,295 -2,345
Take-away: S&P 500 looks prime to roll over and test support levels and could be looking to fill gaps. Gold commodity could be the safe haven play as equities roll over.
SPDR Gold Trust (NYSEARCA:GLD)
Key resistance to break-through for up-side gain: ~163
Key support level: ~157
Take-away: Gold has become less volatile with less violent price swings. Currently in bullish trend trading within a range – Limited downside (worst-case: tests the key support levels)
What do you expect from the top 5 tech companies who are reporting earnings next week?
Now we know why these companies are the favourite companies because we just had a pandemic that’s shut everybody out and no problem with Amazon. Although Google has said they’re going to cut back. Netflix subscribers have gone through the roof. Facebook’s going to come out.
Maybe everybody’s saying these are the companies that are invincible when they’re not going to be so invincible when they come out with the results because everybody has to be impacted to some degree. Well, I should say it is a 95% of the company should be affected.
Would you consider buying stock in one of the companies like Zoom that have benefited due to Coronavirus?
I probably wouldn’t but that doesn’t mean I’m right because there’s a lot of crazy stuff going on. People are jumping in people are jumping out. Why wouldn’t I buy them? Because I think the price is already reflected.
Is there anything that you are looking at investing in at the moment?
I like gold.
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